Startups · Fundraising

Is it ever possible/sensible to sell concept/URL or majority stake at the idea stage?

Miriam Silver Consultant Clinical Psychologist / Director, LifePsychol

May 22nd, 2016

I have a (very) small business, and one product/service that we launched recently and are steadily growing (an assessment outcome measurement system for children with complex needs that ties in closely to my work as a clinical psychologist). However, I have another idea that I think is really commercial and I can't get it out of my head, although I'm aware I can't do both at the same time. Broadly, it is a website-based service like Just Eat or Groupon or money supermarket but in a field where marketplace reseller sites don't yet exist, with a unique hook. I also have a good name/brand/URLs.

Everyone I've spoken to about my new idea thinks that it has the potential to really take off, and I've had very positive responses to the little pitch I put together from potential investors and advisors. One seed stage investor was particularly keen, two angels loved the idea but wanted me to go back with a working website, one fund manager told me to ditch the rest of my business and jump on it as it has a limited window before someone else will think of something similar and the niche will narrow. And I've had no negative feedback or cautions raised by anyone - despite speaking to several serious business advisors, and many people in my extended network.

I am left with a tough choice:
1) follow my original idea and let the new idea go
2) follow both ideas, but do neither of them justice
3) ditch everything else and follow the new idea

So I started to wonder - is there ever a case in which it would be possible and/or make sense to sell entirely or to become a minority stakeholder at this early stage? I've got the name, URLs, some branding, the concept, an outline of how it would work (including what I believe are the unique hooks to gain market traction), the background for a simple pitch, and some financial projections. The buyer would need to make the website, and spend the money, time and effort populating it. My estimate was that 18 months and £200k will be needed to get it to a product that is up and running and more than covering its own costs, and ready for a second funding round...
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Sharon McCarthy Chief Marketing Officer

May 22nd, 2016

The most successful entrepreneurs hedge their bets. They don't go full out on their new, big idea; they keep their day job, while they incubate the new business. I'd develop an MVP for the new idea (which really should cost a lot less than $200k), decide in advance how you will know your MVP will be successful, then do both. Once you hit your success benchmark, go full out on the new idea. In the meantime, consider getting a partner now for the first business, so you keep your job as a psychologist, advise the first business,  participate in its upside, then win bigger on the new idea. Good luck!

Shobhit Verma

May 22nd, 2016

Hi Miriam,
Unfortunately there are already many good ideas out there. However, very few startups succeed at executing those ideas. That is why people do not like to pay for ideas/urls.
If you really believe this could be something big and you do not have the time and energy to execute is, you should *invest* in the idea.
After all what are investors anyways ? They are people who have good understanding of what works in the market, have a good taste for what ideas can make it big, but do not have the time or energy to bring the idea to a company stage. They keep an eye out for entrepreneurs who are coachable and share the same passion and vision for the underlying problem as themselves and when they find such a team, they invest.
By looking for cash incentive upfront, you are yourself selling the idea short. If you believe it can be big, why not go for equity ?
If the reason behind cash and not equity is that you do not believe the new team will be able to execute that idea very well, why should you ask them to pay for the idea when they are going to fail anyways?

If I were you, I would either invest $ in a team or advice them in exchange of very small equity.

Abdo Magdy Entrepreneur, Storyteller, Group CEO at EGY Enterprises Ltd.

May 22nd, 2016

Agree with what had been mentioned on hedging your risks.

Depending on what you intend to do, sometimes there are scripts/open source software that you can used to build your MVP website that would be acceptable to investors.

You can prepare a list of basic features you'd like to have and post a project on freelancing sites and receive bidding on the project. You might not need to invest more than a few hundred bucks to get a website and then stand a better chance with investors.

It makes sense to decide to move from your very small business to the new idea once funding had been secured (You can also tell that to investors).

Examples:
Wordpress with some specialized plugins 

Michael Brill Technology startup exec focused on AI-driven products

May 22nd, 2016

+1 on Abdo's comments: don't overestimate the cost developing a site. 

Most concepts can be built for <= $5K... sometimes much less. Launch it in 6 weeks, not maybe someday.

Wordpress plugins cover a *lot* of models. There are multiple clone scripts of things like groupon, just eat, etc. Maybe these aren't your strategic platforms but they get you going quickly.

The reality is that 98% of your idea has already been thought of by a large number people, some of whom have actually built products around it. Leverage their work and go conquer the world.

Severin Sorensen Talent headhunter, executive coach, and Vistage Chair

May 22nd, 2016

I'd encourage you to be much more interested in your current business with a proprietary assessment model and tool where you have a deep rooted niche, than going with a start-up idea for a unicorn business where you have no money, team, or experience.

If you are not persuaded, then build the new site in your 'garage' until you can prove your MVP.  Then with some traction you might have sufficient hope, customers, and market interest to proceed.  However, for me the new idea seems like an Elysian field a bit to far off of your core capability.  Just my thoughts.

Best wishes for your success with either path you choose.

Deepak Rao

May 25th, 2016

As disheartening as it may sound to you, investors put money on idea+execution+revenue. Not the idea alone. 

Chris Hote Start-up coach, investor

May 22nd, 2016

Hi Miriam, 
As you mention, it seems you already have a team for the "small" business.
What would it take to delegate part of your responsibilities in the "small" business to one of your colleagues? If so, you may focus on your new idea and build a new team around it.
PS: 18 months/200K for a new site seems quite high numbers. How did you get to that estimation? 

Miriam Silver Consultant Clinical Psychologist / Director, LifePsychol

May 22nd, 2016

The ?200k is what I estimated it would take if we built a really good website with all the features and then used six full-time staff to ensure that all the providers wanted to be listed on it. It is the most pessimistic projection of the deepest point of the well before it will bring in sales that cover costs. The estimates are that by 18 months it will make ?15-70k per month of net profit, and be ready for a second round of investment with a decent valuation. If we slow development and populating, we risk competitors springing up before we corner the market. If we go for second stage investment too early then we might undervalue.

BTW "Small" really is small. Current team for the existing project and turning over the normal business that pays us each month is me plus one graduate and a 2 day per week psychologist who is currently on maternity leave. We've just taken on an admin, but we have neither the scope to create capacity in house or fund the new project ourselves. And I'm just one person running things, with a 3-day-per week contract for consulting/training that pays my mortgage.

Seedrs loved the idea, but wanted it to be shown on their site as a working website so that their investors could see it in action. Various angels and fund holders said similar - love the idea, but get it to a working website with a user base and come back to us, then instead of asking for 40-60% of the valuation we'd give it now, you'll be asking for 10-20% of the value we'd give it at that point.

Maybe we do just need to develop the website to show the idea in action - after all, I know a lot of techies and already run a professional community website that gets nearly 10 million page views per year. The difficulty is finding the time, when I'm struggling to keep up as it is (and have young children and home commitments to balance too).

Moti Barkan Founder at HackNot

May 22nd, 2016

Could you patent your idea given the Alice case? In any case, focusing is extremely critical in the success of a business. Do you think that someone else could manage your current business while you work on the new idea? An option is to build value for the new idea by allowing someone to have atractive share of it.

David Austin

May 23rd, 2016

Sounds like seedrs is just looking for an mvp website ... which is probably like Michael said: under $5k.  Maybe even far less than that. Not sure I'd jump on the bandwagon of hiring 6 people to bring in "providers" anytime soon.  Although your idea may be hot, don't be so convinced that it's going to popup any second now if you don't jump on it quick.  The functionality in Facebook wasn't new or really all that novel, and only succeeded because it did better what had already been done for many years, key phrase: already been done for many years.  Same with eBay.  The #1 reason well-funded startups fail is because they rushed to market  - too much investment too quickly.  Can you get some IP (fyi ... you can't get IP on a business model, but you can on an interface, or upon an essential algorithm upon which an essential interface is entirely dependent)?  Sometimes just staking your claim is enough to give you some breathing room so you can do some due diligence and grow it responsibly.  You don't need 6 more employees to do that.  Six employees are hard to manage in a startup ... you won't have time to manage the business and them.  Can you at a minimum, by yourself, make a partnership with a fairly substantial provider that will give you clout?  If you can't then you're probably going to need a cofounder who can.  In summary ... fear that someone is going to steal your idea is the worst reason to jump now, or jump as far as you think is necessary.  Take a measured approach, secure what you can, count your pennies, and grow responsibly ... and if you are meant to grow quickly then that will happen on as you execute on point.  In short, don't quit your day job quite yet.