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?

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.

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.

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!

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 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)

Patricia Wetzel Founder at The Anti-Cancer Club™

January 12th, 2016

Never tell your mother in law how to do motherly things!

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.  

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.

Rob G

January 13th, 2016

I don't think venture investment markets are irrational or wrongheaded.  This thread is about investing at the idea stage - professional investors or crowd-funding? I think the professional investment community (angel and VC) learned a valuable lesson in early 2000 and the current landscape reflects that - that would indicate that the professional investment community is rational, it corrected itself. It's starting to again get out over its skis by shifting too much money into later-stage unicorns with over inflated valuations, but that too is due for correction.  irrational would be to continue to invest in half-baked ideas with inexperienced entrepreneurs and expecting a different result.  The age issue is just a proxy - the theory being that a couple of 25 YOs and a dog in their garage can commit to unbelievably long hours without the distractions of family and financial commitments and often the blissful ignorance of not knowing it can't be done.  sleeping on the floor and eating only takeout helps.  It's seen by investors as a low-cost, fail-fast experiment.  Yes, with age comes experience and there is no substitute for experience.  With age and experience comes the expectation of proof that you can execute.  An idea isn't execution - even a fully-baked, good idea.  And yes, the life experience of the typical 20-something is pretty limited, but that also means the smart ones can spot valuable trends in what 20-somethings spend their time and money on - they understand that market and that's valuable insight the typical professional investor doesn't have.  The fact that crowd-funding is making inroads and recently received the reluctant blessing of the current gate keepers (Wall Street) indicates that there is an opportunity that is not being met by the current system.  Kickstarter and Indiegogo flourish because they fund (or were initially intended to fund) passion projects.  Kickstarter Investors aren't making large, risky investments on behalf of their wealthy LPs expecting a 10x return on a documentary or a new widget.  VCs have a fiduciary duty to maximize returns to shareholders (LPs) so they don't fund passion projects or idea-stage projects (rarely).  Too many attorneys sitting around ready to sue the VC firm that violates that fiduciary duty.  I suspect we will see history repeat itself (and in deed we have with some Kickstarter and Indiegogo funded ventures not delivering) when amateur investors start funding bad ideas and incapable founders while expecting a nX return on their investment, but that's what markets do: they find a balance between risk and reward. Pretty rational.