When should you look for funding?
Dave Costello
16 replies
In your esteemed opinions when should you look for your first round of funding?
Replies
DaveSwaap@david_costello2
Start feeling out for funding straight away! See what investors think about your idea/product. Definitely don't wait for it to be perfect!
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@david_costello2 Even with no founder/market fit, do you think that's a better option?
@rhexai I have a couple sites which have a dumb landing page without any functionality, no clear market fit, completely abandoned by me, yet, had few VC reach out and ask if I want to join their incubators. You can always start with no final concept in mind and refine it as you talk to investors.
Hi Dave!
Great to connect with you! I'm Tao, cofounder and CEO behind MindOS. We're launching MindOS Memory Twin this Sunday! 🚀
I would greatly appreciate it if you could stay notified and support us on the launch day: https://producthunt.com/products....
Thank you so much!
Best regards,
Tao
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Hi Dave,
That is a super tricky question and depends on a lot of variables.
1. If the first publishable MVP of your idea / product is pretty expensive to develop (e.g. SAAS, physical products, or research, etc.) you usually need to look for funding in the idea stage. In this scenario "expensive" is whatever is expensive for you, meaning the money you can´t or won't put up yourself but is needed.
2. The second reason to go look for funding pretty early might be when you see a strategic value in partnering with specific angels or investors, not just the money.
=> No matter the reason for very early funding, I would never talk to investors to "test your idea" or "see what they think" - unless you already validated your idea at least partially. One reason being that investors usually won't look at your product/service from a consumer perspective (e.g. give you feedback if they would buy it), and the second reason being that you don't want to "burn" your shot. What I'm trying to say is that "looking for funding" does not equal "product/idea validation"
3. Looking for funding roughly 6 months before you strategically need the money:
This assumes you did not already pick 1. or 2. The tricky part is knowing 6 months in advance that you will need the money. Usually, this money is needed to:
- scale marketing on par or above competitors (SAAS is usually pretty marketing intensive for instance)
- Go from MVP to market-ready product
- Hire the team members needed to execute a validated product/service
etc.
I want to recommend going for first funding as late as possible, but you need to always balance your own risk and there is definitely a "too late":
- When you evaluate your business a lot higher than the investors, because you already put a lot of your own money and time into it. From an investor's perspective, I don't care about that, it's only about the potential going forward, not what's already been put in.
- When you waited too long and your competition secured too much market share (maybe because they got funding earlier to secure it)
I hope this helps a little bit, but it´s super hard to answer without knowing more details. Keep in mind that these points might totally not apply to your situation, please dont blindly follow ;)
Good luck!
@grocerius Hi Andreas! Thank you for the explicit answer, it was super insightful for me as I'm currently asking myself the same question and thinking if I should go for the investments or not yet.
Btw, I took a look at the researchmate - amazing product, I see myself using it, have already started actually :)
@iam_bashar Thank you, still working on it, but thinking about launching it here some time in the near future ;)
Also, as a side note:
Before asking WHEN to raise money, ask yourself IF you should raise money.
It´s become such a trend to raise money and granted, it´s very cool, but can also be very time-consuming and depending on the amount you raise, shift your priorities.
Definitely not saying it's not a good thing, most of the time it accelerates things and opens up a lot more opportunities, but if your startup doesn't need it to get on the road you can ask yourself:
Is my goal to someday do an exit with a big bang or am I just as happy having a successful business that yields monthly returns as per my business plan?
Yes, a lot of ideas are not possible to realize without institutional money, but at the same time, a lot of ideas are. Keep in mind that roughly 90% of startups fail, not even half of them fail due to lack of money.
And: A successful exit is pretty rare, I think 1%? Maybe a bit more?
Then again: Getting a little money in early via a convertible loan agreement, and giving away 2%-8% of your company goes a long way in a lot of cases and usually doesn't hurt ;)
I would also say it depends on where you are: For instance, evaluations are a lot higher in the US than in Europe most of the time etc...
I just started being active in this community because I think it's so amazing what people do here.
If you need sparring partner and want to jump on a quick call, let me know. Any time.
I've tried startups with passionate teams/friends and no funding, but it never worked.
I'd say start with the investment right away. It'll teach you how to communicate and organize your ideas.
Fiery talks die down fast but paid professionals in your project goes a long way. If you can bootstrap, that's another story of course.
Jumping in at the 'Just Brewed an Idea' stage can yield high returns if you're willing to take the risk. It's all about belief in the vision.
There is no right or wrong just depends on how you want to proceed with your startup idea.
Speaking from experience, for me, it is the customer clapping moment, raising too early (pre-product/revenue) without PMF is a formula to disaster to raise more to keep figuring things out only to keep giving away more equities until eventually bleeding out.
If you have solid traction or PMF already and have a clear GTM then raising funds only accelerates your success.
You can do it any stage but not all funds will accept you at any phase. If you have a network of someone working in VC/fund you can reach out for a quick validation on funding. I did with some my startups and received various feedback.
It depends on what your longterm goal is, scalability, and the type of investment you seek.
Angels may go in earlier.
Venture Capital investment is for scaling (when you already have traction in engaged users/customers/revenue),it's not validating/fixing problems etc.
It also depends on how many are on the CAP table and dilution.
Remember, their main objective is their ROI to their LP's through an exit.
Limited Partners (LP) - provide the funds to the VC
Venture Capital (VC) - manage and deploy allocated funds to the portfolio
It's best to begin with a bootstrapped mentality/strategy, focused on customer discovery/acquisition. This leads you from a point of strength and more bargaining power RE giving equity to the VC.
Not every startup wants to exit (and it's not necessary to be reasonably successful without giving away part of your company).
Not every startup is VC back-able.
You must also match the right VC with your startup, there is no "one size fits all".
There are many additional variables to consider.
Things that massively matter to VC: (speaking from working directly with VC's, one of which is our founder of an AI VC fund in Silicon Valley).
- Strong team visualising the same direction and mission cohesively.
- Strong collective business ops/strategy/marketing/sales/tech strengths.
- Strong UVP (unique value prop)
- Strong traction (engaged users/recurring customers/recurring revenue)
- Strong scalability towards an exit
(again there are additional things)