Fundraising · Investments

Do seed stage investors invest in ideas alone or look for more than just an idea?

Anonymous

January 11th, 2016

I have an idea that I am really passionate about.  However, I don't have the money needed to create or market it.  Will early stage investors invest in just an idea or is crowdfunding the best path?

Patricia Wetzel Founder at The Anti-Cancer Club™

January 11th, 2016

Our experience is that you need to prove your market, your ability to reach it, build the platform and monetize it before anyone will even talk to you.   I have a team that's created over $6 B in shareholder value including several Silicon Valley IPOs, we are looking at a global multibillion dollar market that is totally unserved and I cannot get in the door to discuss anything without a monetized POC for the final leg of this business.  Suggestions welcomed, and William, I'd love to speak with you about your experience!  Congrats!

Jeffrey Weitzman Consultant at Space-Time Insight

January 11th, 2016

Times have changed. Where "seed" investors used to back great founders with big ideas, my recent experience has been that institutional seed and early stage investors want to see product fit and a solid go-to-market strategy with real validation (doesn't have to be revenue) from that market.  To fund great ideas without a product, I think you have to look to bigger friends and family investment and individual angel investors, who are either open to more risk, or have experience in the field and can self-validate your idea and strategy to some extent.

Gabor Nagy Founder / Chief architect at Skyline Robotics

January 11th, 2016

Patricia and others are right: It's a catch-22: most investors won't fund you until you are at a point where you don't need funding.
You need funding the most when you start building your product / prototype, but nowadays, you are pretty much expected to build the prototype yourself, get clients, build a revenue stream etc.
At which point, why on Earth would you want to take other people's money and give up a chunk of your equity, or worse: risk losing control of you blood and sweat-built company entirely (to investors)?
As far as I'm concerned, "I'm monetized" = "I don't need/want funding."
I'd much rather grow my business organically than risk losing control of my company etc.
Think of it this way: what exactly would an investor bring to the table, when you already have a product, clients and revenue?
At that point, "outside money" is nothing, but unnecessary risk/liability.

Mike Langford CEO - finservMarketing

January 12th, 2016

Matthew, I think you may have misinterpreted my response. The question being asked is whether seed stage investors invest at the idea phase or do they need to see more.

I answered that it depends. Every investor is different, every idea is different, and every entrepreneur pitching an idea to investors is different. So...it depends. 

I shared a few examples where investors may invest at the idea stage. May being the operative word. 

I never suggested that investors should ignore looking at ideas or listening to pitches that are still in the idea phase. Nor did I ever say that I would "refuse to even look at the idea" as you suggested in your response. 

What I said was that seed investors aren't likely to invest at the idea phase. Investors are business people too. They only have so much time and a finite amount of capital to invest at any given time.

Your mention of Newton, Tesla, and Salk only support my response. Each of those men put their ideas into action. Anyone could've had the same idea but it was their execution that made all the difference.

Investors get pitched ideas every day. It's very common to be pitched the same idea by several different entrepreneurs. All things being equal, the investor will choose to invest in the business that has begun to execute on the idea and can demonstrate that they have what it takes to succeed.

Patricia Wetzel Founder at The Anti-Cancer Club™

January 12th, 2016

Matthew,

I like your take on who should pitch.  I've wrestled with this as well.  My COO is a big, friendly strapping fellow. People love him. But I'm the one with the in depth knowledge to pitch this, even if I'm a 5 foot 4 inch person with a softer voice.  Wharton business school not withstanding, apeople gravitate towards a perceived authority figure, and part of that is physical presence. It's interesting to watch; sometimes frustrating; and it's just human nature.  Too bad I'm a bit old to pull off the really short skirt!!! (part /sarc)

Rob G

January 12th, 2016

@Patricia and William; don't sell yourselves short. investors only investing in 20-somethings isn't much more than a myth.  Today there as many entrepreneurs in the 55-64 YO age bracket - 23.4% and climbing, as there is in the 20-34 YO age bracket - 26.2% and falling.  I think those are 2012 numbers so its likely a dead heat by now.  http://mitsloanexperts.mit.edu/not-all-entrepreneurs-are-young/
a recent WA post article noted that from 1995 (the height of the internet boom) to 2005 there were about 2x as many "successful" entrepreneurs over 50 as there were under 25 with a median age of 39.  That doesn't mean that these entrepreneurs are all getting funding from VCs, but VCs aren't stupid - they want success. Subject matter expertise has a lot to do with it.  Facebook was initially targeted at college students so it makes sense its founder was a college student at the time.  Workday is an ERP application (HR and finance mostly) founded by David Duffield when he was in his mid 60's - makes sense given the target market. Workday has a $13B+ market cap and plenty of happy investors - and David Duffield didn't need the money.  

Josh Miller EVP, Country GM - Zapper USA

January 11th, 2016

Investors will rarely invest in just an idea.  Crowdfunding might work, depending on the product.  Otherwise, do what you can to build a minimum viable product for raising a seed round.  The best way to get around that chicken and egg problem is to have a founding team (designer, developer, hustler) to allow that minimum viable product to be built for free.

William Agush Founder and CEO at Shuttersong Incorporated

January 11th, 2016

I raised money with just an idea. But you need a very strong idea and evidence you understand the market and have the experience to run it. Feel free to reach out and I'll share my experience. Also crowdfunding is not the perfect path the people want it to be. Sent from my iPhone please excuse any typos William Agush CEO Shuttersong Incorporatedl +1 989-492-0336

Patricia Wetzel Founder at The Anti-Cancer Club™

January 11th, 2016

That's exactly where we are and that's exactly the conclusion we've come to. Slower organic growth can be financed with non-equity vehicles.  I think of the story of a gentleman who built a company. Twitter wanted to buy it. He said no. Repeatedly. Until they made him an offer he could not refuse.

With enough cash flow, one can refuse for a very long time.  Perhaps what we're seeing in this conversation is a shift in market opportunities.  Angels used to invest early; now they're risk adverse.  VCs won't talk to you (unless you're 20 years old out of Stanford and have a app that says Yo!--they raised 1 m on that stellar idea! Download it and see what you think!); and everyone follows the herd.  This year, it's medical record; this year, it's wearables. The herd goes left; the herd goes right.  I think we can dodge the herd and find a saner, ultimately more profitable path that rewards the real creators and risk takers in the crowd. My team and me.

Craig Merry CEO/Founder of Beacon Safety Co. and Operations Coordinator at Purple Communications, Inc.

January 11th, 2016

Passion is a very good thing to have - it'll push you pass the doubts that more than likely occur after quite a few discussions with investors. 

I highly recommend what Joe said. Pitching your idea to someone who is interested in helping build the MVP will be a much much better return on your time than pitching to tens of companies before realizing that most are saying almost the same thing: we need proof that your product will sell/is selling. 

It's taken me two years to get from idea to v1.0 of the "MapMe.io" app, and I've bootstrapped everything myself. Little costs do add up. But these days, the internet and good community resources provide a lot of value for those bucks that could've went to vacations/booze/some other hobby. 

I'd read the "the lean startup" and "the lean startup playbook" - those are very good starting points and have helped me immensely.