Navigating A Pre-Seed Through Difficult Terrain

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All Raise

9 min readMay 19, 2020

COVID-19 is rattling consumer behavior — and a lot of those shifts are here to stay. If you’re a pre-seed startup, how do you keep building when everything has changed?

During our digital event series, we asked two early-stage consumer investors for their perspectives. Jen Neundorfer is a Founding Partner at Jane VC, an early-stage VC fund that invests in innovative female entrepreneurs. Maria Salamanca is a Principal at Unshackled Ventures, where she also invests in underserved founders, focusing on building immigrant-run companies that are changing the world.

Here’s a rundown of what they’ve been seeing in the consumer space lately, and their advice to founders building the next great consumer business.

1. Are early-stage funds still investing in consumer startups?

Maria: Yes, we are open for business in a very serious way.

I think most early seed funds are active.In fact, some of the best companies were built in 2008 and 2009. We’re in that same place now.

“The founders who persevere have a different type of grit, focus, and determination compared to founders who come from a time when there’s a lot of cash available.”

So we’re very excited to invest in those founders. Our goal is to complete 18 to 20 investments by the end of the year. We want to double down.

Jen: We are also open for business. Early-stage companies are in such a great position to see the opportunities in this market and take advantage of them.

In the first few weeks of March, we paused funding to take care of our portfolio companies’ most pressing needs. It was nice to go into April and talk to the founders we were talking to before COVID-19.

It’s hard to be a founder right now. There’s so much conflicting advice — like there’s never been a better time to start a company, but by the way, it’s also a really hard time to raise. And you need to cut costs and survive, but wait, you also have to grow.

“My message to all the founders on the line is that you’re doing really hard work right now. We’ll look back on this time and see valuable companies emerge from this uncertain moment. Constraints can lead to some big, compelling opportunities. Remember that.”

Maria: We saw a lot of consumer companies in our portfolio doing better than before since people are spending a lot of time at home.

In general, most VCs took March to reassess. And obviously founders saw a slowdown in response rates and how quickly deals were moving through the pipeline.

It wasn’t because we forgot about you. We just had to figure stuff out before taking up people’s time.

2. How have fundraising timelines changed?

Jen: Things are taking a bit longer, but deals are still getting done in the pre-seed and seed stage. Investors are writing checks.

Series A is more murky because when a lead investor is writing a large check, they may be more hesitant to do that without meeting in person. A number of founders are taking meetings, but not moving forward. Pricing is also taking longer because investors are being more thoughtful.

To prioritize your meetings, ask investors questions so you don’t waste your time:

Where are you in your funding cycle?
Have you made investments in the last few weeks?
When do you anticipate making investments?

Investors owe you those answers.

Maria: Portfolio companies that were in the middle of conversations were still able to close funding.

It’s hard for a fund to be the first check in now, so focus on the institutional pre-seed funds. Don’t over-shop yourself too fast. Just two weeks ago, funding was a lot slower than it is this week. So that’s good. Spread out those conversations.

“Once you have a few good conversations, reach out to more funds. That shows the follow-on funds that you’re worthy of having a conversation. It’s about keeping your momentum, spreading your geographic diversity, and taking it slow.”

It’s going to take six or more months to close right now.

3. Are there challenges now for women looking for funding?

Maria: Yes, absolutely.

Investors are leaning toward safer bets, like people from their own networks and second-time founders. I think people will turn back to their old ways.

Initial research will help you avoid those types of investors and save time. Ask yourself:

When did they last invest?
Do they have a fund to deploy?
What types of founders do they invest in?

Jen: Unfortunately, I agree with Maria. I think the crisis is going to hurt underrepresented founders.

I’m hearing the phrase “flight to quality” right now, which is a terrible euphemism for saying, “I’m going back to the people in my network.”

“A lot of great founders who are women, people of color, and don’t live in the Bay Area, are going to get hurt. Go out and find the funds that are more likely to invest in you.”

At Jane VC, we’re also thinking about the right way to make virtual introductions warmer. Maybe we join the founder on a Zoom call with another investor, to simulate that warm introduction we’re used to.

This sad reality also emphasizes why we’re so committed to the portfolios we have.

4. What are your pre-seed and seed expectations right now?

Jen: It’s evolving. This is an area where there’s still a lot of uncertainty, since we’re in a Darwinian moment.

Our expectations haven’t changed for pre-seed because it’s still so early. But what we’re really looking for is:

A big market
Product-market fit
Why this team is the only one who can make this happen

Our pre-seed investments are pre-revenue, often pre-product. So we’re looking at wireframes, sometimes held together with duct tape on the backend. That part hasn’t changed.

For founders who have already raised pre-seed, I’d encourage you to be thoughtful about what you want to get out of this time.

“Pick the one to two metrics or hypotheses that you are going to ultimately prove out. When you do raise another round, you’ll have a coherent story to tell.”

Maria: We think about it similarly.

Around 80% of our investments are also pre-product and pre-revenue. As the market has grown, our check sizes have too. We ended up having pre-seed rounds that were around $1.5 million.

So we’re excited to go back to normal and see pre-seed rounds that are closer to $500k, which is plenty for founders to prove out key assumptions. In an ideal world, early-stage investors already took the biggest risk on you.

A lot of companies raising a Series A right now already raised too much money, burned too fast, and are unlikely to hit the Series A milestones.

At the end of your pre-seed round, you’re still going to have investors ask you:

Did you pay for the traction?
Is this real traction?
Is this a real pain point you’re solving?

“On the consumer side, it’s important to prove that you’ve done the right customer validation. You need to understand that part before you ever write a line of code.”

Times are shifting back to more sustainable company-building. That’s a good thing, because consumer behavior takes time.

Jen: Maria is spot on.

The days of spending to grow without looking at business fundamentals are over. We started to see the contraction of consumer behavior in the fall of last year. Consumer startups have already reacted to that, and now enterprise startups are playing catch up.

As fund sizes come down, that might be frustrating to founders, but it will actually build stronger companies in the long run.

5. So how should founders think about what to test?

Jen: Early on, it’s important to test what you think will differentiate you. What problem are you solving? What customer segments can’t live without your product?

“The best companies are selling painkillers, not vitamins.”

The companies that we’re excited to invest in are ones that prove early that consumers are evangelists of their product and can’t live without it. You want to get granular and know:

What consumers are saying about your product
Who they’re telling about it
What feedback they’re giving you

A lot of it comes down to knowing how to ask questions to your early users. Dig in deep, and don’t just ask binary questions, which can happen a lot on the consumer side.

Here are a few resources that can help:

Maria: I agree. It’s about your unique understanding of the user, the product roadmap, and the wedge into what you’re trying to prove. That’s where the real interesting conversation comes from.

Back to the hypotheses, I always like to ask founders, “If you have no more money for additional features, which two features would you build?”

It’s a good question because it emphasizes the scarcity mindset, not just in terms of money, but with what you want to prove, and how you go to users. That’s the opportunity.

“Before you write a line of code or hire 10 engineers to build a product, you should have those core answers about your users. Defining your consumer target is the most important thing to do.”

It’s okay for you to say no to other segments. You need that intense focus in the early days.

6. What is your investment stance on industries that are really impacted by COVID-19?

Maria: It really depends on the team, company, and sales cycle. Are you going to have enough feedback loops to prove what you need to prove for that next round?

If you’re raising in 12 months, it’s going to be very hard to prove things out. You need to have a clear understanding of when your customers will have money, work with you, and do the feedback loops. And how much runway you need to realistically prove things.

If you’re really impacted by COVID-19, cut down. You’ll need to come to terms with that.

Jen: It’s also about when consumers will have the bandwidth to do something new so you can get their mindshare. It could be a year before they start looking at something new, and that’s something to take into account.

7. What constraints and trends are you seeing emerge in the consumer space?

Jen: For any new company, one of the biggest barriers is convincing people to do something new. This usually takes a really long time.

Everyone being at home is leading to the adoption of new behaviors much more rapidly. It’s creating some real opportunities for companies, including:

Social video: One of our portfolio companies allows users to easily connect with each other on video. They’ve had rapid growth before, but now anyone who was on the fence about seeing their friends on video is adopting this technology.
Telehealth: In just a few weeks, providers and patients were suddenly open to virtual connections. But all of the reimbursement laws have also changed. From our perspective, that will never go back in the bottle. It’s here to stay.
Ecommerce: Retail realizes it needs to move online. So what does the ecommerce tech stack need to look like to support virtual commerce?

Maria: Those are all areas we’re excited about too.

I think there’s also a bigger question. What is the middle ground between that online social world and the fact that we still miss in-person interactions? Is this the time when VR/AR experiences take off?

For the companies that are benefiting right now, there’s a huge demand, but will we match that demand when COVID-19 is over? VCs are checking themselves, and making sure they don’t get excited too fast because of the times.

A lot of entrepreneurs have that COVID-19 slide in their deck and it’s not necessarily a bad thing. But the question is around long-term and short-term growth and whether the behavior will scale beyond these times.

8. What do you want early-stage consumer startups to keep in mind?

Jen: Don’t change your endpoints, but be realistic about the landscape around you. Set short-term goals and constantly reprioritize.

For startups that are seeing demand, this is a great time to hire extremely talented people who are now on the market. There hasn’t been a hiring market like this in over five years. That can really play to your advantage as you’re looking for star people on your founding team.

Maria: I love the consumer space because that’s the part of the market that tends to carry us through in tough times.

“Don’t just think about what has worked already — scratch that, it’s not going to work. New playbooks about the consumer landscape are being written now. Build a company that writes that new playbook.”