These investors will give you $500,000 for a startup idea sketched on a napkin — no product needed

Do you have an idea for a startup, but no product, traction, or even a working prototype?

That’s OK! You could still get up to $500,000 from a new wave of venture capitalists — “pre-seed investors” — who are happy to fund your future business endeavor.

Preseed Investors

Preseed Investors

Pre-seed Investing

About six months ago, the term “pre-seed investing” became popular in the startup world, particularly in New York City. Two former Betaworks executives, Nicholas Chirls and Alex Lines, are leading the charge with an $8 million pre-seed fund called Notation Capital.

“Pre-seed” investing is an alternative to raising a traditional friends and family round of financing, or collecting multiple checks from strategic angel investors to get a a startup idea off the ground. These rounds, which are typically $100,000 to $500,000, go to founders in exchange for a piece of their companies (5% to 10%) right at the idea stage, before there’s been any proof of concept.

Really, pre-seed investing isn’t anything new. A few years ago, these rounds were simply known as seed or angel rounds, lead by early stage investors like

like SV Angel, Lerer Ventures, or Thrive Capital. Startup accelerator programs like TechStars and Y Combinator also use a similar model.

Now many of those firms have gone on to raise much larger funds, and writing relatively small checks won’t yield the returns their funds needed to please their investors (limited partners). In addition, funding rounds have gotten more crowded, often pushing founders to raise millions of dollars before their businesses are ready for the capital.

Jet.com, for example, is a stealth e-commerce site that raised a $55 million Series A right out of the gate. Clinkle, a payment startup, infamously raised a large ~$25 million seed round more than a year before launching.

Business Insider/Alyson ShontellYik Yak is a startup that’s now worth about $400 million. It started as an idea on a napkin.

Raising too much money too early can blow up in a founder’s face. It can cause companies to spend money irresponsibly, before they even know

Read more: http://www.businessinsider.com/pre-seed-investors-look-to-fund-smart-people-with-startup-ideas-2015-4#ixzz3aKXHfsbx