Yes , SSO database needs to be created first.
Run the script rsaIMSLiteMSSQLSetupTablespaces.sql and rsaIMSLiteMSSQLSetupUsers.sql available on <vCenter Iso>\DBScripts\SSOServer\schema\mssql and then proceeed with vCenter SSO install pointing to the this database.
Ensure to take a backup of the vCenter database before you perform the upgrade.