I often get the same questions from founders early in their journey: how much equity should I give away at pre-seed, how do I structure tech milestones so investors trust us, and how can I avoid giving up the wrong kind of control too early? Over the years — testing product hypotheses, building prototypes and negotiating term sheets — I’ve developed a practical framework that balances founder incentives, investor protection and the operational realities of shipping software. Below I share what I’d do (and have recommended to founders I work with) when structuring pre-seed equity and tying it to tech milestones.
Start with clarity: what you’re selling at pre-seed
Pre-seed investors are not buying a finished product. They’re buying a roadmap and a team that can execute it. That means your equity and milestone structure should reflect uncertainty while giving investors tangible triggers for progress.
Before you talk numbers, answer these internally and be ready to explain them: product scope for the next 12 months, key technical risks (scalability? data quality? ML model performance?), minimal viable metrics that materially de-risk the idea, and the team roles needed to hit those milestones.
Common pre-seed equity conventions I follow
Founders make mistakes by either giving away equity too cheaply or overcomplicating the cap table with too many instruments. Here are conventions I recommend as starting points:
Linking equity to tech milestones: structure options
Investors want both upside and assurance that progress will be made. One elegant solution is tranche-based equity or milestone-triggered convertible instruments. I prefer to keep the legal mechanics simple while making milestones concrete and measurable.
Here are practical ways to structure it:
Example tranche schedule (realistic & clear):
| Tranche | Amount | Milestone | Timing |
|---|---|---|---|
| Tranche 1 | 40% (£200k of £500k) | Prototype with end‑to‑end flow + 500 engaged users | Immediate |
| Tranche 2 | 30% (£150k) | Paying cohort (10 paying customers or £5k MRR) + stable infra | Within 6–9 months |
| Tranche 3 | 30% (£150k) | Gross retention metrics + technical scale test (1k concurrent users) | Within 12 months |
How I define quality tech milestones
Vague milestones kill trust. If you promise “improve pipeline,” investors will be skeptical. Instead, pick milestones that are:
Drafting acceptance criteria: an example
For a typical SaaS pre-product milestone, I’d include a short acceptance clause like:
“Milestone A is considered achieved when the company demonstrates a working end-to-end prototype to the lead investor, with a data-driven usage dashboard showing at least 500 unique signups and 50 users reaching the core conversion event within a 30-day period.”
That wording avoids ambiguity: it names the reviewer (lead investor), the evidence (dashboard), and the metric (500 unique signups + 50 conversions in 30 days). It’s not perfect, but it’s verifiable and fair.
Protecting founders: guardrails I insist on
Investors need to protect downside; founders need to protect control and optionality. My recommended guardrails:
Practical negotiation tips I use
Checklist I share with founders before a pre-seed term sheet
I’ve seen founders land better outcomes when they present a milestone-driven structure that’s fair, measurable and operationally realistic. It signals that you’ve thought through execution, that you respect investor risk, and that you value long-term partnership over short-term concessions. When done well, these structures preserve founder control, accelerate product delivery, and build genuine investor trust — which is the whole point at pre-seed.
