Startups · Fundraising

Is it a good timing to raise fund when the product is under development?

Whitney Zhan Founder at UWe Technologies

May 3rd, 2016

The developer team has been briefed. And they are about to kick off the work. We are considering funding for hiring and marketing so that the business could be launched quickly when the product is ready. What type of resources would you suggest? Any recommendations are welcomed.
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Michael Brill Technology startup exec focused on AI-driven products

May 3rd, 2016

A bit of a contrarian view, but I'd recommend going out and trying to raise money right now. You may not make much progress on money, but you'll get a ton of experience pitching investors, get valuable feedback and, importantly, be able to go back to them in a few months with the progress you've made since your initial visit. Maybe you find an advisor through the process... but you certainly get a lot smarter.

If you can get people to talk to you and you have the bandwidth, do it.
 

Elise Krentzel

May 3rd, 2016

I agree with Michael. I have a startup right now and the product will have to be tested again and again. Some say to wait for seed capitol. I'm not going to since we know our market, segment and have testimonials from engineers who say our product is feasible. So the key here is market + manufacturing. If you have your marketing down and research to back it up and a process that is actually doable then go for funding now. 
In a previous incarnation I raised over $1M for a product we hadn't yet developed. It's doable!

Jennifer Ernst

May 3rd, 2016

I tend to agree with Michael Brill.  You may not get funding, but you get on the radar. Most investors I've seen like to see the company make progress, particularly if they don't know / know of the principals, even if only over a few months. When raising larger amounts 6 months of observation aren't unusual.

Joe Albano, PhD Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.

May 3rd, 2016

I'm going to assume that you have identified and tested the market before building the product and that your question is about raising funds to scale up. 

This would be a good time to build some financial models based on different adoption/demand rates, price sensitivity, and competitive landscape/response. You might also include production, distribution, and other operating and capital costs 

... this scenario planning should give you some indication of how much funding you need and when you will need it. Remember that it usually takes longer to secure funds than you anticipate (regardless of the "intent" signaled by prospective investors) and that your employees, suppliers, etc. will only work "on credit" for a VERY limited amount of time. 

Bottom line: if your business is poised for growth you will need funds faster than you think you will. Have a fundraising/investment strategy and a spending plan. 

Joe Albano, PhD Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.

May 3rd, 2016

Thanks to Michael and Elise for their comments. Although many investors will not be willing to invest in your product at this stage, getting a product to market is expensive. Different investors will invest in different markets at different times. 

For example, consider the pharmaceutical industry. The whole concept of MVP doesn't really apply ... the value to investors is different. I suspect that you're not in pharmaceuticals, and that's not the point. 

The point is that as a founder/CEO/leader, your job ... your primary responsibility is to make sure that all of the resources necessary to build your idea into a product and your product into a business. Yes, you can depend on the kindness of strangers and the 3Fs ... or you can hit the streets and find alignment with the right investors. 

Martin Omansky Independent Venture Capital & Private Equity Professional

May 4th, 2016

There is no hard and fast rule. In general, the more developed the product, the more likely it will get outside financing and the cheaper the price will be, in terms of equity, in exchange for the funds. If you can get funds from insiders, friends, and family, it would be preferable. Many projects (such as life science deals) require lots of time and money - usually well beyond the means of the innovators. In such cases, try to find "affinity investors", defined as R risk investors who know a lot about your technology, industry, or market. Sent from my iPhone

Chaim Sajnovsky owner at b7dev.com

May 3rd, 2016

you will need some kind of prototype or such working in order to raise money..maybe need to wait a little more.

James Michels Founder at Present Future, Inc.

May 3rd, 2016

You'll get better terms if you have an MVP with even a small number of real users. You can address some of the bigger development risks early, get a feedback loop going, and prove that at least *some* users value the product. Common mistake to go too far down the design / build path before confirming that the value prop is apparent to the market. 

Agree with Joe's comments re modeling - indisputable value there. But, before you've got users, models should be taken with a big grain of salt. 

Also, safe bet that the MVP (alpha, beta, whatever) will require more time and or money than your pre-development estimates. As the MVP becomes a real thing, the "must have" feature list tends to grow.


Sakthi Saravanan

May 3rd, 2016

Focus your energies in getting the product right and in getting the first few customers. Hit the road to raise funds after that..

Michael Meinberg Teacher (iOS Development) at The Mobile Makers Academy (A Hack Reactor School)

May 3rd, 2016

Almost impossible to get funding for pre-MVP development.  As James, Chaim, and Sakthi said, most investors want an MVP that in the hands of at a least a few customers before they will give you anything.    Your best bet for funding now is the three FFF's:  Friends, Family, and Fools...