What Is Pre-Seed Funding? A UK Founder's Guide

Pre-seed funding is the first round of investment most startups raise. It pays for building and proving the idea: showing there's real demand and that you can make something customers value, before raising a seed round to grow. This guide covers what pre-seed is, how it differs from seed, how much UK startups raise and at what valuations, who invests, and what investors are really looking for.

What is pre-seed funding?

Pre-seed funding is the first outside money a startup raises, usually from angels and pre-seed funds. Its job is to get the business from an idea, or an early product, to proof.

Proof means two things. First, that there's genuine demand: real customers with a real problem who want what you're building. Second, that you can build something of value to them, a product they'll use and, ideally, pay for.

At pre-seed you might already have a product, a handful of customers and some early revenue, or you might have very little of that yet. What matters is where the round takes you. A good pre-seed round gets the business to the point where a seed investor can see a model starting to form, and where more funding will speed up the trajectory.

How AI has changed pre-seed.

Building and launching tech is easier and cheaper than it has ever been. A small team can now get a working product in front of customers in weeks, with very little money. That has changed what investors expect to see at pre-seed.

If you could have built and launched a first version yourself, investors will usually expect you to have done it. So while exceptionally credible teams, often with prior startup experience, can still raise before they have a product, most good, solid founding teams now need more. A launched MVP is the minimum, and ideally you'll have some customers and early revenue, even if it's light.

The upside is that founders can get much further before raising than they used to. That makes for a stronger pitch, and usually a better valuation.

Pre-seed vs seed funding: what's the difference?

The difference is what's been proven. The amount raised overlaps more than people expect, so it's a poor way to tell the two apart.

Pre-seed proves demand and the ability to build. By the end of a pre-seed round you want to be able to say: yes, customers want this, and yes, we can build something they value.

Seed investors come in when the beginnings of a business model are forming. They want to see how you win customers, what they pay and why they stay, even if it's early. Seed money then funds the push to grow revenue and keep building the product.

Once you've raised seed, the expectations change. Investors look for a much sharper increase in revenue, because the next round, Series A, depends on it. That's why your pre-seed round needs to take you far enough that a seed fund can see new funding will speed up growth.

How much pre-seed funding do UK startups raise?

In the rounds we see, most UK pre-seed raises fall between £250k and £750k, with some reaching £1m. Rounds over £1m do happen, but they're less common.

The amount you need depends on how far you have to go to be ready for seed. A lot of companies need £500k to £1m to get the traction institutional seed funds look for. Some raise less, either because they can get there more cheaply or because that's what they can raise at the time. Those founders often end up raising twice at pre-seed, a smaller first round and then a second, to get far enough.

The round is usually made up of several investors, and cheque sizes vary a lot:

• Pre-seed funds typically invest from around £150k, with some going up to £750k.
• SEIS funds often invest up to £250k, the most a company can raise under SEIS. Some can go to £300k or £350k with co-investment money alongside, often from the British Business Bank.
• Angel groups and syndicates pool money from several angels, so they often invest more than an individual angel would.
• Individual angels range from £5k to £500k or more for the largest, but most invest between £10k and £50k.

Pre-seed valuations and how much equity to give away.

Pre-seed valuations range widely, from around £1m pre-money up to £9m or £10m. Where you land depends on what you're building, the sector you're in and the strength of the team. Deep tech, or a remarkable team, can push valuations up significantly. For most traditional UK pre-seed rounds, though, valuations tend to be under £5m and often under £3m.

The valuation and the amount you raise together decide how much of the company you sell. If you raise £500k at a £2m pre-money valuation, the post-money valuation is £2.5m and the new investors own 20%.

Founders typically give away between 10% and 20% at pre-seed, and sometimes up to 25%.

It's worth thinking beyond this round. You'll likely sell more of the company at seed and again at Series A, and many rounds also add an option pool for future hires. Giving away too much at pre-seed can leave the founders with less than investors are comfortable with by the later rounds. Holding out for a higher valuation has its own risk too: if the next round can't justify a higher price, a flat or down round is painful.

To see what a round does to your cap table, including an option pool, try our pre-seed dilution calculator.

How long should pre-seed funding last?

Don't raise a pre-seed round that gives you less than 12 months of runway. It isn't long enough. Aim for at least 18 months.

The money has to cover two separate stretches of time. The first is getting real traction, the progress that makes you ready for seed. The second is raising the seed round itself, which takes months and has to start while you still have cash in the bank.

Things almost always take longer than planned. Products take longer to build, customers take longer to sign, and revenue usually arrives later than expected. So don't plan on the version where everything goes right. Build a second version of your plan where costs run higher and revenue comes later, and check the runway still works. That's what a fund will do to get comfortable your raise is large enough.

As a simple example, if you raise £600k and spend £30k a month, that's 20 months. If hiring costs more than planned and spending rises to £40k a month, it's 15. Revenue will extend this, but you need to be comfortable the raise is enough without relying on it.

Who invests in pre-seed startups?

Most pre-seed rounds bring together a few different types of investor. Each works differently.

Individual angels

Experienced founders, operators and high net worth individuals investing their own money. Angels can often decide and move quickly, and many bring useful experience or contacts. Cheques are usually £10k to £50k, so you'll need several, and most UK angels will want SEIS or EIS tax relief.

Angel groups and syndicates

Organised groups of angels who look at deals together, often with a pitch event and a shared process. Because they pool their money, they can fill a meaningful part of a round in one go, but the process takes longer than with a single angel.

SEIS funds

Funds that invest through the Seed Enterprise Investment Scheme, so their investors get tax relief. They're a big part of UK pre-seed, which is one reason it's worth making sure your company qualifies before you raise.

Pre-seed venture capital funds

Funds that invest at this stage without relying on the tax schemes. They can often write larger cheques and lead a round, setting the terms for other investors to follow. They often have even higher growth expectations, because their returns aren't boosted by tax relief.

What investors look for at pre-seed.

At pre-seed the weighting on the founder is enormous. There's often little product, little traction and no team yet, so the founders are most of what an investor is backing. Later rounds lean more on the numbers. At pre-seed there aren't many numbers to lean on.

The reason is how hard the start is. Think of a rocket: most of the force is needed just to get it off the launch pad. Getting a startup moving is the same. Founders have to drag the business into existence, find the first customers and balance a wide, demanding workload, with very little money and no guarantee any of it will work.

Founder quality is a bigger predictor of outcomes than the idea, the product stage or the financial model. Investors look at things like:

• Speed. How fast the team ships, responds and learns. It's very hard to back founders who aren't moving quickly.
• Selling. Whether the founders can win customers, and later investors and hires.
• Attracting talent. Whether good people want to work with them.
• Sharpness. How clearly they think, and how quickly they learn and adapt.
• Commitment. Most investors won't back part-time founders. Given how much effort it takes to get a startup going, it rarely works.

The business still matters. The idea has to be sound, and the market has to be big enough for the company to produce a large return. A small market is one of the most common reasons pre-seed deals get turned down. At this stage, though, the founders carry most of the weight.

When not to raise pre-seed yet.

Bootstrap until funding is genuinely the bottleneck. If you can still win customers, get revenue, build a waitlist or launch an MVP without investment, do that first.

Investors will form a view of how much traction you could reasonably have by now. If there's progress you could have made yourself and haven't, it makes the raise much harder. Unless you're a very credible team, probably with prior startup experience, you're usually better off making that progress first.

Making progress before you raise also sends a strong signal. It shows you can do a lot with a little, even when the odds are stacked against you, which is exactly what pre-seed investors are trying to judge.

And some businesses aren't venture businesses at all. If the realistic outcome is a good, profitable company that will never return an investor's fund, that's fine, but other kinds of funding will suit it better than pre-seed equity.

Things to think about before you raise.

Once you've decided to raise, there's a lot to get right. These are the main things to work through. We'll cover each in its own guide.

• SEIS and EIS: whether you qualify, and getting advance assurance from HMRC before you start.
• Your pitch deck: what you do, why it's a big opportunity and why you're the team to do it, clear enough to read without you in the room.
• Your data room: the information investors will ask for, in one place. See our fundraising data room guide.
• A simple financial model: where the cash goes, when revenue comes and who you'll hire.
• Who to raise from: finding the right investors, and getting warm introductions to them.
• A lead investor: someone to set the terms and take the lead on due diligence and legals.
• Term sheets, due diligence and legals: what each stage involves and how long it takes.
• Priced rounds and ASAs: how to structure the round, and when an Advance Subscription Agreement helps.
• Timing: a round usually takes three to six months, and takes most of your time while it runs.
• Common reasons investors say no: and how to fix them before you start.