Fusion’s annual Report Shows Surge in Pre-Seed Investment

Pre-seed investments typically provide the initial funding necessary to launch a startup, but they are challenging to track, often staying under the radar and being unreported in databases or the media. Fusion's report sheds light on this often-overlooked funding stage, offering a comprehensive view of the market. The report analyzes data from 51 active angel investors, covering 201 deals, and 40 seed and pre-seed VC funds that provided data on 164 deals. It also draws on Fusion's proprietary data, which includes nearly 1,100 Israeli teams at the pre-seed stage over the past year.

Key Findings from the Report

The analysis reveals that half of the pre-seed rounds range between $825K and $1.5M, with startups securing a median valuation cap of $6M or higher. The median round size stands at $825K, with $750K coming from VCs and $75K from angels. As a result, the average founder dilution is 12%, with ownership distributed as 11% for VCs and 1% for angels.

Despite the stabilization of both global and Israeli markets, valuations have remained largely stable. According to the report, 63% of VCs and 50% of angel investors noted that valuation caps were consistent compared to last year. However, 31% of VCs and 38% of angels reported investing at lower valuation caps.

One of the most positive takeaways is the growing success rate of pre-seed investments. According to the data, 58% of VCs and 41% of angels reported that at least half of their pre-seed investments over the past two years matured into a seed round. Furthermore, 56% of VCs and 57% of angels believe that startups typically take 12-18 months to raise a seed round following pre-seed funding.

Surge in Angel Investor Activity

An encouraging trend from the report is the significant increase in angel investor activity. While last year only 8% of angels made more than five investments, this year the figure has quadrupled to 32%. Additionally, the number of angels making more than eight investments increased from 4% to 10%. This surge is attributed to the stabilization of the war and Israel's impressive achievements in the tech space.

Another major factor in the increased activity is the widespread adoption of AI technologies and no-code platforms by founders. These innovations have lowered technological barriers, allowing lean teams to create more advanced initial products, often with minimal funding. As a result, more mature products are entering the market at an earlier stage, reducing the need for heavy funding.

Shifting Investor Behavior and AI Dominance

The report also highlights a shift in the role and composition of investors in pre-seed rounds. The number of rounds involving a single VC dropped from 32% in 2023 to 22% in 2024. This decline reflects increased competition for pre-seed deals, with funds now preferring to collaborate with other investors to secure a position in high-potential teams. At the same time, angel investors have increased their presence, with more writing larger checks, as evidenced by the drop in rounds with 3-4 angels, from 72% to 45%.

AI continues to dominate the investment landscape, with 78% of VCs and 63% of angels investing in AI-related startups. However, concerns over market saturation and competition led 20% of investors to steer clear of AI startups altogether, with only 10% expressing interest in deep-tech AI ventures beyond the application layer.

A New Era for Pre-Seed Investments

Amit Shechter, Head of Fusion’s Investment Team, notes that investors are now holding startups to higher standards, expecting product maturity, team execution, and market validation alongside attractive valuations. This marks a significant shift from previous years, where investors were more willing to back companies at the concept or pitch stage.

Yair Vardi, Founding Partner at Fusion, advocates for the use of SAFEs for pre-seed rounds, citing their flexibility and effectiveness in securing early-stage funding without inflated valuations. According to the report, 51% of VC-led pre-seed rounds in 2024 used SAFEs, up from 42% last year, reflecting a broader trend towards this approach.

In conclusion, the pre-seed investment landscape is evolving rapidly. With the stabilization of the global market, increased competition, and the rise of new technologies, investors are shifting strategies and expectations, while angel investors are becoming more active than ever. The coming years will likely see continued growth in the pre-seed sector, with leaner, more mature startups emerging at earlier stages.