investment, investors, angel-investorsIf I had a good idea, and I wrote a business plan, had some basic POC implemented. Is it time for me to look for investors or try to bring in the advisory board member?
The reason why I ask, is that people probably had good(or bad ideas thinking they’re good) and went the same route, so someone knows what are the steps of creating a internet company from everything like hiring/firing to setting a milestones for your company, delegating instead of micromanaging, putting the money where it makes more money (advertising), and all that business side to the business that somebody with tech background might not think it’s important but it’s really driving the business forward or backward.
I mean having an awesome architecture and code in your app is worthless unless somebody buys into your vision of the app, which might involve people buying subscription or whatever the business model is. Even after initial success of selling your product you need to know what comes next after 12-18 months down the road, and having someone to advise you or having someone that you can talk with these things is a great asset, instead of learning everything on your own as you build your business, team etc. Also investor money helps with advertising, hiring etc.
So based on your experience when is the right time?
The “right time” is going to depend on many factors. You may also come to a point where you are more than ready to receive investment, but no investors are willing to give you one.
Here are some very important considerations:
Without knowing the answer to these questions, it’s impossible to even begin the discussion.
If I had a good idea, and I wrote a business plan, had some basic POC implemented
This is only the beginning. Unless you have a strong co-founding team with startup experience, most early stage investors are going to think your company is far too immature at this stage. A LOT of people have business plans, ideas, even prototypes. That doesn’t mean there’s an actual market for their startup, and even if there is, it doesn’t mean that they can profitably reach it.
The ideal time (ESPECIALLY as a solo founder) to seek investment is when you have established some kind of measurable traction - revenues, users, pre-orders, or other forms of real engagement from your target market. Without that, you’re either not going to get a deal, or you will pay dearly for the investor’s increased risk.
You want to approach investors from a position of strength. Traction is the best way to do that.
If you’re pre-traction, yet can point to successful startups in your space (and of course, demonstrate why you’re better in some way), this can help - but an investor is still taking the risk that you can’t execute.
Before raising $500K at 19 I spent a $11,000 on an email address. In the meantime, I’ve learned a few things.
The only POC I follow is 10K/$50K rule. 10,000 users or $50,000 in revenue. Then think about investors. You may actually never need an investor or not for a very long time.
Many people get investors prematurely. They raise too much, don’t even have an idea yet, didn’t do the research, aren’t ready, give away too much interest and ultimately lose control, manipulating the investors into investing and then losing their money, etc.
If you have an idea, build it and have a real POC:(10K/$50K). Learn along the way, read books: outsource the mentorship to books.
If you want an investor for mentorship then you don’t need one.
These are my rules:
A. READ
500 books = 1 good mentor. Some people say “I don’t have time to read 500 books.” If you plan to be alive in 10 years, you might as well start reading now. -James Altucher (I’d recommend his blog).
B. 10K/$50K RULE
I started my first startup at 19. I raised $500K for 51% of the company. We had a compelling idea. But that was it. No code. No employees. No office. No POC. Nothing. Big mistake. We ended up changing the idea, screwing up several times. HUGE mess. Would have been better if we had the facts and figures POC first.
C. 24 MONTH RULE
If you do raise funds, raise enough for 24 months MAX. Startups burn WAY too much cash. Feel every cent being spent. When you’re at month 16, start thinking about the next round. First thing we spent cash on was a domain for $11K. Now, we’re not so sure of the name.
D. 1% OF SOMETHING IS BETTER THAN 99% OF NOTHING
If you’ve reached the POC (10K/$50K) and you absolutely need investment to expand (or death): servers, merchandise, machinery, employees, marketing, etc., and your investor wants too much, take it. 1% of something is better than 99% of nothing.
E. INVESTORS = MONEY
Investors are there for money. Having a big shot investor like Ashton Kutcher won’t help your business grow. In fact, it can probably hurt you more than it can help you. You don’t want people using your pdouct because Ashton Kutcher is on the board and he’s tweeting about it everyday. You want them to use your product because your product is GREAT and they can’t live without it.
F. ASK WHY?
Think about why you need an investor. If someone would approach me and say “Hey, I need your money because you’re a great mentor.” I’d say no. Businesses need money and investors to grow and make their investors and partners more money and to solve a problem. But experience is more important than the money.
Also, you’re risking someone’s hard earned money. Really think about that. Investors call you at 3am, some of them scream, others threaten, some don’t say a word and that’s the scariest. Be very wise when looking for an investor and considering an investor. Choose your investor as you would chose your spouse. Not easy because it’s choice that lasts a lifetime.
G. DURING AND AFTER THE 10K/$50K RULE YOU’LL HAVE EXPERIENCE
By the time you do need an investor and you passed the Facts and Figures POC you’ll know every corner of your business and of your industry. Learning will always be important. But mentorship won’t be your primary concern.
Today I’m 22. Not much smarter, but this is what has helped me in my experience with investors.
It is definitely time to put together a team that is capable of building your idea. You don’t have to hire them yet. Just get a commitment from them that if you can get the funding, they will build it.
Then get a team that is willing to help you promote the idea. At the very least make a video with a compelling story of why people need your product.
Then you are ready to talk to investors. Or better yet, get on a site like KickStarter and let the people that want your product fund it.
Either way, you are going to need a team that is committed to help you build this before anyone is going to take you seriously. Investors can be a great addition to the team but they don’t work well as the only other member of your team.
All content is licensed under CC BY-SA 3.0.