How to Raise Pre-Seed & Seed Funding: 5 Alternative Strategies
Want to learn how to raise seed funding for your startup? You’re in the right place.
For growth-focused startups, getting access to capital early means that you can scale faster.
The seed round is the first official stage of equity funding. That means that you can expect to give up some ownership, typically in equity or a convertible note, in exchange for capital. (Earlier pre-traction rounds are sometimes called “pre-seed” funding, and may consist of a “friends and family” round, or acorn round.)
But how can you raise seed funding, or even pre-seed funding?
Venture capital is an option, albeit a longshot. Research shows that less than one percent of startups get VC funding. Of that fraction, just 2.2% of funding went to Black founders, and only 2.7% went to female founders. Plus, this process of pitching to VCs often takes months or even years. For many founders, VC funding isn’t really a viable option.
At this early stage, it’s unlikely your startup will qualify for a bank loan. Banks typically look for 3+ years of business history before even considering extending credit.
So if you’re an ambitious founder who doesn’t fit the mold, how can you raise pre-seed or seed funding?
Fortunately, a new wave of seed funding sources is emerging, designed to be more accessible and more founder-friendly. Here are 5 alternative ways to get seed funding for your startup.
Republic leads the venture crowdfunding space. It’s a platform app that lets startups raise capital through crowdfunding from individual and institutional investors. Said more simply, it’s Kickstarter for startups.
This crowdfunded approach lets startups raise pre-seed and seed funding from a healthy network of enthusiastic investors, without needing to spend hours on pitch meetings.
Republic does require startups to go through a tough screening process; only around 5% of startups will be accepted. That said, they do offer a unique opportunity to get in front of a lot of different investors quickly, without needing to pitch each individually. It’s a tough but streamlined way to get seed funding for your startup. Learn more about how they evaluate startups here.
If you decide you want to apply, you can do so here.
Here at Chisos, we’re offering a brand-new way of investing in idea- and early-stage startups through a two-part approach we call a CISA. The CISA is a unique combination of equity and an income share agreement. Unlike other investment options, you can qualify for pre-seed and seed funding from Chisos even before you have a product or any revenue.
We’ve designed the CISA to be fair to founders. Here’s how:
-Repay the CISA with a percentage of your income, but only when that income is above $40K.
-When you repay the CISA, you’re also buying back some of the equity initially granted to Chisos.
-You have complete freedom to use the capital as you see fit.
-You’ll never pay more than 2x the original investment amount, adjusted for inflation.
We’re built on the idea that funding shouldn’t be limited to a tiny handful of founders. Instead, we’re on a mission to democratize entrepreneurship.
We’re writing checks of $15,000-50,000 to invest in idea-stage startups and side-hustle businesses. Want to see if you qualify for pre-seed or seed round funding? Apply here.
If you’re planning to use seed funding to hire a team, why not skip a step and trade equity for expertise? That’s the thinking behind KnowCap. KnowCap connects companies to a team of startup experts that cover key functions, including marketing, sales, engineering, and strategy.
These experts work directly with founders to provide coaching, strategic guidance, and in many cases, actually creating value by building an MVP of the product, creating new brand identity, and setting up calls with potential customers. In exchange for access to this “knowledge capital,” founders grant KnowCap equity.
While it’s not pre-seed or seed funding in a traditional sense, it’s a great alternative to help founders build a strong foundation from which the company can grow.
Learn more about KnowCap here.
Zebras Unite is a startup co-op that’s built explicitly to serve founders that traditional VC overlooks and undervalues; namely, women and people of color. What started as a community has evolved into a source of capital.
You’ve probably heard startups described as “unicorns”; Zebras Unite is an intentional rejection of the unicorn model of success. (You can read more about this concept here.)
Zebras Unite is the place for founders who believe that business should support society, rather than define it. If you’re building a community-focused, mission-driven organization, you’ll probably feel right at home in the Zebras Unite ecosystem.
To be considered for funding, join the Zebras Unite online community.
State & Federal Startup Grants
There is a bevy of grants for early-stage startups and small businesses. Unlike most other seed funding sources, grants don’t require you to give up equity or pay the money back.
Startup grant programs typically focus on serving otherwise underserved groups, such as minorities, veterans, people from rural communities, and non-profits. They also typically focus on advancing specific sectors, like education, technology, and healthcare.
Unfortunately, there’s no central database that covers all available grant opportunities, so you’ll need to spend time researching if you pursue this path. Here’s a list of a few good places to start, including:
So that’s it! Now you know 5 new ways to raise seed funding for your startup.
William Stringer is the Co-Founder and CEO of Chisos Capital, a company that invests in ideas, and the founders with potential to bring them to life. Through our proprietary investment approach, the CISA, we write checks to idea- and early-stage entrepreneurs. Inspired by the desert oasis of the Chisos mountains, Chisos Capital seeks to democratize opportunity.