What investors look for in pre-incorporation startups

Much of what you do before you even register a company could one day land in front of an investor.

The sooner you realise that, the stronger your position when you come to raise money. And it rarely comes down to solely the product itself. It’s you, the opportunity you’ve identified, and whether you’ve set up an investable business.

Read on to find out what investors look for before you incorporate, and how to get your startup ready to raise pre-seed funding.

Why investors care what happens before you incorporate

The UK remains one of the world’s leading startup ecosystems, with Dealroom reporting $23.7 billion in UK startup funding in 2025. Competition for pre-seed capital is tight, so you need the best possible start.

“Pre-incorporation” might sound like there’s nothing to assess. In reality, what a founder does before registering a company reveals how they think, how well they’ve prepared, and how robustly the business is likely to be run.

Investors at this stage aren’t always looking for revenue, a polished product, or a brand. They’re looking for evidence that the founder has identified a real problem, spoken to potential customers, gauged the size of the market, and started planning the legal and financial structure that makes investment possible.

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The founding team: Investors back people first

At the pre-seed stage, the team is often the single most important factor an investor evaluates.

Think of some of the most valuable startups today – Stripe, Mistral, and Anthropic – most were investable because of the calibre of their teams, some of which had already successfully exited multiple times.

While most founders aren’t anywhere near there yet, the same principle applies at every level of experience. Investors back people, not just the business.

What investors look for in founders

There’s no single profile that guarantees investment, but certain qualities recur in how angel investors and venture capital (VC) funds describe what gives them confidence at the pre-seed stage. These include:

• Relevant domain expertise – a strong, ideally first-hand understanding of the market they’re entering, whether through professional experience, academic research, or personal exposure to the problem.
• Complementary skills – a team that covers product, commercial, and technical ground is generally viewed as lower risk than a solo founder handling everything alone.
• Evidence of execution – this doesn’t have to mean a previous startup. A track record of delivering results in a previous role, a side project that gained traction, or a portfolio of relevant work all count.
• Resilience – early-stage companies face constant uncertainty. Investors want to see that founders can adapt, make difficult decisions, and keep moving when things don’t go to plan.

Solo founders vs co-founding teams

A strong solo founder can still attract investment – though it helps to go in aware of the scepticism you may face.

Many investors lean towards co-founding teams, since a second founder reduces “key person” risk and spreads the workload across complementary skills. That preference reflects investor habit more than founder potential, and the picture is shifting. Solo founding has risen from 23.7% of new startups in 2019 to 36.3% in the first half of 2025, according to Carta’s research. High-profile solo-founded companies, like Vercel and Midjourney, have helped validate the model with investors.

If you’re raising alone, pre-empt the skills gap question rather than wait. Be ready to explain how you’ll cover the ground a co-founder would – through early hires, experienced advisers, or a co-founder you’re actively seeking – and treat the equity you’ve retained as a deliberate advantage for attracting strong talent and backers.

Problem-solution fit: Can you articulate the problem clearly?

Investors hear hundreds of pitches. The ones that cut through tend to be those where the founder explains the problem clearly and concisely, from the customer’s perspective – not their own.

What problem-solution fit means

Problem-solution fit means three things: the problem is real, it’s experienced by enough people to constitute a genuine market, and the proposed solution addresses it in ways that existing alternatives don’t.

You don’t need to have built the solution yet. But you do need to show that you understand why current options aren’t hitting the mark or otherwise falling short, and what yours will do differently.

How to demonstrate it

The strongest founders at this stage have spoken directly to potential customers. If you can show that you’ve conducted interviews, identified consistent pain points, and used those insights to shape your proposition, that carries far more weight than assumptions backed by third-party reports.

Documenting those conversations, even informally, creates evidence you can reference in your pitch deck and investor meetings.

Market size: Is the opportunity worth pursuing?

Investors need to believe the opportunity is large enough to generate a meaningful return.

That doesn’t mean a billion-pound market from day one, but it does mean showing that the addressable opportunity can support a scalable business. Investors will ideally want to take some of their investment out earlier on while keeping the rest in the business long term.

TAM, SAM, SOM

The standard framework is grouped as TAM (total addressable market), SAM (serviceable addressable market), and SOM (serviceable obtainable market).

TAM is the entire potential market.

SAM is the portion you could realistically reach given your geography, pricing, and capacity.

SOM is what you could credibly capture in the near term.

Investors care less about the TAM headline and more about how you’ve arrived at SAM and SOM.

Bottom-up estimates built from customer research, pricing assumptions, and realistic adoption rates are far more convincing than top-down numbers scraped from an industry report.

Where to find the data

Free data from the Office for National Statistics and Companies House can help you size markets and validate demand signals.

Industry reports from trade bodies are also useful, particularly when cross-referenced with your own primary research. But again, this serves primarily as a starting point.

Graeme Donnelly, CEO & Founder at Quality Company Formations, says:

Having sat through hundreds of early-stage pitches, the ones that stay with me are rarely the most polished. They’re the founders who can describe the problem so clearly that you feel it yourself – usually because they’ve spoken to real customers rather than relied on a report. Pair that with an honest, bottom-up view of the market, and you have someone who understands both why their business matters and how large it could realistically become. That combination is what separates a nice idea from an investable one.

Early traction signals: What counts before you have a product?

You don’t need revenue to demonstrate traction at the pre-seed stage. What investors want is evidence that people care about the problem and are willing to engage with your solution in some form. Here’s what to consider:

• A waitlist or sign-up page – if you’ve driven traffic to a landing page and people have registered interest, that’s a measurable demand signal. Even a simple page for an online business idea can generate useful data.
• Customer interviews and letters of intent – documented conversations carry weight, especially if prospects have expressed willingness to pay or to pilot.
• A working prototype or minimum viable product (MVP) – even a rough version of the product that real users have tested and given feedback on demonstrates progress.
• Pre-orders or crowdfunding – platforms like Crowdfunder and Kickstarter provide tangible validation that people will commit money before the product fully exists.
• Partnership interest – if a potential distributor, retailer, or channel partner has expressed interest, that signals commercial viability beyond end-user demand.

The common thread across all of these is proof. Telling an investor “we think there’s demand” does not carry the same weight as showing them sign-ups, interview transcripts, or a letter of intent from a prospective customer.

The more proof, especially when tied to a truly novel idea, the better. A product that genuinely addresses a serviceable market, combined with strong evidence of demand, is the golden combination.

Pre-seed funding and investing in startups

The UK has a well-developed startup funding market. According to the British Business Bank, deal activity at pre-seed and seed has increased year on year since 2022, with angel investors and micro-VCs driving the majority of early rounds.

Most pre-seed funding rounds in the UK range from £50,000 to £500,000. The most common sources of pre-seed capital at this stage are:

• Angel investors – individuals investing personal funds, typically between £10,000 and £100,000.
• Micro-VCs and early-stage funds – smaller venture capital funds specialising in pre-seed and seed, often investing £50,000 to £250,000.
• Accelerators – programmes like Techstars, Entrepreneur First, and Antler provide capital (typically £20,000 to £150,000) alongside mentorship and network access, usually in exchange for 5 to 10% equity.
• Innovate UK grants – Innovate UK runs targeted, sector-specific competitions supporting R&D in areas such as health and life sciences, clean technology, and agriculture. The Biomedical Catalyst, for example, offers life sciences startups grants of up to £500,000 (and more for larger projects). These grants are generally non-dilutive – you don’t give up equity – though eligibility is tied to the sector and the application process is competitive.
• Friends and family – the most common source of pre-seed capital globally. Even at this informal stage, proper documentation and tax-efficient structures are strongly recommended.

Legal and structural readiness: What investors expect on paper

This is where pre-incorporation startup funding planning becomes directly relevant. Investors expect certain things to be in place – or at least clearly planned – before they’ll engage seriously.

Why you need a limited company

You can’t raise equity investment as a sole trader or an unregistered partnership. Investors buy shares, and shares only exist within a limited company.

Forming a limited company is the first structural step most investors will expect to see, including non-resident founders looking to raise capital in the UK.

Planning your share structure

Before you incorporate, plan how you’ll allocate the initial shares. Work out how to split equity among the founders, and how you’ll make room for future investors, employees, and advisers, before you register the company rather than after.

A poorly structured cap table (capitalisation table – the record of who owns what proportion of the company’s shares) can complicate or derail a funding round.

Understanding how shares work and the filing requirements for limited companies will help you maintain compliance, which is key for investors. , which is key for investors.

Documents investors expect to see

Even at the earliest stage, investors will want to review certain documents before committing capital – or at least see evidence that you’ve thought about them.

Excellent document management can accelerate due diligence, reduce friction in the process, and signal that you’re in control of the many aspects of running a company. The most commonly requested documents at pre-seed include:

• A pitch deck covering the problem, solution, market, team, traction, and how much you are raising
• A basic financial model with cost and runway assumptions
• A cap table showing current and proposed ownership, including any persons of significant control
• Evidence of incorporation
• A founder agreement, particularly where there are co-founders
• Intellectual property (IP) assignment documentation confirming that any IP created for the business belongs to the company, not to individual founders
• SEIS advance assurance confirmation, if available

SEIS and EIS: why tax relief eligibility matters

One of the most practical things a UK founder can do to attract early-stage investment is ensure their company qualifies for one of the government’s two main tax relief schemes.

Pre-seed investing is high risk. SEIS and EIS can offset risk by providing investors with direct income tax relief on the money they invest. Eligibility is a deciding factor in whether an angel invests at all.

SEIS (Seed Enterprise Investment Scheme)

As of 2026/2027, SEIS gives individual investors 50% income tax relief on investments of up to £200,000 per tax year.

A startup can raise up to £250,000 in total under SEIS. For every £10,000 an angel invests in a SEIS-qualifying company, they can claim £5,000 back from HMRC.

To qualify, the company must be incorporated, trading for less than three years, have gross assets under £350,000, and fewer than 25 employees.

If you haven’t incorporated yet, that’s the first requirement to meet – you can register your limited company with Quality Company Formations and then apply for SEIS advance assurance once it’s set up.

EIS (Enterprise Investment Scheme)

As of 2026/2027, EIS offers 30% Income Tax relief on investments of up to £1 million per year, or up to £2 million for Knowledge Intensive Companies (KICs).

Most companies can raise up to £10 million in a 12-month period and £24 million in total through EIS and other relevant risk-finance schemes. KICs can sometimes raise more.

To qualify, the company must usually have a permanent establishment in the UK and fewer than 250 full-time equivalent employees. Its gross assets must be no more than £30 million before the share issue and £35 million immediately afterwards, and it must generally have made its first sale to customers no more than seven years ago.

It targets slightly later-stage companies, though many startups use both sequentially – SEIS for the initial raise, EIS for follow-on rounds. From April 2026, the qualifying company limits for EIS were increased, meaning more scaling businesses are eligible.

Advance assurance

Before you raise funds, you can apply to HMRC for advance assurance confirming your company meets the qualifying conditions.

It’s free and strongly recommended, as it gives investors confidence that the relief will be available and removes uncertainty from the process.

According to HMRC’s 2026 statistics, over 4,000 companies applied for SEIS advance assurance in 2025/26 – a 24% increase on the previous year – and 76% were approved.

How to prepare your startup for investment before registering

If you’re not incorporated yet but want to be investor-ready when the time comes, here’s what to focus on:

• Validate the problem – speak with potential customers, document what you learn, and use that insight to shape your positioning and proposition.
• Build your team – or at least identify who you’ll need and when. Investors want to see that you’ve thought about the skills gap and have a plan to address it.
• Plan your share structure – decide how equity will be split between founders and how future investors and employees will be accommodated. Get this right before you incorporate to avoid costly restructuring later.
• Prepare your pitch materials – a 10 to 15-slide deck, a basic financial model, and a clear articulation of the problem, solution, and market opportunity.
• Understand your funding options – know the difference between SEIS and EIS, grants and equity, angels and venture capital. Each has different expectations and timelines.
• Incorporate – register your company so you can issue shares, apply for SEIS advance assurance, and enter funding conversations with the legal structure in place.
• Set up a business bank account – you’ll need one to receive investment and manage company finances. It’s worth understanding what’s involved before you incorporate.
• Apply for SEIS advance assurance – do this as soon as you’re incorporated. It’s free, it takes a few weeks, and it materially increases your attractiveness to angel investors.

Ready to incorporate?

Incorporation of a limited company is the step that turns an idea into a legal entity that investors can back. It unlocks the ability to issue shares, apply for SEIS advance assurance, and enter funding conversations with a professional company structure behind you.

It’s worth planning your share structure at this stage too, since how you split equity now affects how easily you can bring investors in later. You’ll also need a business bank account – both to receive investment and to manage your company’s day-to-day finances.

Quality Company Formations can help you get set up your limited company through one of our formation packages, each of which includes a business banking option with one of our eight banking partners. With the company formed, the shares in place, and a bank account ready to receive funds, you can move straight to SEIS advance assurance and your first investor conversations.