What are pre-seed and seed funding?

Before we dive deeper into New York’s new matching program, let’s first ensure we understand pre-seed and seed funding for startups. Both phrases refer to a type of early-stage funding for startups and emerging businesses. However, the meanings of the two phrases do differ slightly.

Both stages are critical, as they provide the resources a new business needs to get off the ground and move toward profitability. However, securing funding at these early stages is not always easy and can be time-consuming — a difficulty New York’s new matching program helps relieve.

What is pre-seed funding for startups?

Pre-seed funding for startups typically refers to the initial funding that a company receives in its very early stages, often before it has a functional product or service. This funding supports the company’s initial development, including market research, product design, and hiring key personnel.

Pre-seed funding is typically provided by the founders themselves, friends and family, or angel investors. The funding amounts for pre-seed funding are usually smaller than other funding rounds, but they are still critical for startups to get the business off the ground.

One of the main goals of pre-seed funding is to help startups develop a viable product or service and validate the market need for it. With this validation, startups can use the data and insights gathered during the pre-seed funding stage to secure additional funding in later rounds.

How much equity do you need for pre-seed funding?

The amount of equity that a startup needs to give up in exchange for pre-seed funding can vary widely depending on the funding round’s circumstances, the startup’s stage, and the investors involved. In general, however, pre-seed funding typically involves a relatively small amount of equity; often, the funding comes from angel investors or a founder’s savings, so there may not be any specific equity requirement at all.

How does seed funding work?

Seed funding typically refers to the initial round of financing that a startup receives from outside investors. This funding is used to help the company move from the early development stage to the early growth stage to make the business self-sustainable.

Seed funding can come from various sources, including angel investors, venture capitalists, and crowdfunding campaigns. Generally, seed funding involves more money than pre-seed funding but less than subsequent funding rounds.

What happens when you get seed funding?

When a startup receives seed funding, it provides the necessary resources to transition from the development phase to the growth stage, which can be a critical turning point in the business’s success. It gives a validation point, demonstrating to investors that the company has potential and is worth investing in, as well as growth opportunities such as the ability to hire employees, expand products, or enter new markets.

Investors may also provide support and guidance, including industry connections and mentorship. However, seed funding also results in equity dilution for the founders, as investors acquire a portion of the company.

What is a matching fund?

A matching fund program for startups is a type of funding program in which an organization, typically a government agency or a private foundation, agrees to match funds that a startup raises from private investors.

The matching funds are usually offered on a one-to-one or two-to-one basis, which means that for every dollar a startup raises from private investors, the matching fund program will provide an additional dollar or two dollars in funding, respectively.

The purpose of a matching fund program is to encourage private investment in startups by reducing the risk for investors and providing additional resources for startups to grow and scale their businesses. Matching fund programs are often designed to support specific industries or types of startups, such as those with a social or environmental mission. They may have specific eligibility criteria and application requirements.

What does Governor Hochul’s announcement mean for New York State startup pre-seed and seed funding?

Governor Hochul’s announcement of a $30 million pre-seed and seed funding matching program is good news for New York State startups. The matching program is designed to encourage private investment in startups by providing matching funds on a one-to-one basis. This means that for every dollar a startup raises from private investors, the matching program will provide an additional dollar in funding. By doing so, the program is expected to attract more private investment in New York State startups, enabling them to access the resources they need to develop innovative products and services, create jobs, and drive economic growth.

In addition to supporting startups in general, the program is also expected to support startups in underserved communities, including those led by women, people of color, and other underrepresented groups.

According to the Governor’s office, the program will match investments from qualified investors in eligible seed-stage companies on a one-to-one basis, up to a maximum of $250,000 per company. If a company secures $250,000 in investment from a qualified investor, the program will provide an additional $250,000 in matching funds for a total of $500,000 in funding.

However, not all investors are eligible for this program. To be considered a qualified investor, an individual or entity must meet specific criteria, including being an accredited investor as defined by the Securities and Exchange Commission (SEC) and being a resident of New York State, or having a significant business presence in the state.

By setting these criteria, the program aims to ensure that the matching funds go to companies that are likely to succeed and to investors who are committed to supporting the growth of New York State’s startup ecosystem.

What are the tax implications of Governor Hochul’s early-stage matching fund for startups?

The new program comes with significant tax implications for both startups and investors.

From the startup’s perspective, the matching funds received from the program will not be treated as taxable income. This means that the matching funds will not be subject to federal or state income tax, which can help the startups to retain more of the funds raised and reinvest them into their businesses.

On the other hand, investors participating in the program can benefit from tax incentives — the program offers a tax credit for qualified investors who invest in eligible seed-stage companies, equal to 20% of the investment, up to a maximum of $200,000 per investor per year. This means that if an investor invests $1 million in an eligible seed-stage company, they can claim a tax credit of $200,000. The tax credit can be used to offset the investor’s income tax liability in New York State, which can significantly reduce their tax burden.


It’s important to note that the program guidelines have specific criteria that investors must meet to qualify for the tax credit. For example, the investor must hold the investment for a minimum of three years, and the investment must be made in a qualified New York State-based startup. Additionally, the program has a cap on the tax credits available each year, so investors will need to act quickly to take advantage of the program.

To take full advantage of the opportunities offered by the new matching fund program, startups need to consult with an experienced tax accounting firm to ensure compliance with tax laws and regulations. If you’re a New York State startup or investor looking to take advantage of this program, reach out to our team for expert guidance and support.

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