Fundraising · Venture capital

Funding before or after MVP?

Rene Joergensen Looking to build an interesting start up

July 10th, 2016

We are going from idea to design of a new booking platform for beauty services. I have been approaching possible funding sources, and so far, only been told to come back after MVP. I hear this more and more, but my co-founder thinks its possible to get founding before because its a spin off of his current (successful) company. How hard is it to get funding before MVP? And how would I go about it? Or should I wait till after MVP? (not to waste time or burn bridges)
As a founder, you’re always in fundraising mode (whether active or passive). In this course, we’ll teach you how to successfully raise follow-on capital, establish a valuation for your company, build an investor pipeline for your next round, and more...

Bryan Brewer Startup mentor, educator, and entrepreneur advisor; focus on helping companies raise investor funding.

July 10th, 2016

Whether or not you have an MVP addresses only the business stage of your company. Sometimes you can get funded before MVP, sometimes not. It mostly depends on the other factors investors look at: your business model, market strategy, management team, and the deal. If you are strong in all these area, then you have a better chance of getting funded.

Take the free Minimum Fundable Company Test -- which covers all these factors -- to get an idea if you startup is investor ready. www.mfctest.com

John Seiffer Business Advisor to growing companies

July 10th, 2016

Nowadays it's fashionable for investors to want to see traction before they invest. Yes, there are fashions in the investor world - they just don't always tell you about them. 

W/out traction an MVP won't get you investor money. An MVP doesn't have to actually mean a product. Go re-read Lean Startup. MVP is a learning vehicle to learn what customers want to buy. It can be (and has been) everything from paper mock-ups, to video explanations, to actual working prototypes. But it's purpose is to learn what customers want to buy AKA traction. 

Anonymous

July 10th, 2016

Depends on the founding team. If you've had a successful exit or two, you might be able to get your idea funded. If not, your rule of thumb is to go looking for funding when you no longer need it to exist, only to accelerate.

Rajiv Menon Founder at Informulate

July 11th, 2016

It is possible to get funding before MVP, but why would you? (This is not a tongue in cheek question, there needs to be a good reason to go after funding prior to serious validation). There are numerous cheap ways to build MVPs and get validation. Investors don't just judge ideas, they are very interested in what you have accomplished. You lose more equity and generally get a different class of investor, the less validation you can bring to the negotiation. You must have a strong reason i.e. some other market validation (outside of an MVP) to get in front of investors like LoI from large companies etc. I'm a mentor/advisor to startups, so let me know if you want to discuss further. 

Andy Terrel Fashion Metric CTO , NumFOCUS President

July 10th, 2016

It is definitely possible to get funding before MVP. I look at funding like an onion. Every validation you make for the investor is like a layer of the onion. The fewer layers, the closer to the core idea they get. 

An MVP is one such validation for investors. Others include team, opportunity, and competition. Have an amazing proven team that has made investors money in the past, no MVP needed. Have an idea that fits an investors needs so soundly that other companies are licensing before any code is written, no MVP needed. 

In the end it's all a sales job, and an MVP does eliminate one barrier for the investor. 

Celeste Ruberti Independent Colorist and Stylist

July 10th, 2016

I'd be interested to know what your product does differently than the existing booking platforms already available. Switching to a new booking platform is a huge undertaking for any business. StyleSeat and Schedulicity do it well, although IMO are missing out on opportunities. I'm wondering how you will compete with them.

Ema Chuku Designer. Product Developer. Founder @ NuPad

July 12th, 2016

As long as you understand we are no longer in year 2012. That said, you probably should focus yourself into getting a functional product with traction before approaching investors. You have better leverage and more chances at creative success.

If every idea were funded at pre-mvp, there will be no funds left for food. (Hope you get the irony there).


Rene Joergensen Looking to build an interesting start up

July 10th, 2016

Some good advice and points here, thanks.

@ Celeste: we are launching in Canada, where there is practically no competition at present. Later, part of the expansion strategy is a focus on emerging markets, and then we want to compete by adding more value. True, StyleSeat is a good platform, but you can go a lot deeper into solving customer pain and improving the booking process. E.g. one pain point is the inconsistency in quality, and here we will be adding new things as a true buyer-picked platform. Besides innovation, my partner runs an online marketing company, so we would not only compete online but also supply users with new clients, something StyleSeat doesn't really do. Either way, its a double digit growth market with a lot of opportunity and room for improvement, and since this will be a spin-off of my co-founder's business, we are not afraid to enter or compete.

Martin Omansky Independent Venture Capital & Private Equity Professional

July 10th, 2016

If investors come in early, they will likely take your socks, underwear, and equity. Sent from my iPhone

Jennifer Fortney 20+ years’ experience in PR & marketing comms; Founder of Cascade PR, Chicago firm for small business & startups.

July 13th, 2016

Good comments here and I agree with a lot of it.

Every investor is different and it depends on the relationship. Often times if they know you personally they may take it on. However, while it's possible, it's more rare. We all read the stories in Inc. about how a company got funding pre MVP, but we don't know the relationship that existed beforehand.

Most importantly, the MVP is to reduce the investor's risk. Can't blame them. They want to know where their money is going and, more importantly, have an actual vision of what they are investing in.

I work with all startups and growthups and can tell you that I've never had a client get funded without a MVP. 

Moreover, the MVP shows investors that you're willing to put your money where your mouth is. If you're willing to invest in the idea, than you're really serious and they will consider taking you more seriously.

Hope this is helpful!