Startup incubators · Minimum Viable Product

Is it reasonable to seek out an incubator to fund a MVP?

Steven Corn CEO at Metis Advantage

July 8th, 2016

I need to build an MVP for which I have already done a lot of prep work.  I have done market research, competitive analysis, developed an initial wireframe, built a deck and business model.  (I realize that all of these doc's are living and breathing and subject to modifications.)  It's my understanding that accelerators are generally not appropriate without a MVP.  Nor do I feel the need to be "coached" about customer acquisition, market conditions, etc.  I've already built and sold a company.  I am certainly open to guidance.  But I already have a lot of this researched and documented.

My immediate need is to fund my MVP.  I know that there are a plethora of ways that one can do this.  But I've been exploring the idea of finding an incubator.  However, I have found very few incubators that are focused on building a MVP as opposed to developing the idea and business model (which I have already done).

I wonder, then, if I am barking up the wrong tree thinking that incubators would be able to fund my MVP.  If not, then I'd appreciate any guidance about finding such incubators.  

Thanks.

Joseph Wang Chief Science Officer at Bitquant Research Laboratories

July 9th, 2016

I've never found an incubator that will fund an MVP.  Every incubator that I've seen expects you to already have some sort of MVP or some sort of team in place.  If you do not have a technical cofounder, incubators will not talk with you.

Also incubators in this part of the world have gotten a bad reputation, because they really won't provide you with very much in the way of funding.  The trouble is that the money that they provide you is usually absurdly low and they demand high and unreasonable amounts of equity.  The other thing is that many of them have business models where they either do very little to help you, and they just rely on a few projects to prosper, and if you aren't one of those lucky ones, then you end up with worse than nothing because the equity stake deters other investors.  Finally, incubators have gotten a bad reputation in HK because it turns out that they pay you, but you pay them fees for rent, which means they aren't giving you much money.

The main point of the MVP is not to come up with a working product.  It is almost certain that you will release your MVP to the public and you will find that no one will be interested in it.  The point of the MVP is to do market validation.  You will release your product.  The product will fail.  You figure out why the product failed, and then go and come up with another version.  It is likely that that product will fail.  You then go through a number of iterations before you have something that works.

This means that 1) you don't want to spend much money on the MVP, since it's likely that the MVP will fail and 2) you need to have a team ready to deal with the failure of the MVP.  Also for MVP's, you don't want or need to market to a large number of people.  If you have *one* person that uses your product, then you are okay, and if you have *one* person that is paying for your product, then you should jump for joy.   Getting from *zero* to *one* paying customer is the big step, because once you get *one* paying customer, you can get feedback as to what works.

If you need funding at this stage, this usually comes from "friends, family, and fools".  If you can't convince your grandmother to lend you her retirement savings to work on your project, then you are going to find it very difficult to get money from professional investors.  One reason people are reluctant to get money from friends and family is that very, very bad things can happen if you spend your grandmother's retirement money and you lose it all, professional investors don't want people to think of their money as "free money."  Also, if you are borrowing money that will reason in something really bad happening if you lose it, you will think very, very hard about whether that money is necessary.


David Pariseau

July 8th, 2016

Seems to me that regardless of what path you take for funding that you'll need a technical co-founder to execute this.  Finding that person seems like the logical next step and the details of that arrangement may well dictate funding options (not to mention that anyone funding the effort is likely going to want to have a technical person and plan associated with the venture).   I'm not sure what the best way is to find a technical co-founder (I'm usually looking at it from the other side, and folks find me by word-of-mouth), so perhaps networking with folks and getting referrals on potential candidates is the way to go?  Anyone have any better ideas on finding a technical co-founder, it seems like this comes up a lot, what are other folks doing to find such?

Steve Simitzis Founder and CEO at Treat

July 8th, 2016

A true MVP costs you close to $0. Instead of paying money to develop a product, see how far you can get with free/low-cost tools like Unbounce, and go out there and sell it. You've done a lot of research, but you still need to validate your model and see what live customers will pay for. You can do that without building a product. Once you've validated your model, many accelerators and startup studios (like Science) will take you in even without a product built.

Steve Simitzis Founder and CEO at Treat

July 9th, 2016

@ Steven Corn - I'm suggesting tools like Wordpress or Wufoo or Unbounce. There's no reason to write code to validate your idea and get funding. Here are a few examples:

https://pando.com/2014/01/16/3-startups-that-launched-without-writing-code/

And here's a good refresher on what an MVP is. Remember: an MVP isn't the first version of your product. It's what you do *before* the first version of your product.

http://qr.ae/1uaBsP

Joseph Wang Chief Science Officer at Bitquant Research Laboratories

July 10th, 2016

In that case it's pretty clear that the answer is "no you won't get funding from an incubator to do an MVP."

The thing about incubators is that they have no lack of people that want funding or other assistance from them, and then have a "standard operating procedure" and a pretty standard checklist that they go through for their programs.  If it turns out that you don't fit their standard operating procedure, then they have absolutely no reason to just pass on your company and go to the next one.

The responses on this board were of the form "this is what you have to do to get your business to work with an incubator."  If it turns out that there is a reason why that won't work, then the question becomes "how do I get funding to do X?" and that can't really be answered without knowing more details.

One particular problem with incubators is that they assume that they know better than you how to run your company.  Now this may be true.  It may not be true.  But either way, it's probably not going to work out well.

David Pariseau

July 8th, 2016

If you're just looking for the funds, why not simply find a technical co-founder who's willing to take gamble and build your MVP in return for equity?  Guess it depends on how much work is involved in your MVP but it might be quite viable to develop such without a lot of infrastructure... especially if you have the resources to carry at least yourself during this process.

Sean Roland

July 9th, 2016

@Steven - More feedback from one non-technical founder to another vs. a direct answer to your question.  The problem I had with taking your same approach (I paid to develop my MVP vs. an incubator/angel funding), is that after it's built you're left with needing numerous iterations until you get the product-market fit right -- and each iteration has a price tag associated with it.  The simple fact is 99.99999% of new products need numerous iterations after the initial MVP.  And that's true even with established companies who are significantly supporting the project with money, developers, product managers, and customer researchers.

If you strongly believe that you need a more functional MVP, than I'd agree with @David that you really want a co-founder by your side who is willing to stay up late knocking out a new build so your early adopters will see the changes they need, shortly after you meet with them and understand the issues of your current build.  That person would not just take direction from you, but would have their energies invested in developing a product that delivers what is needed both for your customers and for the long-term growth of your business.  A development firm will always be happy to take your money, but I'd suggest their biggest motivator is their bottom-line and not your long-term success.

Yes, it takes longer to find that person.  And it is tempting to just jump in and go.  But in the long run, I believe you will have a significantly better product since you took the time to find the right person to collaborate with, who is just as passionate about the project as you are.

Chuck Solomon

July 10th, 2016

Steven there are ways to validate your product without building an MVP or writing a single line of code. Essentially you want to present your value proposition to see how your market responds. Your goal here is to get pre-sales or orders for your yet to be built product. Doing this will provide you a far better understanding of your customers, market, and the problem you are seeking to solve and is far less expensive than building a product. Best of luck to you.

Natasha Homer-Earley Founder Gujiwo.com

July 8th, 2016

Yes a incubator is one way to fund a MVP but you will have to decide if your OK with parting with typically ( in europe) 7% for £30K. It's not the most cost effective credit option but if you find a incubator that gives you other types of value ( by doing that deal) then it becomes a more reasonable trade off. For example some incubators are headed up by people with exceptional VC networks - which is good for your chances of Followup funding. Some incubators have a very great profile of mentors & any of them with synergy to your business, could be helpful. Other value adds might be a incubator with the sort of corporate partners you wouldn't mind having a strategic relationship with. But remember incubators have quite a formalized program - they normally like you to physically be sat in their space. So are you OK to move location for the right incubator ? Alternatively you might want to check our the new 'virtual' incubators that have popped up - they might be more flexi on a MVP focus. 

Steven Corn CEO at Metis Advantage

July 8th, 2016

I'm not okay with moving.  I've found a couple of virtual accelerators.  But they expect a product to be already built.  I'll look for more virtual incubators.  If you have any suggestions for sites, that would be great.  Thanks.