StructuringFundraising Strategy
How Much Should You Raise? The Complete Guide to Startup Fundraising in 2025
Learn how to calculate your raise amount, choose between SAFEs and priced rounds, and navigate term sheets strategically.
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Facing the pre-seed paradox: how to win investor confidence before achieving PMF?
Mark Bugas
It’s the classic pre-seed founder's conundrum: investors want to see validation, ideally Product-Market Fit (PMF), but you often need their capital precisely to find PMF. This paradox can feel daunting, but successful pre-seed fundraising isn't about having all the answers perfectly aligned from day one. It's about convincingly demonstrating potential and progress, giving investors the confidence to back your journey towards PMF. Pre-seed investors know they are investing early; your job is to show them why backing you is the right bet.
Understand what sophisticated pre-seed investors prioritize. Research consistently shows (as highlighted by firms like NFX) that team quality and vision clarity often outweigh current traction metrics at this stage. Why? Because they are fundamentally investing in your team's ability to navigate uncertainty, learn quickly, and ultimately discover product-market fit. Your pitch needs to build conviction in your team and the scale of the opportunity you're chasing.
A compelling vision needs compelling timing. Clearly articulating why now is the moment for your solution is critical for generating investor excitement before PMF. Don't just state a large market exists; explain the specific technological shifts (like advancements in AI, as relevant today in April 2025), societal trends, or regulatory changes that create a unique, perhaps fleeting, window of opportunity for your specific approach. This demonstrates strategic insight and creates urgency.
While you might lack substantial revenue or user growth, you can demonstrate momentum through "micro-traction." These early validation points prove your team can execute, learn, and generate market interest, even pre-PMF. Focus on showcasing:
Customer Discovery: Number of deep user interviews conducted and key insights validated.
Pilot Programs: Commitments secured from relevant initial customers.
Demand Signals: Waitlist signups, pre-orders, or Letters of Intent (LOIs).
Product Velocity: Key features shipped or iterations completed based on feedback. Systematically tracking these early wins – user interviews completed, pilot commitments secured, waitlist growth – and presenting them clearly during investor updates is key. You can even log these progress points alongside your investor conversations in a platform like Flowlie to ensure your narrative stays consistent and data-backed.
Avoid relying solely on massive, top-down market size numbers (e.g., "the global market for X is $50B"). Pre-seed investors are more convinced by a thoughtful, bottom-up analysis of your Serviceable Obtainable Market (SOM). Show the math: how many customers exist in your initial target segment? What's a realistic penetration rate? What's your potential revenue based on a specific price point? Why does this matter? It demonstrates strategic focus, a credible path to initial scale, and a deeper understanding than simply quoting industry reports.
Investors are inherently assessing risk. Proactively address the three core pre-seed risks in your narrative:
Market Risk: Why will customers adopt this solution? (Leverage early adopter feedback here).
Execution Risk: Why is your team equipped to build and deliver this? (Highlight relevant experience, early execution wins).
Competition Risk: How will you win against existing or future alternatives? (Focus on unique insights or approach). Explicitly tackling these builds trust and shows you've thought critically about potential hurdles.
Quantitative data might be scarce, but qualitative validation can be incredibly powerful. Systematically capture and showcase enthusiasm from potential users:
Direct quotes highlighting their pain points and excitement for your solution ("I need this yesterday!").
Testimonials from early pilot users or design partners.
Evidence of willingness to pre-pay or sign LOIs. This "voice of the customer" provides compelling evidence that you're solving a real problem people care about.
Don't shy away from asking this directly towards the end of promising conversations. It demonstrates confidence, self-awareness, and a desire for candid feedback. More importantly, it often surfaces hidden objections or concerns you might not have otherwise uncovered. Actively listen to the answers and log these specific concerns, perhaps tagging them in your investor tracking system like Flowlie. This allows you to spot patterns in objections and proactively refine your pitch for future meetings.
Pre-seed investors prioritize team quality, vision clarity, and market timing over current traction metrics. They're evaluating whether your team has the domain expertise, resilience, and learning velocity to discover PMF through iteration. They want to see you understand your market deeply, can articulate a unique insight others have missed, and demonstrate early execution capability through concrete progress milestones. The question isn't "have you found PMF?" but rather "are you the right team to find it, and is this the right opportunity to pursue?"
Meaningful micro-traction includes 50+ substantive user interviews with documented insights, 3-5 pilot program commitments from target customers, waitlist signups in the hundreds showing demand validation, letters of intent from potential customers, pre-orders or early revenue even if minimal, product iterations shipped based on user feedback, or design partnerships with relevant organizations. The key is demonstrating systematic customer discovery and market validation rather than just building in isolation. Even $5K-$10K in early revenue or 5 paying pilot customers can be powerful signals at pre-seed.
Identify the specific catalyst that makes your solution viable or necessary today versus five years ago. This might be a technological breakthrough like recent AI capabilities enabling your product, regulatory changes creating new requirements or opportunities, societal shifts like remote work changing behavior patterns, or convergence of multiple trends creating a perfect storm. Be specific rather than vague: "GPT-4's reasoning capabilities now make our automated customer support feasible at quality levels impossible in 2022" is more compelling than "AI is getting better." The urgency should feel real and time-sensitive.
Top-down sizing starts with massive industry reports claiming "$50B total addressable market" without explaining your realistic path to capturing any of it. Bottom-up sizing shows your work: "There are 15,000 dental practices in our initial three-state target region. Based on our customer discovery, 40% fit our ideal customer profile (6,000 practices). If we capture 5% in year one (300 practices) at $500/month average revenue, that's $1.8M ARR." This demonstrates strategic thinking, realistic assumptions, and understanding of your actual go-to-market motion rather than wishful thinking about giant markets.
Aim for 50-100 substantive conversations with people in your target customer segment before seriously fundraising. This number demonstrates you've done systematic customer discovery rather than talking to a handful of friends. More importantly, you should extract clear patterns from these interviews: specific pain points mentioned by 60%+ of interviewees, validation that people currently use inadequate workarounds, willingness to pay signals, and concrete insights that shaped your product direction. The quality and learnings matter more than hitting an arbitrary number.
Track customer discovery metrics like interviews completed, key insights validated, and patterns identified across conversations. Monitor demand signals including waitlist signups, inbound inquiries, demo requests, and conversion rates from interest to commitment. Measure product velocity through features shipped, iteration cycles completed, and user feedback incorporated. Document pilot commitments, LOIs secured, and early revenue or pre-orders. Most importantly, track your learning velocity by noting how quickly you identify problems, adjust strategy, and execute improvements based on feedback.
Highlight directly relevant domain expertise, like "10 years in enterprise sales at target customer companies" or "PhD in the exact technology underlying our solution." Showcase complementary skill sets across co-founders covering product, technical, and go-to-market capabilities. Emphasize early execution wins demonstrating your ability to ship quickly and learn from feedback. Reference advisory relationships with respected industry figures. Present examples of how you've successfully navigated uncertainty or built something from scratch in previous roles, even if not startups. The goal is proving you can execute in ambiguity, not that you've already succeeded as founders.
Prioritize customer discovery over premature product building. Investors want to see you've validated the problem deeply through conversations before investing months building the wrong solution. Aim for a lightweight prototype or MVP that facilitates learning conversations rather than a fully-featured product. The ideal pre-seed positioning is "we've talked to 75 target customers, identified these three critical pain points, built a minimal prototype to validate our approach with 5 design partners, and now need capital to build the full solution based on these validated insights."
A Letter of Intent (LOI) is a non-binding document where a potential customer expresses serious interest in purchasing your product once available, often including preliminary pricing, deployment timeline, and basic terms. Get LOIs by first conducting deep discovery conversations, then presenting your solution concept or prototype to the most engaged prospects and asking "if we build this exactly as discussed, would you commit to being our first customer?" Provide a simple one-page LOI template making it easy for them to formalize interest. Even 3-5 LOIs from credible target customers provide powerful validation.
Present evidence from customer discovery showing the problem is acute and current solutions are inadequate. Share direct quotes from potential customers expressing frustration with existing options and enthusiasm for your approach. Demonstrate you understand the buying process and decision-makers in your target segment. Show early adopter interest through pilot commitments or LOIs proving people don't just acknowledge the problem but are willing to act on it. Quantify the problem's cost to customers to establish urgency. The goal is proving market demand exists even if you haven't yet captured significant revenue.
Investors worry you'll build slowly, burn capital inefficiently, or fail to learn from market feedback. They concern themselves with team dynamics and co-founder conflict potential. They question whether you can attract early customers and talent without significant resources. They assess if you'll pivot too quickly at the first obstacle or persist too long with a failing approach. Address these by showcasing rapid iteration cycles, capital-efficient early progress, strong co-founder working relationships, early customer and advisor commitments, and a clear framework for how you'll evaluate progress and make strategic adjustments.
Focus on unique insights from your customer discovery that competitors haven't recognized. Articulate why your specific background or perspective allows you to see an approach others miss. Explain your go-to-market strategy's advantages, like an innovative channel or customer segment others ignore. Demonstrate speed and learning velocity as a competitive advantage itself. Position potential weaknesses as strengths: "Yes, we're entering a market with established players, but our 100 user interviews revealed these three underserved use cases where incumbents can't adapt due to technical debt." The differentiation comes from insight and execution, not just technology.
You need enough product to facilitate meaningful customer conversations and validate your core assumptions, but not necessarily a fully-featured commercial product. A clickable prototype, limited MVP with core functionality, or working proof-of-concept often suffices. Some founders successfully raise pre-seed with just comprehensive customer research and detailed product specs if the problem validation is extraordinarily strong. The question is whether you have sufficient product to learn from real user interactions and demonstrate technical feasibility, not whether you're ready for broad market launch.
Your GTM strategy should demonstrate you've thought through customer acquisition systematically, even if you'll likely iterate significantly. Identify your initial beachhead segment specifically rather than targeting "all small businesses." Explain your early customer acquisition approach with realistic assumptions about conversion rates and customer acquisition costs based on analogous companies or your pilot experience. Describe your first 10 customers' profile and how you'll reach them specifically. Investors don't expect perfection but want to see strategic thinking about how you'll generate early traction with limited resources.
Pre-seed investors expect 3-year financial projections showing your revenue assumptions, cost structure, and funding needs, but they know these projections are mostly educated guesses. Focus on making your assumptions transparent and defensible rather than creating precise forecasts. Show the key drivers: customers acquired per quarter, average revenue per customer, customer acquisition cost, and major expense categories. Demonstrate you understand unit economics even if early numbers are rough. The goal is proving you've thought through the business model systematically and understand what needs to be true for success.
Focus on problem validation testimonials rather than product testimonials. After customer discovery interviews, ask engaged prospects: "Can I quote you on how you described this problem?" Capture their exact words about current pain points, inadequate solutions, and enthusiasm for a better approach. For design partners testing early prototypes, request feedback on the concept's potential rather than current functionality: "If we deliver on this vision, how would it impact your workflow?" Frame testimonials around the problem's severity and your team's understanding rather than claiming the product is finished.
Learning velocity is how quickly you identify problems, test hypotheses, incorporate feedback, and iterate your approach. High learning velocity means you complete a full cycle from insight to product adjustment to validation in days or weeks, not months. Demonstrate this by showing how customer feedback directly shaped your roadmap, how many product iterations you've completed in the past quarter, or how quickly you pivoted strategy when early assumptions proved wrong. Investors want to see you're running a systematic discovery process with rapid feedback loops rather than building slowly in isolation based on untested assumptions.
Be completely transparent about unknowns while demonstrating your plan to resolve them. "We don't yet know if customers will prefer subscription or usage-based pricing, but we're testing both models with our next 10 pilots and expect to have clear data in 6 weeks" is far better than pretending certainty. Investors expect uncertainty at pre-seed; what they're evaluating is whether you recognize key unknowns, have hypotheses about them, and are running experiments to learn systematically. Acknowledging gaps with clear learning plans builds credibility, while false confidence raises red flags.
This question should come near the end of a promising investor conversation, after you've presented your pitch and had initial discussion. Ask directly: "Based on what you've heard, what concerns or reasons would make you decide not to invest?" This surfaces hidden objections you can address immediately or in follow-up. It demonstrates confidence and self-awareness. It often reveals misunderstandings you can clarify or legitimate concerns you should incorporate into your pitch refinement. Most importantly, it separates real objections from polite deferrals, helping you understand whether this investor is truly a potential yes or a soft no.
Create a structured system for logging every investor conversation with key fields: investor name, meeting date, specific concerns raised, positive reactions, questions asked, and explicit next steps. Tag common objection themes like "market size concerns" or "team experience questions" to identify patterns. Note which pitch elements resonated versus fell flat. Track which analogies or examples generated excitement. Review this data weekly to identify the 2-3 most common objections and proactively address them in your core pitch. Tools like Flowlie provide structured frameworks for this tracking, ensuring you learn systematically from every conversation.
The biggest mistake is trying to pretend you have product-market fit or mature traction when you clearly don't, which destroys credibility with sophisticated investors who see hundreds of pre-seed companies. Instead, embrace where you actually are in the journey and build a compelling case for your potential to find PMF. Focus your narrative on team quality, unique insights, systematic customer discovery, early validation signals, and learning velocity rather than trying to manufacture mature metrics. Investors expect early-stage uncertainty; they're evaluating your ability to navigate it, not expecting you to have already solved everything.
Most pre-seed rounds range from $500K to $2M, providing 12-18 months of runway to reach seed-stage milestones. Calculate your monthly burn rate based on team size, essential tools, and other fixed costs. Target raising enough for at least 12 months of runway, preferably 18 months to avoid fundraising under time pressure. Consider your specific milestones: if reaching meaningful PMF signals will take 9 months, raise for at least 15 months. Balance ambition with capital efficiency; raising $3M at pre-seed with no traction creates unrealistic seed round expectations, while $300K may not provide sufficient runway to prove anything meaningful.
Balance both by starting with your ambitious long-term vision to establish the opportunity's scale, then focusing 80% of your pitch on your immediate, focused beachhead strategy. Investors want to see you're chasing a large opportunity eventually but are strategically focused on winning a specific, achievable initial market first. For example: "We're building the operating system for field service businesses, but we're starting exclusively with HVAC companies in the Southeast because [specific reasons], which lets us validate our core value proposition before expanding to plumbing, electrical, and other trades." Vision excites; focus demonstrates strategic maturity.
Acknowledge the competitor honestly: "I wasn't aware of them, let me look into what they're doing." Then pivot to your unique insights or approach: "What I can tell you is our customer discovery with 70 HVAC companies revealed these three critical pain points, and our approach specifically addresses them through [differentiation]." Follow up after the meeting with thoughtful competitive analysis showing you've researched the competitor and explaining your differentiation clearly. Investors don't expect you to know every company in your space, but they do expect you to articulate why your specific approach and insights create a defensible position.
Strong advisors signal that experienced, credible people believe in your vision enough to stake their reputation on you. Ideal pre-seed advisors bring domain expertise in your target market, relevant technical credentials, go-to-market experience in your customer segment, or investor relationships that facilitate warm introductions. Feature 2-4 advisors prominently in your deck with one-line credentials explaining their specific relevance. Avoid long lists of tangentially-related advisors, which signals desperation rather than selectivity. The best advisory relationships involve monthly substantive engagement, not just permission to use someone's name.
Send quarterly updates to investors who took meetings but passed, especially those who provided thoughtful feedback or expressed "not yet" interest. Keep updates concise (300-400 words) highlighting your top 3-4 milestones since last contact, one key metric showing progress, and any notable developments like partnerships or press. Explicitly reference concerns they raised and show progress addressing them: "You mentioned wanting to see more customer commitments; we've since signed 8 pilot agreements." Many pre-seed passes convert to seed round investments after 6-9 months of demonstrated progress, but only if you've maintained the relationship with consistent milestone updates.
Successfully navigating the pre-seed paradox isn't about pretending you have PMF when you don't. It's about building a compelling case for your potential to achieve it. Focus on your team's strengths, articulate a clear "why now," showcase meaningful micro-traction and learning velocity, present a credible market entry strategy, proactively de-risk key concerns, and amplify the voice of your early adopters.
Managing this narrative-heavy fundraising process requires discipline. Using tools like Flowlie helps you stay organized, track investor feedback across different conversations, manage follow-ups, and ensure your story of credible potential is communicated consistently and effectively. Demonstrate you have a plan and the ability to execute, and you'll find investors willing to bet on your journey to product-market fit.
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