While convertible instruments dominate at the pre-seed stage, some ventures raise priced equity rounds instead. This approach is more common when a venture has shown early traction, has a strong and experienced team, or operates in sectors where investors prefer defined ownership structures from the outset.

Equity rounds at the pre-seed stage typically include:

Modest valuations, reflecting the unproven nature of the venture while recognising the potential upside for early investors. Valuations are often based on factors such as team quality, market size, intellectual property or initial user engagement.

Negotiated equity stakes, giving early investors a clearly defined percentage of the company. This clarity provides both parties with a sense of ownership and commitment but may also limit flexibility for future rounds if over-dilution occurs.

Standard legal agreements, which formalise investor rights, obligations and governance structures. These agreements ensure formality on matters such as board representation, voting rights and exit terms, even at this very early stage.

The choice between equity and convertible instruments depends on several factors, including:

• The venture’s current traction and stage of product development

• Investor preferences and experience in pre-seed deals

• The founder’s long-term fundraising strategy and desire to preserve equity

Both structures aim to achieve the same fundamental goal: to provide sufficient capital to reduce early-stage risks, fund critical experiments and prepare the venture for the next stage of growth. Choosing the right structure requires a careful balance between immediate funding needs, long-term ownership considerations and investor relationships.