How to Get Funded by Pre-Seed Investors: Gale shares Vitalize VC’s Valuation Expectations

How to Get Funded by Pre-Seed Investors: Gale shares Vitalize VC’s Valuation Expectations

In this blog post, we'll lean into Gale's expertise to guide us through the nuances of coming up with startup valuations that resonate with Venture funds like Vitalize VC.

We’ll focus on the key metrics that signal product-market fit and look at the criteria and milestones that allow for future funding rounds. The pre-seed stage is a daunting beginning for any SaaS founder. Your startup is out in the wild, you are getting some great signals but unsure as to what the future holds.

Now comes the time to secure the initial funding to move you forward. This is where understanding the market valuations and presenting investor friendly deal terms become crucial.

While a compelling pitch deck is essential, understanding what resonates with early-stage investors like Gale Wilkinson, General Partner at Vitalize VC, is the secret weapon that unlocks your pre-seed success.

Understanding the Investment Landscape: A Look Through Gale's Lens

Imagine yourself in the shoes of Gale Wilkinson, a seasoned investor with a keen eye for promising SaaS startups. Her firm, Vitalize VC, specializes in early-stage WorkTech ventures, and she's constantly evaluating how founders approach the pre-seed stage.

One of the first things that catches Gale's attention is a founder's grasp of funding stages and milestones.

Here's a breakdown of the software startup funding journey from Gale's perspective:

  • Pre-Seed: This very early stage, typically pre-product or post-product but pre-revenue, focuses on finalizing the product and achieving early traction. Funding rounds usually hover around $1 million, with founders selling around 20% of their company.
  • Seed: By the seed stage, companies have a good product and are in talks with pilot customers. The funding round size increases to $2 million - $5 million valuation, with founders typically selling 8% - 20% post-money ownership. Here, Gale emphasizes the importance of achieving some initial revenue traction, ideally around $250,000. This signals that the product is addressing a real customer need and that founders are starting to understand their customer base.
  • Series A: The goal here is to reach $1 million - $2 million in annual recurring revenue (ARR). This milestone signifies "early product-market fit" for many VCs, giving them more confidence in the company's ability to scale.
  • Series B: With Series B funding, the focus shifts towards achieving $5 million in ARR, signifying continued growth and market validation.

Decoding Deal Terms: What Makes a Pre-Seed Round Attractive to Vitalize VC

While funding amounts play a role, Gale places significant emphasis on specific aspects of deal terms that signal a founder's understanding of the market.

Here's a closer look at the key elements that resonate with Vitalize VC at the pre-seed stage:

  • Stage-Appropriate Valuation: Don't ask for a Series A valuation at the pre-seed stage. Research current market trends for pre-seed funding rounds in your industry and tailor your investment ask accordingly. Vitalize VC understands that pre-seed companies are still in their infancy, and their primary focus is on validating their product and achieving initial traction. An inflated valuation at this stage will raise red flags.
  • Demonstrating Early Traction with Quantifiable Metrics: Numbers speak volumes. While pre-seed companies may not have significant revenue yet, demonstrate early traction through quantifiable metrics. This could include pre-orders,letters of intent, sign-ups, active users, or even early pilot customer feedback. These metrics paint a picture of market interest and potential product-market fit.
  • Clear Roadmap for Achieving Milestones: Don't just list milestones – explain your strategy for reaching them. This showcases your understanding of your market and your ability to execute your plan. A well-defined roadmap with achievable timelines for key milestones (e.g., product launch, pilot program completion, initial revenue targets) demonstrates your strategic thinking and inspires confidence in your ability to deliver.
  • Highlighting Team Expertise: Investors are backing not only your product, but also the team behind it. Emphasize the relevant skills and experience your team brings to the table. A strong team with a proven track record in your industry or a complementary skillset increases investor confidence in the ability of the team to navigate the challenges and opportunities ahead.

Building a Compelling Pre-Seed Investment Proposition for Vitalize VC

By understanding Gale Wilkinson's perspective on your valuation and deal terms, specifically the factors that resonate with Vitalize VC at the pre-seed stage, you can create an investment proposition that grabs their attention in that first meeting. Nothing worse than getting so close to a term sheet only to fall at the final hurdle.

Here are some additional tips:

  • Focus on the Size of Problem You Solve: Clearly articulate the size of the specific problem your software addresses and the target market you're serving. Demonstrate a deep understanding of your customer pain points, how many people suffer from this problem and how your product offers a unique solution.
  • Show, Don't Tell: Don't just rely on words to showcase your product's potential. Develop a functional prototype or Minimum Viable Product (MVP). With no-code tools available today, it is easier and cheaper to demonstrate the core functionalities and user experience. This allows potential investors like Gale to visualise the product and its impact on your target audience.
  • Market Validation Through Early Traction: Highlight any early traction you've achieved. This could include pre-orders, sign-ups from your target market, or positive feedback from potential customers. Even limited evidence of market interest demonstrates your ability to attract your ideal customer and validates your product concept.
  • Financial Projections with Realistic Growth Targets: While pre-seed companies may not have a proven revenue stream, present a financial forecast that outlines your projected growth. Focus on achievable milestones and avoid overly optimistic projections. Investors appreciate a realistic understanding of your financial trajectory and your plan for achieving profitability.
  • Clear Use of Funds: Clearly articulate how you plan to utilize the pre-seed funding. Will it be used for product development, team expansion, or initial marketing efforts? Demonstrating a well-defined plan for using the funds instils confidence that the investment will be used strategically to achieve your pre-determined goals. Post 2021, investors are not too receptive about deals where the funds are largely just going to be poured into building technology without any encouraging data on traction.

Leveraging Tools Like Score My Deck to Perfect Your Pitch

Crafting a compelling pitch deck is crucial for securing pre-seed funding. Tools like Score My Deck, a fundraising Co-Pilot designed by early-stage founders, can help you create an ideal pitch deck that positions your startup with the perfect deal terms to attract investors like Gale Wilkinson.

Score My Deck analyzes your pitch deck and provides feedback on various aspects, including:

  • Clarity of your value proposition
  • Strength of your market analysis
  • Comprehensiveness of your financial projections
  • Effectiveness of your team presentation

By utilizing such tools and incorporating the insights from Gale Wilkinson's perspective, you can refine your pitch deck and investment proposition, increasing your chances of securing pre-seed funding from an early stage fund like Vitalize VC and other early-stage investors.

Remember: Securing pre-seed funding is not just about the funding itself. It's about finding the right lead investor who understands your vision, believes in your team, and is willing to partner with you on your journey.

By crafting a compelling investment proposition that aligns with Vitalize VC's priorities and demonstrates your company's potential, you'll be well on your way to closing your pre-seed round and propelling your startup towards success.If you’re looking for a fundraising co-pilot for your pre-seed round, or to help you answer questions and play devil’s advocate on your pitch deck, check out Score My Deck.