Entrepreneurship · Fundraising

Is it the right time to go for funding?

Mayur Morey Founder and CEO at LocateShoppy.com

July 26th, 2016

We are a team, with a mix of young and experienced members from tech background.

We are an early stage startup, focusing on hyper-local market.
We have been working on a concept and got our product ready, currently testing it on our target audience. Feed-backs are encouraging.

Our target industry is huge, so as we are going along we are finding it tough to manage marketing and falling little short on funds which is making it a slow process. 

Here I am seeking suggestions, shall we go for funding which may act as catalyst or let it be a slow but steady process with what we have?

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

July 26th, 2016

You have a classic tradeoff situation for a startup: (1) keep bootstrapping to maintain full ownership and control, but only make slow progress; or (2) get investor funding to accelerate launch and traction, but give up equity.

What risks do you run by going slow? Are there potential competitors who could overtake you? Can you keep your team together if you are short on funds? Are there other timing factors that would make it advantageous to get to market sooner? If so, then go for the funding.

To get an idea if you are ready to pursue investors, take my free Minimum Fundable Company Test at www.mfctest.com. It covers startup viability, business model, market strategy, management, and the deal. Investors want you to have enough of the right stuff in each of these five factors in order to invest.

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

July 26th, 2016

At the most basic level, investors are looking for two things: 

  1. Reasonable expectation of a rate of return on their investment. The rate expected will vary by investor. 

  2. A credible explanation of how the funds they invest will contribute to the growth of the company.
Developing relationships with investors takes time - so waiting until you need the money may be too late. You might consider developing relationships when you begin to formulate a story about your company that fulfils the two criteria above. If you have these relationships in place, it will be easier to get the money when you can use it. 

Carlos Cruz-Abrams Co-Founder and CEO of Main Street Exchange

July 26th, 2016

Hi Mayur, A key consideration here is what does your budget look like versus your current potential cash sources. Many times earlier stage companies like yours find that going for a smaller round, friends and family and even some smaller Angels, is enough to get them where they want to be. There are many options on types of fundraising you might want to undertake, ranging from debt, to equity to various equity derivatives (warrants, SAFEs, etc.). The fundamental questions to ask yourself are (a) what do I want to do with this company (am I trying to make this huge or am I trying to make a nice living while maintaining control) and (b) will I fail if I don't get outside cash. The fundraising process is not typically a lightning quick one (can range from several weeks on the hyper fast rare side, to several months in a more typical scenario). Educating yourself on process of fundraising and how to best position yourself is key. Happy to connect outside of the chain to discuss further. My company (Main Street Exchange -- www.mainstreetexchange.com) and our experienced team can help! Best regards, Carlos Carlos Cruz-Abrams Chief Executive Officer Main Street Exchange 1035 Pearl Street, Suite 503 Boulder, CO 80302 (970) 445-0782 (mobile) (970) 633-2999 (main) carlos@mainstreetexchange.com We make business easy.

Grant Hosford Co-Founder & CEO at codeSpark, Inc

July 26th, 2016

Ideally you would go for funding after finding a clear product/market fit. Do you know who your early adopters are? Do you know why? Do you have good retention metrics? You need a story that says, we have the start of a good thing but need money to grow faster. Investors generally only want to fund marketing when unit economics are already great. codespark.org thefoos.com

Dimitry Rotstein Founder at Miranor

July 26th, 2016

Several commentators have suggested that it's better to go to investors as soon as possible, because, supposedly, "it takes time to develop relationship with investors". I don't know much about other fields, but for a software/web startup that would be a bad strategy indeed. If you have what it takes to get funded (in your case that would be a thoroughly validated product and business model plus some formidable traction), then by all means, go and meet with investors, and get funded. If you're not ready, however, then that would be not just a waste of time and a huge distraction - you'd also risk being blacklisted and losing almost any chance of getting that investor in the future. Investors have neither interest nor time building relationships with entrepreneurs who are not ready to be funded. They meet with way too many entrepreneurs for that (unless they're total amateurs, in which case you don't want them to fund you, trust me).

priyank JAIN Digital Marketing Consultant

July 26th, 2016

Hi Mayur, Congrats! Don't be a next Rahul Yadav ( Founder of Housing.com), This is not the right time for funding because sometimes funding is being very negative for the founder because the mostly time they never meet the expectation of investor and then funding became a headache. I suggest, Please wait. Thanks Priyank Badjatya Digital Marketing Consultant

Dimitry Rotstein Founder at Miranor

July 26th, 2016

I'd say continue testing your product, but "for real", i.e. get your customers (local businesses, I assume) to pay you real money, and get enough users to satisfy these businesses. Start small, just one city (or even one neighborhood), and see how much time and effort it takes you to infiltrate the market. Then repeat the process with a few other neighborhoods/cities, to see if you get similar results. At each step calculate the CAC (money you'd spend for customer acquisition if you hired people to do all the work you did) and LTV (life-time value - how much money does each customer pay you altogether). If LTV is significantly larger than CAC (at least 3 times larger), then go to the investors and show them all these figures - you should have little trouble convincing them to invest. Otherwise (if LTV is less than 3*CAC), iterate and optimize - try to bring down the cost and increase income.

Also, here's my old post about calculating the chances of getting an investment:

Marcelo Mejlachowicz CEO and co-founder at Veduca Edtech

July 26th, 2016

Hi, my experience shows that at this stage investors will look at three things: how big your target market is, how strong is the team that will deliver it and how different your solution is to what already exists. If you have early traction and feel strong about the three points listed above, I believe you have enough to go for a seed round. At this stage you should not give up more than 20% of the company, and the money should be used very carefully to validate your unit economics (as pointed out above by Dimitry). Hope this help.

Martin Omansky Independent Venture Capital & Private Equity Professional

July 26th, 2016

I would recommend you bootstrap as long as possible. t such an early stage of development, investors will get a large chunk of equity - which I imagine you don't want to happen. BTW, how much money R are you talking about, and how long will it last? Sent from my iPhone

Ken Anderson Director, Entrepreneurial and Small Business Development, Delaware Economic Development Office

July 26th, 2016

?You can solve your funding problem by having a successful validation and acquiring customers. Customer buy in suggest that validation is progressing...and if that relationship is revenue based, and it should be, then customer revenues drive ongoing operations. When you take funding too early, it is potentially going to impact your validation process, challenge equity and ownership issues down the road when you need VC type money with enough equity left to bargain without marginalizing your ownership position. Another option at your stage is traiditonal debt financing or bootstrapping. Successful entrepreneurship equals customers and revenues and profits...funding is optional. Regards, Ken Anderson Director, Entrepreneurial and Small Business Support Delaware Economic Development Office 302-577-8496