How to Achieve Pre-Seed Funding Success

Fundraising is a sales game, but most founders don’t treat it like one. Investors don’t fund ideas; they fund momentum.

Securing pre-seed funding remains highly competitive, with only about 20% of startups successfully closing a pre-seed round within their first year. Having the flashiest pitch deck or the most polished startup story isn’t enough. You need to prove that your business has real potential to scale. 

Understanding what investors prioritize—and what they dismiss—can make the difference between a promising conversation and a hard pass. Here, read a quick summary of my lessons learned while working on fundraising for fintech startups within INSART fintech business accelerator.

The Funding Funnel Is Narrow

The path from pre-seed to seed funding is a bottleneck. Nearly 60% of pre-seed startups fail to make it to the seed stage. The average pre-seed round in 2023 ranged between $500,000 and $1.5 million, depending on the industry. According to Pitchbook, in 2023, fundraising activity barely surpassed 2017 levels, while 2024 is projected to net out below 2016 figures. Early indicators suggest that 2025 could be another slow year for fundraising. 

The Canadian Venture Capital Association (CVCA) reported that pre-seed investments reached $18 million across 26 deals in the second quarter of 2024, marking a 44% increase in deal count and a 13% rise in deal value compared to the previous quarter. The fintech sector saw significant activity, with startups like Beacon raising $5.25 million in seed funding to enhance services for newcomers to Canada. Despite this uptick, the overall early-stage funding environment faces challenges.

Startups often think pre-seed funding will cover product development and initial market validation. The reality is different, as most investors aren’t ready to invest before seeing real traction. The number one reason startups fail is misreading market demand—this occurs in 42% of cases. Naturally, investors are cautious about spending money without a guarantee.

Another challenge is that at pre-seed, investors are betting on the founder as much as the business. They need confidence, clarity, and a strong vision for growth. Venture capitalists often prefer founders with a history of successful ventures. Michael Cardamone of Forum Ventures notes that while capital is available for “proven” founders, many first-time entrepreneurs lack this track record, making it harder to secure funding. 

Who Invests at Pre-Seed?

Angel investors and micro VCs form the backbone of pre-seed funding. Despite the rise of alternative funding models, they remain dominant, contributing nearly 60% of early-stage capital. The median angel investment in a pre-seed startup is between $25K and $100K, while micro VCs typically invest between $250K and $500K. 

While angel investors often provide capital based on personal conviction, micro VCs operate on a thesis-driven model, seeking scalable opportunities. The thing is that angels are often friends or former colleagues of founders driven by vision and team potential rather than hard financials. If this is your case, refining your storytelling and pitching a long-term vision moves the needle. 

But make sure you give the right pitch to the right person. While personal connections will appreciate your story the most, professional investors care about financials and have little interest in your vision. They want to hear real numbers: sales pipeline with the commercially signed agreements and specific numbers of ARR and MRR, or at least solid LOIs or POCs. 

The Only Three Things That Matter at Pre-Seed

Most pre-seed investors know that early-stage startups are still finding their footing. The harsh truth is most investors don’t care about your idea—just proof that customers do. They want proof that you’re solving a real problem and have a structured approach to acquiring customers.

The first thing they want to clarify is a pipeline. Investors want to see a clear, data-backed pipeline of potential customers. It’s not enough to claim “there’s demand”—you need to demonstrate that you have an engaged audience, whether through waitlists, beta testers, or strong inbound interest. Startups that point to a list of 50 to 100 potential customers with genuine interest stand out.

Not all traction is created equal. Founders often present vanity metrics that look impressive on paper but lack real validation. Investors want to see that your product isn’t just a good idea but something people are actively willing to pay for. A waitlist with 5,000 names sounds impressive, but if none have pre-committed to purchasing, it’s not as meaningful as five signed LOIs from potential enterprise customers.

• What counts:
  • Signed LOIs (Letters of Intent) from potential customers, especially enterprise buyers
  • Confirmed pre-sales or revenue, even in small amounts
  • Partnership agreements with major players in your industry
  • High-engagement waitlists where potential customers are actively interacting
  • Inbound leads and referrals that indicate organic demand
• What doesn’t count:
  • Unverified “interest” that claims that “lots of people want this” without evidence
  • Social media followers, unless they directly translate into paying customers
  • Product beta sign-ups without proof that sign-ups convert into users
  • Pitch competition wins – these may boost credibility but don’t guarantee investment returns.

While profitability isn’t expected at pre-seed, revenue—even in its earliest form—validates the business model. Investors take note when a startup has even small recurring revenue, early pre-sales, or customers willing to pay upfront. If revenue doesn’t exist yet, the next best thing is a structured monetization plan with clear steps to generate income within six to 12 months.

Even the most innovative idea will fail if there’s no plan to get it in front of paying customers. Investors want to see a well-defined GTM strategy: Who is your ideal customer? How will you reach them? What sales channels are you leveraging? Startups with a documented GTM plan raise 3X to 5X more early funding than those without one.

How to Get on an Investor’s Radar

Fundraising is a sales game, but most founders don’t treat it like one. Without a network, you’re essentially cold-calling investors, which is a tough gig, since cold outreach has a 1% success rate. In Q2 2024, about 73% of pre-priced funding events were less than $1 million, indicating a trend toward smaller, more accessible rounds.

Accelerators like INSART can shortcut this process by connecting you with a network of investors actively seeking early-stage opportunities. We provide warm introductions to investors, increasing your chances of securing meetings and funding. 

Over 70% of successful early-stage investments stem from warm introductions. To find yours, tap into your extended network, leveraging connections from past roles, alumni groups, and industry contacts. One of the INSART accelerator participants compares the investors’ network with synapses of the “Tree of Souls” in the Avatar movie: “I can’t tell you the number of times I had an investor say ‘I’m Investor A, I heard about you from Investor B who’s Investor C’s best friend.’ Meanwhile, I haven’t even heard of Investor C, so presumably, there was an Investor D or E who started this whole chain.”

At INSART, we host Demo Days, where you get in front of investors actively looking for startups to fund. The takeaway from these demos is that they must be something real and tangible from the start because you only have 60 to 120 seconds to hook them. Instead of cramming in your full story, focus on what really matters—your strongest traction signals. 

In summary, while funding conditions are more competitive than ever, opportunities still exist for startups that can demonstrate traction and credibility. A compelling pitch backed by real data will always win over vague promises. With the right approach and partners, pre-seed funding is real and can even become the next driver for innovation in tech following seed rounds.