Pre-Seed vs Seed

Manoj Ranaweera
Updated on

What was Seed before a few years back has become Pre-Seed now. Let me explain

Pre-Seed

Pre-Seed implies that you need capital to build your product, get the initial team together and explore sales. This is partially true. But the cut-off has been extended if you have not yet hit the metrics.

The largest Pre-Seed round we have reported, as far as I can remember, is £30 million raised by Alex Chesterman of Cazoo. In the case of Alex and Cazoo,

Over the coming months, Alex and his team will launch Cazoo, a wholly new proposition in terms of transparency, value, selection and experience, allowing car buyers to seamlessly buy, finance or rent a used car entirely online and have it delivered to their door“.

We have reported over 100 Pre-Seed rounds. The rule of thumb adopted by me to illustrate Pre-Seed is that you need to be in the £1,000 to £5,000 MRR mark to raised a Pre-Seed round successfully.

But what if you need the money to build the product, and cannot finance it through founder equity?

This is where Friends, Family and Fools (FFF) steps in. They are the first people you would have to convince. Most of them do not have a clue about tech investment but don’t want to see you fail, so they would back your crazy idea with hard-earned savings, hence the usage of the term “fools”.

Seed

For a Seed investment round, you would most likely need to demonstrate decent traction, both in terms of none financial metrics, i.e. higher level of usage of your product, and your ability to generate revenue and bring more sales to the table.

The rule of thumb I adopt for Seed investment is a demonstration of a £100k revenue earned and MRR at over £10k.

Why do you need to hit both of the above and not just one? If you generated one-off revenue from a large customer for £100k or above, that may not be a repeatable sales process. Therefore, you have not really proven anything. All you have proven is that you have won a large customer, most likely due to an existing strong relationship.

On the other hand with a £10k MRR, you might have won one or more customers over the last month or two, but have not been in business long enough to demonstrate growing MRR has a metric.

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