What is Pre-Seed Funding and How Does it Work?

Pre-seed funding is the earliest stage of funding for startups and serves as an essential stepping stone towards product development and greater visibility in the market. Often referred to as "family and friends" funding, this initial capital injection helps companies with the necessary resources to begin working on their product or service offering. As it is the very first round of fundraising, it can be challenging for startups to secure pre-seed investments. However, when successful, it lays the foundation for future seed, Series A, B, and C funding rounds that enable growth and scalability.

While pre-seed funding is characterized by smaller amounts of capital, typically up to $2 million, having access to these resources is critical in shaping the trajectory of a startup. Entrepreneurs use these funds to build and test Minimum Viable Products (MVPs), conduct market research, and establish a customer base. For pre-seed investors, providing pre-seed funds can be a strategic move to secure equity in promising early-stage companies before they gain traction in the market.

Key Takeaways

  • Pre-seed funding is the initial capital injection that helps startups kickstart product development and testing.
  • Access to pre-seed funds significantly impacts the trajectory of a startup by enabling MVP development, market research, and establishing a customer base.
  • Investors providing pre-seed funds have the opportunity to secure equity in early-stage companies and access to future rounds with pro-rata rights

Understanding Pre-Seed Funding

Pre-seed funding is the introductory level of fundraising, typically used by startups to build their initial concept or idea. It serves as the first financial support a company receives and primarily comes from the founder's network, including friends, family, and acquaintances.

Pre-seed funding is often suitable for businesses in their early stages, helping them develop their product or market positioning before moving on to more advanced funding rounds. The amounts provided in this stage are generally smaller than those in seed funding rounds, and they focus on essential tasks like market research, prototyping, and initial hiring.

To prepare for pre-seed funding, startups should develop a strong pitch deck that includes information about the product, market, and financial projections. This pitch deck will be crucial in convincing potential investors of the startup's potential for growth and success.

Compared to seed funding, pre-seed funding sources are more likely to be informal, such as personal savings or contributions from friends and family members. Seed funding, on the other hand, may come from incubators, angel investors, or early-stage venture capital firms.

In summary, pre-seed funding is a critical initial fundraising stage for startups. It helps them lay the groundwork for their ideas and products, preparing them to engage with more sophisticated investors and funding sources in later stages, such as seed funding and Series A funding rounds.

Importance of Pre-Seed Funding

Pre-seed funding plays a crucial role in the early stages of a startup. It provides the initial capital needed for entrepreneurs to transform their ideas into tangible models or prototypes. This stage of financing typically occurs before the startup has developed a minimum viable product (MVP) or generated any revenue, making it a critical step in the startup's journey.

By securing pre-seed funds, startups can thoroughly research their target market, refine their business idea, and validate their product's potential in the industry. With a solid foundation in place, pre-seed startups are better positioned to attract future investments.

Pre-seed funding can come from various sources, such as angel investors, accelerators, incubators, or even friends and family. These early investors provide not only financial support but also invaluable advice and industry connections that can help pre-seed companies navigate the challenges they will inevitably face. Startups must carefully consider their needs and the expectations of their potential investors to form a mutually beneficial relationship.

However, there is an inherent risk involved in pre-seed funding. With limited validation and a lack of concrete business results, investors may be hesitant to put their capital into the startup. To mitigate these risks, startups should focus on building a strong team, crafting a compelling pitch, and meticulously planning the use of their funds to ensure maximum effectiveness.

In summary, pre-seed funding is a vital component in a startup's journey, laying the groundwork for their future growth and success. It allows entrepreneurs to take their initial ideas and turn them into viable business models, preparing them for the next stages of funding and growth.

Pre-Seed Funding for Startups

Pre-seed funding is the initial step for a startup to secure capital, sometimes referred to as "family and friends" funding. It is the earliest stage in the funding journey, and many startups face challenges in securing funds at this stage. This type of funding typically helps startups in developing their product, testing the market, and laying the foundation for future growth.

Startups seeking capital during the pre-seed stage often rely on their personal networks, including family members, friends, and mentors. Additionally, some early-stage venture capital funds, such as The House Fund, focus on providing assistance to pre-seed and early-stage companies, especially those in emerging technology sectors, such as artificial intelligence.

Securing pre-seed funding allows a startup to demonstrate its potential to future investors and validate its business idea. This initial capital infusion helps startups refine their product or service, identify their target audience, and establish a minimal viable product. Gaining traction during the pre-seed stage may lead to future funding rounds like Series A, B, and C to further expand the startup's operations.

However, it's important for startups to remain prudent with their pre-seed funding, as the funds are often limited. Efficient use of capital at this stage can dramatically influence the startup's future success and ability to attract more substantial investments later on.

In summary, pre-seed funding serves as a critical stepping stone for startups to embark on their journey towards growth and success. It helps validate their business ideas, develop their products or services, and establish market traction. While securing pre-seed funding may be challenging, it can lead to more significant opportunities for further investments and growth.

Investment and Equity

In the early stages of a startup, obtaining financial support is a crucial step toward success. One of the initial funding stages is the pre-seed stage, which provides capital for entrepreneurs to develop their ideas and products. During this stage, startups typically seek funding from investors such as friends, family members, or angel investors.

While financial investment is imperative at the pre-seed stage, it also involves sharing a portion of the company's equity with investors. This exchange of capital for ownership can impact a startup's future financial decisions and plans, making the determination of equity stake an important factor. The pre-money valuation of a startup can help in deciding the amount of equity to be leveraged.

Investors at this stage generally look for a compelling business idea, a market size with a potential for growth, and a founding team that can execute the plan effectively. For them, the pre-seed stage presents the opportunity to enter a company at a lower valuation and potentially gain significant returns. However, it's worth noting that investing in pre-seed stage startups is riskier than later-stage investments, as the company is yet to establish itself in the market.

While assessing the readiness of a startup for pre-seed funding, entrepreneurs should consider the competition, target market, financial projections, and future fundraising plans. It is crucial to be strategic in the fundraising process and identify the right investors who can provide not only capital but also industry expertise, connections, and guidance.

In conclusion, the balance between investment and equity during the pre-seed stage is essential for a startup's growth and success. Careful consideration of the company's valuation and potential, as well as the identification of suitable investors, will lay a strong foundation for the future development of the business.

The Role of Research

In the early stages of a startup, conducting thorough research plays a crucial role in securing pre-seed funding. Research helps entrepreneurs validate their business ideas, identify potential customers, and estimate market demand.

Market research is essential for startups to understand the target audience and to confirm the problem their product or service aims to solve. This research allows businesses to develop a well-defined problem-solution hypothesis, which is critical in attracting investors during the pre-seed funding stage. Comprehensive market research also aids in refining the business model to ensure the venture remains competitive within its industry, making it an attractive investment opportunity.

Performing an in-depth analysis of industry data helps startups assess their competition and identify any gaps in the market they can fill. Analyzing the competitive landscape allows businesses to adapt their strategies and create a unique selling proposition, distinguishing them from existing players. As a result, a startup presents a stronger case when pitching to potential investors during the pre-seed funding round.

Intellectual property (IP) is another vital aspect to consider in the research phase. Startups need to investigate any existing patents or trademarks that might affect their product or service. Securing IP protection can increase the startup's value and builds investor confidence, as it validates the venture's potential and safeguards its uniqueness in the market.

In summary, the role of research during the pre-seed funding stage is multifaceted and crucial for startups. A combination of market research, data analysis, and intellectual property management enables entrepreneurs to validate their ideas, refine their strategies, and ultimately attract potential investors for their ventures.

Pitching for Pre-Seed Funding

When preparing to pitch for pre-seed funding, it's crucial to have a well-crafted pitch deck that showcases your business idea, team, and product development plans. The pitch deck should be clear, concise, and effectively convey your startup's vision to potential investors.

The foundation of a strong pitch lies in having a unique and compelling idea. Ensure that your business concept addresses a market need or offers a solution to an existing problem. This will make it easier to capture the interest of investors who are looking to invest in high-potential startups.

Your team is a critical aspect of your pitch. Highlight the skills, experience, and expertise of each team member, emphasizing the contributions each individual brings to the project. Investors want to see a team that's not only competent but also passionate about their business venture.

Product development is another significant aspect of your pitch. Provide a clear plan for developing the product or service, including the timeline, resources required, and potential challenges. This demonstrates to investors that you've considered the necessary steps to bring your idea to fruition and are aware of the obstacles that you may face along the way.

In addition to the ideas, team, and product development, consider incorporating the following elements into your pitch deck:

  • A clear problem statement and the proposed solution
  • Target market and customer segments
  • Competitive analysis and positioning
  • Revenue model and financial projections
  • Marketing and sales strategy
  • Traction and achievements to date (if any)

Using various formatting techniques, such as tables, bullet points, and bold text, can help you present the information more effectively, allowing investors to grasp the key points more easily.

Moreover, adopt a confident, knowledgeable, neutral, and clear tone of voice when pitching for pre-seed funding. This will not only help you establish credibility but will also make your message more accessible to your audience.

In summary, a well-crafted pitch deck that touches on your idea, team, and product development plans is crucial when pitching for pre-seed funding. By organizing your pitch deck and adopting an appropriate tone of voice, you can significantly increase your chances of securing the initial investment to kick-start your startup's journey.

Various Funding Rounds

Startup companies often go through several funding rounds to raise capital in order to grow and expand their operations. These rounds include pre-seed, seed round, Series A, Series B, and Series C funding. Each of these rounds serves a different purpose, with distinct objectives and outcomes for the startup.

Pre-Seed Funding: This is the initial stage of investment, typically involving a small amount of capital provided by the founders themselves, friends, or family to help bring the new business idea to life. It usually covers early expenses such as market research, product development, and setting up the company.

Seed Round: The seed round is the next step, in which more substantial capital is raised to further develop the product or service, expand the team, and initiate marketing efforts. At this stage, investors such as angel investors and early-stage venture capital firms may invest in the startup in exchange for equity or convertible debt.

Series A Funding: This funding round is when startups have a functional product, and initial traction has been established. They need capital to scale their market presence and improve their product or service offerings. Investors in a Series A funding round are typically venture capital firms, and the funds raised can be used for expanding the team, acquiring customers, and enhancing the technology.

Series B Funding: Series B is intended to help companies that have already shown significant growth and traction but require additional capital to maintain their growth rate. Investments at this stage are typically made by venture capital firms that specialize in later-stage funding, often including previous investors. Funds raised in this round can be used for acquiring competitors, expanding into new markets, and further scaling the business operations.

Series C Funding: At the Series C funding stage, companies have demonstrated a high level of success and already have significant revenue. They seek additional funding to continue expanding, improve their offerings, or prepare for an initial public offering (IPO). These rounds usually involve large venture capital firms, private equity firms, or strategic investors.

In summary, the various funding rounds play a crucial role in the growth and development of startups, with each round targeting different objectives and outcomes. The funding process depends on the specific needs of the company and the interests of the lead investor, providing the necessary capital to achieve the startup's growth goals.

Accelerators and Incubators

Both accelerators and incubators play a significant role in the early stages of a startup's development. They offer assistance in the form of mentorship, office space, resources, and most importantly, funding. There are several renowned accelerators and incubators in the startup ecosystem.

Y Combinator is one of the most well-known and prestigious startup accelerators in the world. It offers a three-month program, where startups receive seed funding of up to $125,000, mentorship, and resources. In exchange, Y Combinator usually takes a 7% equity stake in participating startups. The program concludes with a Demo Day, where startups pitch their ideas to investors.

Techstars is another prominent global accelerator, with programs in cities across the United States and Europe. Techstars provides participating startups with up to $120,000 in funding, three months of mentor-led guidance, office space, and a large network of mentors and alumni. In return, Techstars acquires a 6% equity stake in the participating companies.

500 Startups is both an accelerator and early-stage venture capital firm. Their accelerator program, known as the Seed Accelerator, offers startups up to $150,000 in funding, mentorship, office space, and an extensive network of contacts. Additionally, 500 Startups takes a 6% equity stake in the companies that participate in the program.

Other notable startup programs offering pre-seed funding include Antler in various locations such as France, Germany, India, and Indonesia, and the Founder Institute, which operates globally as the world's largest pre-seed startup accelerator.

In conclusion, accelerators and incubators are vital components of the startup landscape, providing early-stage companies with funding and invaluable resources. By participating in these programs, entrepreneurs can gain access to mentorship, networks, and potential future investment opportunities.

The Path to Traction and Scale

In the early stages of a startup, achieving traction and scale is a critical milestone. Traction refers to the progress a company makes in validating its business model, garnering customer interest, and generating revenue. Scaling, on the other hand, is the process of growing the business to meet increasing demand efficiently.

One of the key steps towards gaining traction is to establish clear and measurable milestones. These can include customer acquisition, product development, revenue generation, or market penetration. Achieving these milestones demonstrates that the startup is progressing and ready to take on pre-seed or seed funding to accelerate its growth.

To successfully scale a startup, founders should focus on refining their business model and expanding their customer base. This often involves developing a minimum viable product (MVP) to showcase to potential investors or customers. An MVP allows startups to gather valuable feedback, iterate on their offering, and demonstrate the value their product or service provides. Achieving an MVP is an essential part of the pre-seed funding phase.

Once traction is established, startups should look for ways to accelerate their growth. This can involve optimizing marketing strategies, entering new markets, or expanding the product or service offering. It is essential for founders to prioritize initiatives that have a high impact on their business, as this will help them scale more efficiently and effectively.

In conclusion, achieving traction and scale is critical for startups looking to secure early-stage funding. By defining clear milestones, developing an MVP, and focusing on high-impact growth initiatives, startups can increase their chances of attracting investment and successfully scaling their businesses.

Fundraising Strategies

When starting a business, raising capital is a crucial step in the journey. There are various strategies that could be employed to achieve this goal, depending on the company's unique needs and circumstances. In this section, we will discuss some of the most common fundraising strategies, including crowdfunding, bootstrapping, and traditional fundraising efforts.

Crowdfunding has become a popular choice for startups seeking pre-seed funding. This strategy involves raising small amounts of money from a large group of individuals, typically through online platforms. Crowdfunding allows startups to bypass traditional investors and appeal directly to potential customers and supporters. This approach not only raises the needed capital but also generates early interest in the product or service.

Bootstrapping is another commonly employed strategy, particularly for entrepreneurs who prefer to maintain control of their businesses. This approach involves building a company using personal savings, revenues, and other resources. Instead of relying on external investors, founders reinvest their profits back into the business, allowing the company to grow organically. Bootstrapping requires strict financial management and a strong focus on achieving profitability, but it enables founders to retain ownership and control over key decisions.

In addition to the above strategies, many startups opt for a more traditional fundraising route. This typically involves reaching out to venture capitalists, angel investors, or other parties willing to invest in exchange for equity. Founders must effectively pitch their business idea, demonstrate traction, and prove their potential for growth to secure these investments. Networking is essential to connect with the right investors who understand the vision and potential of the business.

Whatever the chosen strategy, it is crucial for founders to carefully plan their fundraising efforts. Factors such as the amount of funding needed, the company's growth stage, and the projected timeline for success will all impact the choice of fundraising method. By carefully considering these factors and creating a tailored fundraising strategy, startups can more effectively secure the capital needed to support their growth and success.

Building and Hiring Teams

When focusing on pre-seed funding, one of the most important aspects is building and hiring the right team. Assembling a strong team early on can not only help your startup grow faster, but also increase your chances of securing further funding in the future.

In the early stages of a startup, it is essential to hire T-shaped team members, which refers to individuals who possess a wide range of skills and knowledge, while also having depth in one specific area. Hiring T-shaped people versus specialists can provide more flexibility and problem-solving capabilities in a dynamic startup environment. To build the initial team, founders should prioritize hiring doers, those who can get things done efficiently and effectively.

When it comes to early hires, focusing on critical roles will help lay the foundation for future growth. These positions could include co-founders, engineers, designers, and even initial sales or marketing personnel. Early team members should be committed and passionate about the startup's mission, as their efforts will heavily influence the company's initial direction.

Spending pre-seed funding on building your team is essential for several reasons. Firstly, having the right expertise within your team helps you to develop and iterate your minimum viable product (MVP) faster. This not only saves time and resources, but it also increases the chances of achieving product-market fit in due time. Secondly, a cohesive and diverse team can provide valuable experience, skillsets, and perspectives that facilitate problem-solving and innovation. Thirdly, a strong early team can also open doors to additional funding opportunities, as investors often see substantial value in backing a capable team.

Overall, building an effective team during the pre-seed stage has significant long-term benefits. Founders should carefully assess prospective team members' abilities, experience, and compatibility with the company culture to ensure that they make the right decisions when it comes to building a team and allocating resources.

Venture Capital Funding

Venture capital (VC) is a form of financing that provides funds to early-stage, high-potential startup companies. Venture capitalists typically invest in startups that show promise and have a high potential for growth. They can provide the necessary financial resources and expertise to help companies scale up quickly, while also allowing founders to retain more control over their businesses.

Venture capital firms typically invest in a broad portfolio of startups, with the aim of achieving high returns from a small percentage of these investments. They often specialize in specific industries or sectors, such as technology, healthcare, or e-commerce. In exchange for their investment, VCs receive equity stakes in the companies they invest in. This allows them to profit from the successful growth and eventual exit of these companies.

Venture capital funding is often provided in stages, with each stage carrying its own unique set of risks and opportunities for investors and entrepreneurs. Pre-seed funding is the earliest stage of investment and usually comes from friends, family, and angel investors. Startups can use this funding to develop their initial ideas, conduct market research, and create product prototypes.

Once a startup has begun to achieve some traction, they may seek seed funding from venture capital funds. At this stage, companies often have a minimum viable product (MVP) and early user adoption. Seed funding helps startups further develop their products, begin marketing efforts and grow their user base.

As companies continue to scale, they may seek additional rounds of venture capital funding, such as Series A, Series B, and so on. These rounds allow startups to expand even more, invest in product development, and expand into new markets.

Securing venture capital funding can be a challenging process for startups. Entrepreneurs need to have a clear business plan, strong leadership, and a compelling pitch to convince VCs to invest in their venture. Networking and building relationships with key players in the industry can also be crucial to gaining access to the right investors.

In conclusion, venture capital funding plays a crucial role in the growth and success of many startups. By providing much-needed financial resources, expertise, and support, VCs help transform innovative ideas into successful businesses, fueling growth and innovation in various industries.

Getting the First-Time Founder Ready

The journey of a first-time founder is both exciting and challenging. From refining their mission to outlining their long-term vision, they need to be well-prepared to embark on the startup path. One of the initial steps for a first-time founder is securing pre-seed funding to support their business idea.

Before approaching potential investors, it's crucial for founders to craft a solid pitch deck that conveys their idea in a simple yet compelling manner. People tend to invest in things they understand, so keeping the deck brief and easy to digest is essential. Developing a strong one-liner and honing the presentation skills further improves the chances of securing investments.

A first-time founder should also explore various sources of pre-seed funding to widen their opportunities. Common sources include friends and family, angel investors, and specialized venture capitalists who focus on early-stage startups. Each source comes with its own set of benefits and drawbacks. For instance, while friends and family may be more lenient with terms, they might not provide the same level of mentorship and connections as experienced venture capitalists.

Networking plays a significant role in raising pre-seed funding. Founders should attend industry events, reach out to experts in their field, and seek referrals to get introduced to potential investors. Building meaningful relationships often translates into valuable partnerships and fruitful collaborations.

Setting realistic expectations is vital for first-time founders during the pre-seed stage. The typical pre-seed investment globally ranges between $400,000 - $500,000. However, industries such as aerospace or food and beverage might require higher investments for their niche markets.

In conclusion, preparing for pre-seed funding requires diligence, a clear vision, and perseverance. A well-crafted pitch, diverse funding sources, and strong networking connections help first-time founders lay a solid foundation for their startup's success.

Minimum Viable Product (MVP) Development

The Minimum Viable Product (MVP) is a crucial aspect of the startup journey, especially during the pre-seed funding stage. Developing an MVP involves creating a prototype or beta version of your product, showcasing its most essential features to potential customers and investors. This allows startups to test and validate their assumptions while minimizing development costs and time.

In the pre-seed phase, many startups focus on achieving a product-market fit, which is the ideal alignment between the product and its target market. By reaching this stage, startups can demonstrate a strong need for their product within their desired market, increasing their chances of attracting pre-seed funding.

It's essential to create an MVP before seeking pre-seed investment, as it allows you to gather valuable feedback from early users and iterate on the product. Furthermore, having an MVP demonstrates to potential investors that your startup has a clear vision and the capability to deliver a viable solution to the market. However, there are cases, such as deep tech startups, where an MVP might not always be necessary or feasible due to the nature of the technology involved.

Developing an MVP should be a strategic and well-planned process, ensuring that your resources and efforts are used effectively. Some considerations for the MVP development process can include:

  • Identifying the essential features that bring the core value proposition of your product to customers.
  • Prioritizing the development of these features to achieve a balance between functionality and time-to-market.
  • Collecting and incorporating user feedback to refine and enhance the product before scaling it further.

MVP development is a vital step that aligns with the objectives of pre-seed funding, including building a strong foundation for your startup and establishing a path to growth. Startups that successfully develop a minimum viable product are better positioned to navigate the challenges of early-stage growth and achieve significant milestones, including securing pre-seed and subsequent funding rounds.

Customer Base and Market Fit

In the early stages of a startup, establishing a solid customer base and achieving product-market fit are crucial steps towards success. During the pre-seed funding stage, the primary focus should be on turning a prototype into a viable product and identifying the target market for that product.

A strong customer base is important for startups as it provides validation that there is a demand for the product or service being offered. By analyzing potential customers and their needs, a startup can refine its offering to cater to the specific requirements of its target market. This process involves understanding the preferences, pain points, and demographics of potential customers. Startups can use various methods to gather this information, such as interviews, surveys, and focus groups.

Achieving product-market fit is the point where the product or service meets the needs of the target market and generates value for customers. To achieve this fit, startups must first identify the target market by segmenting customers based on their characteristics and needs. Once the target market is identified, the startup should focus on developing a minimum viable product (MVP) that solves the customers' main problem or fulfills their core need. The MVP can then be tested and iterated upon to further improve its alignment with the target market.

Iterating on feedback from potential customers and making necessary adjustments to the product enables the startup to refine its value proposition. A clear understanding of the unique selling points and the competitive landscape also helps the startup distinguish itself and attract more customers. This iterative process aids in gradually expanding the customer base, which in turn validates the product-market fit.

In conclusion, building a customer base and achieving product-market fit are essential for startups during the pre-seed funding stage. By focusing on understanding potential customers and developing a product that caters to their needs, startups increase their chances of success and attract investors who recognize their potential for growth.

Frequently Asked Questions

What are the common uses for pre-seed funding?

Pre-seed funding is typically used to help startups with essential initial expenses. This may include costs associated with market research, product development, and building a minimum viable product (MVP). Additionally, pre-seed funding can help cover overhead expenses such as office space or hiring a small team.

What are typical pre-seed funding amounts?

The amount of pre-seed funding raised by a startup can vary greatly depending on the company's needs and goals. Generally, pre-seed funding ranges from $10,000 to $500,000. However, it's crucial for startups to be strategic in determining how much funding to seek, as raising too much or too little can have long-term implications.

How challenging is it to secure pre-seed funding?

Securing pre-seed funding can be challenging, especially for first-time founders. Competition for funding is often intense, and investors typically look for strong business ideas with a viable market and potential for significant growth. Founders need to be prepared to pitch their ideas and demonstrate their dedication to the startup's success to increase their chances of securing funding.

Which companies provide pre-seed funding?

A variety of companies and investors provide pre-seed funding. These can include angel investors, venture capitalists, and incubators or accelerators. Each type of investor may have different preferences and requirements, so it's essential for startups to conduct thorough research and approach investors that align with their business model and goals.

What are common terms associated with pre-seed funding?

There are several terms associated with pre-seed funding that startups should be familiar with. Some common terms include equity, convertible notes, valuation, and dilution. Understanding these terms and their implications is crucial for startups as they navigate the pre-seed funding process.

How to prepare a pre-seed funding pitch deck?

A well-prepared pitch deck is essential for startups seeking pre-seed funding. Start by clearly outlining the problem your business aims to solve, the target market, and the proposed solution. Other elements to include are your business model, evidence of market traction, financial projections, and information about the team behind the startup. Remember to keep the pitch deck concise and visually engaging, as investors often have limited time to review each one.

What is the right time to seek pre-seed funding?

The right time to seek pre-seed funding often comes when a startup has a well-defined problem to solve, a viable market to target, and ideally, a minimum viable product (MVP) or prototype. In the early days of the startup, securing pre-seed money can provide the necessary capital to move from concept to initial implementation, helping to demonstrate product-market fit. Waiting too long can mean missed opportunities, while seeking funding too early may make it difficult to attract new investors due to a lack of proof of concept or market validation.

How is a term sheet used in a pre-seed round?

A term sheet is an important document in a pre-seed round, outlining the terms and conditions under which an investment will be made. It typically includes details like the amount of pre-seed capital being provided, equity stake, valuation, and potential clauses such as voting rights or exit strategies. Although not legally binding, a term sheet serves as a basis for more formal legal agreements so it is a good idea to become familiar with the terms outlined.