tech-company, fundingWe are creating a B2B product/service. Currently we are developing our (technically challenging) software-product with our first customer. We expect to have some first results showing technical feasibility in 1-2 months. It has the potential to revolutionize its market.
I assume we do need outside money to be able to create and upscale the company as fast as we can in order to stay ahead of the competition (I assume we have a technological advance of 1 year). In that situation: should we acquire outside money or bootstrap? At what point in time is it most sensible to acquire outside money? Which type of money should we acquire (Crowd Funding, Crowd Investing, private VC/Angel investors, fools and friends)?
Crowd funding is still relatively new hence I am not sure how it really plays out. I don’t know anyone who has raised on crowd funding only traditional.
In terms of what VC’s want it is basically:
Depending on your type of product, it would adjust when to get VC funding.
e.g. if you are selling to Enterprise at $10k per install, then 5 or so will show sufficient tractions. If its a small B2B product, e.g. $29/mo, you will need to show at least a few hundred in a few month period and a low churn rate.
Some VC’s like the enterprise, I actually find most prefer a SaaS recurring model with many clients.
Basically at the point you are able to fund yourself to keep going is when investors start getting interested. It is an interesting scenario, they only want to give you money when you don’t really need it. But it gives you more negotiating power and if you could actually use it to rapidly increase sales, that is normally the time you want funding.
Angels can be useful if you need the capital to even get started however Angel investors want more control and more equity. VC’s mostly just keep an eye on things and let you run it. Angels I have found want to get in and be a key part of operations.
My opinion is to go with VC when you have sufficient sales, however start connecting with them right now. You can mention you are working on a start-up and what it is about (pitch deck) and that you may be looking for funding at later date. Ask for their opinions, always try to get warm introductions and then when you are actually going out to raise, you have a warm investor network and exactly what they want.
You need a marketing plan. As soon as you’re comfortable that you’re technology is ready, you’re going to want to get it in front of as many prospective customers as possible in order that you can capture a significant market share before those competing products appear in a year’s time. How do you foresee that happening? Print advertising? Mailshots? Cold-calling? Exhibitions? Merely closing sales will itself take time, potentially involving travel, demonstrations, contract negotiations…
The marketing plan will (amongst other things) detail your timetable, indicating exactly when you need how much investment to have been raised. Those factors will determine which sources of funding are most suitable to your needs—for example:
friends and family might hand over their money relatively quickly, but there may not be vast quantities of it available to you;
crowd-funding is likely to be slower, but could raise a lot more; and
professional investors have deep pockets and can often move quickly, but you have to find them first (and, if you don’t already have connections, that can take some considerable time; you will also want to have thoroughly prepared forecasts and presentations, which can themselves add delay to any process).
I’m a huge fan of bootstrapping. Look for customers. If you find enough of them, investors will find you. Then you are in the driver’s seat. You can then take their money, or just keep bootstrapping. Good luck.
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