It used to take millions in funding to build a tech startup. Before cloud computing and open-source software, launching a product required expensive hardware, in-house servers, large engineering teams, and significant capital just to reach early milestones. Because of these high costs, venture capital firms primarily funded startups at the Series A stage, when companies needed large investments to scale.
Over the past two decades, however, the cost of building a startup has plummeted. Cloud infrastructure eliminated the need for expensive servers. Open-source software reduced development expenses. Low-cost distribution channels made it easier than ever for startups to access customers. As a result, early-stage investing has evolved, giving rise to new funding stages—first Seed, then Pre-Seed, and now Pre-VC—each emerging as the capital required to launch a company decreased.
For investors, this shift presents a compelling opportunity. While traditional VCs continue to focus on larger deals, many early-stage companies are raising smaller rounds well below the investment minimums of traditional institutional venture capital. The result is a funding gap—the Pre-VC stage—that remains largely overlooked by institutional investors, creating an open playing field for those who recognize its potential.
How Early-Stage Investing Evolved
From Series A to Seed: The First Shift (2000-2010)
Before the 2000s, Series A was the starting point for venture capital, with round sizes typically ranging from $3 million to $10 million. Startups at this stage were often pre-revenue, and investors focused on market size, the strength of the founding team, and long-term growth potential rather than financial performance. Funding rounds below $3 million were often limited to angel investors, friends & family, and bootstrapping.
As technology became more capital-efficient, startups needed less money to build and launch products. This shift led to the rise of Seed rounds. By the mid-2000s, dedicated Seed-stage VC firms formalized Seed investing, with round sizes typically between $1 million and $3 million, making Seed a critical bridge to Series A.
The Rise of Pre-Seed: The Next Gap (2010-2020)
As costs continued to decline, some startups needed even less capital before raising a Seed round, which led to an explosion of Micro-VC funds and the emergence of Pre-Seed funding, with rounds typically ranging from $750,000 to $3 million, a space that had formerly been the sole domain of angel investors, friends & family, and accelerators. However, as more founders sought early capital, Pre-Seed investing became more structured. Also, the introduction of the SAFE note by Y Combinator in 2013 played a major role in standardizing these early rounds, making it easier for startups to raise funds without the complexities of traditional equity financing.
Much like Seed rounds a decade earlier, Pre-Seed investing grew over time. Traditional VCs were initially hesitant to participate due to the small check sizes and the labor-intensive nature of early-stage investing. But as startup funding continued to evolve, Pre-Seed rounds became more popular, and many institutional investors now actively participate in this stage.
The Emergence of Pre-VC Investing
Just as Seed investing institutionalized in the 2000s and Pre-Seed evolved in the 2010s, a new funding gap has emerged between angel rounds and institutional VC: Pre-VC investing.
Today’s institutional venture capital firms typically avoid participating in rounds below $1 million, leaving many early-stage startups reliant on friends & family, angel investors, or their own resources. If this story sounds familiar, it’s because it is. In the 2000s, Seed investing was considered too early for institutional venture capital—until it wasn’t. In the 2010s, Pre-Seed investing was dismissed as too small—until it wasn’t. Now, Pre-VC faces the same skepticism from traditional investors, even as it quietly grows.
While large VC firms hesitate, this emerging stage presents an opportunity for investors willing to adapt. Just as institutional investors once overlooked Seed and Pre-Seed, they are now bypassing Pre-VC. This stage represents a market inefficiency, one that investors can leverage by building diversified portfolios of high-potential early-stage startups.
Why Pre-VC Hasn’t Caught On with Most Institutional Investors
Traditional venture capital firms aren’t ignoring Pre-VC because it lacks potential. Instead, structural challenges within their investment models make it difficult for them to participate effectively.
One challenge is that early-stage investing is labor-intensive. Most traditional VC firms pride themselves on using their subjective expertise to pick winners. They evaluate thousands of pitches annually and conduct extensive due diligence before making an investment. The hands-on nature of their involvement makes it difficult to justify small investments.
Another challenge is portfolio construction math. A traditional $100 million venture fund might invest in 25 companies, with an average of $4 million per company. Smaller investments don’t make economic sense for most VCs because they require just as much time and effort as larger deals while contributing little to overall fund returns. A $250,000 Pre-VC check, for example, is too small to justify the labor involved and too insignificant to meaningfully impact the fund’s performance.
For large institutional VC firms, Pre-VC investing simply doesn’t fit their model.
Why Pre-VC Is a Significant Opportunity for Investors
The Pre-VC stage is attractive to investors for two key reasons: capital efficiency and competitive valuations.
Startups at this stage tend to be exceptionally capital-efficient, benefitting both founders and investors. Highly capital-efficient startups have less reliance on external funding which means greater resilience during bad funding markets, like what we’ve seen over the last couple of years. This can mean less dilution risk and higher potential return on investment. Capital-efficient companies can also pivot faster and adapt to market changes.
Many companies at this stage reach profitability early, which means Pre-VC isn’t just their first funding round—it could be their only funding round. Investors at this stage have the rare opportunity to buy meaningful ownership in startups that may never need to raise additional capital.
In addition to capital efficiency, valuations at the Pre-VC stage remain highly attractive. While valuations at all VC stages have soared in recent years, Pre-VC valuations have remained relatively flat. As an example, between 2014 and 2024, Seed valuations rose by 183% according to Pitchbook. In contrast, valuations for Pre-VC investments at Right Side Capital Management (RSCM) increased by only 10% during that same period. This is all a function of supply and demand of capital. During the past decade, especially before 2022, thousands of new VC firms were created, and the VC industry raised tremendous amounts of capital, leading to ever-increasing valuations. But at the Pre-VC stage, demand has risen every year from founders but very few institutions address this demand, keeping valuations depressed.
Since 2012, RSCM has invested in over 2,000 startups, specifically targeting this funding gap. By streamlining the investment process and challenging traditional VC norms, RSCM has been able to exploit the inefficiencies at this stage and invest in promising early-stage companies at significantly discounted valuations.


Pre-VC Funding: Investing in the Future Before the Herd Arrives
Early-stage venture funding has always evolved. Seed rounds were once an informal and overlooked segment of investing until they became institutionalized. Pre-Seed rounds followed a similar trajectory, initially dismissed as too small before maturing into a widely accepted funding stage. Now, Pre-VC is emerging as the next logical step in the evolution of early-stage investing.
This funding gap exists not because startups don’t need capital, but because traditional investors aren’t structured to provide it. For those who recognize this shift, Pre-VC represents a rare and valuable market inefficiency.
- The cost of building a startup has never been lower.
- Institutional VCs are ignoring this stage.
- Valuations remain competitive.
As the venture capital landscape continues to evolve, investors who recognize this shift now will find themselves ahead of the herd—investing in the future before the rest of the industry catches up.