Been speaking to an angel and he said a couple of things that stuck with me wanted to get your thoughts. Developers see no end of work for equity offers but as the angel put it if you haven't got funds you have failed as an entrepauner (Instagram raised money prior to product then paid their CTO) if development costs are 1000 and you pre-sell to 100 people for 10 (or 10 people for 100) you've funded development costs. Thoughts? Angel also said it is not difficult to raise money but you have to show an ability to bring in the bacon, and have revenue however small.
I think it depends on the context. I think a better question would be ‘would a startup in your situation ordinarily be able to access funds? If so why haven’t you been able to do so?’
From their point of view, they probably would ask this very question and wonder if there is anything amiss. Also, I think investors like to see that the team they are investing in has already made sensible business decisions and tangible financial commitment. Can’t blame them I suppose.
But these investors are there primarily to make money, not tick boxes. If you have a good idea and credible team and business plan there is no reason you shouldn’t get investment.
Everyone does the process slightly differentl, depending on circumstance.
With Sym Soil, I landed a $2.8 million contract. Then, started paying people (credit cards & PayPal) with the technical skeptic skills. The product is based on microbial biology, which can’t be sped up.
Then my advisors had me stop, do the patentability search, trademark and preliminary patent filing. THEN I incorporated- now working on the fundraising for the majority of the raw materials to meet the contract delivery date.
Your angel would say I did everything in the wrong order ... but you do what you can when you can.
I think there are a couple of questions you pose. One is whether or not your angel was correct in saying that you have to have sales/revenue before raising money. I think it depends on your particular company and business model, and I think it depends on the investor you are talking to.
Some products and business models need more "runway" than others before they can be logically expected to be viable to go to market. Some investors will be more patient than others, some will expect you to take x months to get to a minimum viable product and first customers, some will expect you to already be there before they put money in. I think you have to find the right investor that is a match for your company and lay out the expectations and a credible plan. Everyone will prefer to see sales of some kind ideally, but in some cases its more important to show customers and traction in the market place than to earn big $. For some industries, showing proof points (data) that your solution does what it claims to do, is going to be even more important than revenue.
Your other question seemed to be whether you need to attract a technical cofounder pre-investment. My answer is yes (full disclosure I have been a technical co-founder myself). If you are building a software product or service of any kind, you need to show investors that you have a credible technology roadmap and a plan for building out your product/service with intelligently selected platforms, languages, tools, architecture, etc. A technical cofounder does all that for you.
Can you attract a technical cofounder when you dont have much money? Its certainly possible, if there is a good match between your bizplan, your personality, and the tech cofounders goals and personality. Its a bit of dance, the cofounder doesnt want to work for free, and needs to see investors on board (and customers!) to have a belief system for you and your company, but of course its hard to attract investors when you dont have a well articulated technology strategy from an experienced tech cofounder. Chicken and egg, but it can be worked out.
A person who sells pizza isn't going to preach anything positive about subs or tacos. Did you research about companies that started with little to no funding?
He is an angel investor and that is what he is looking for (proof that his investment will be successful). You need a tech cofounder at the design stage otherwise your plans and product design will fail. You need to know the tech details inside out, including exact infrastructure requirements, coding languages and protocols that are going to be part of your solution. You can't be innovative and competitive just based on an idea - that doesn't work anymore. If your product is software based you must be super deep into the tech stuff - that is how you gain competitive advantage today.
The Angel may be asking a different question. the one in all investors minds: "How do you generate revenue". More important is if you can generate revenue (not being a solution in search of a problem to solve). There are many examples of companies that built technology nobody cares about. Having revenue is some proof, but the quality of the revenue is also an issue. Having $1000 come from friends and family is different than the same amount from people you do not know. This flows into the issue of cost of acquisition and lifetime value of a customer. If it costs $3000 to generate a $1000 in revenue, and your LTV of a customer is only $2000, investors will not bite. Whether you have a CTO or funding does not matter if you cannot generate revenue at a cost that makes sense. In the angels mind, he may be asking that question, simply; "Will anyone pay for this." If you can prove that out, then they will invest. It is also important to understand Angels are some of the most intellectually unruly people (versus VC with a mandate in a vertical), with as many approaches as there are Angels. What this angel wants may be - is likely to be - very different than the next. It is why, as with co-founders, it is crucial to make sure all of the team (including investors) have the same vision, mission, and ambition. You should have as many meetings as you can, get data from each meeting, and solve for the top concerns, and not change directions based on a single opinion.
Hit mi up if youre looking for a tech cofounder