Angel investing · Venture capital

What did you spend your initial funding on?

Luis Avila Owner/Fullstack Architect at IdeaNerd LLC

October 18th, 2013

Hi all,

Let me begin with a little background.
* Product is a SaaS B2B product. Our target market is Home Care Agencies.
* We are in private beta right now and are actively pursuing and adding more beta users.
* I am the developer/CTO and my co-founder and I split "CEO"/biz dev duties.

With that said... the Angels in our area like to invest in the $50k to $200k range.

Let's say that we want Angel funding in order to complete the beta and to have a runway of a year to a year and a hlaf. We'd be asking for $150/$200k. I would take a minimal salary... enough to cover my bills. My co-founder does not necessarily need one. She has a full time job. We're thinking that most of the money would be spent on Marketing/Sales.

I'd like to hear what yall think on the following:

1) As the lead developer, should I take a fully salary or bare minimum?
2) Assuming our situation is it typical to be spending the bulk of the Angel money on marketing/sales? We are thinking $80-$90k.

We don't need to spend too much on design/development since I can do that. The expertise we dont have is the sales/marketing. 

Thoughts/Feedback?


Many Thanks!
Luis

My co-founder and I are starting to think about talking to Angels and VC. The Angels in our area 


John Sechrest

October 18th, 2013

With the Angel Groups that I work with, the range of investments are much larger than what you indicate. But they depend on the traction and quality of the project. Most of the Angels that I work with, expect to see the founders pulling salary out of revenue, not out of investment. If you are pulling money out of investment, then you may not have enough resources to make things work well. That is you may have too high a financial risk. the key is to get early traction and early revenue. Can you get early adopter customers to pre-buy into the product and be part of setting things up?

Michael Brill Technology startup exec focused on AI-driven products

October 18th, 2013

Pay yourself enough to cover your bills. If an angel investor doesn't think you should be paid at all - especially after you've built the beta on your own dime - then look for a more experienced investor. Obviously you're not taking full market, but as Michael mentioned above, it does an investor no good if you're making bad business decisions because of personal finances.

I'd also really think twice about hiring a sales person until you've got problem/solution and product/market fit... and that's what angel money is for. 

Michael Barnathan

October 18th, 2013

John also hit on a key point: you don't want to personally have so little that you're making decisions out of panic because money is getting tight.

John Sechrest

October 18th, 2013

Don't mix up the work of the Marketing person who is very early in the process before the product is developed and who gets all the customer data/feedback/segmentation vs the Sales guy who is about closing enterprise sales at the end after the product is build... These are rarely the same guy.

John Migliorisi Creative Technology Management Professional

October 20th, 2013

Luis,

I think it is tricky giving a definitive answer without knowing more about where you stand with your product. One thing I think is clear though, is that the less you take in salary the longer runway you will have, so minimal salary probably makes sense.

With regards to other spending I think it breaks down like this (please forgive the broad generalizations.)

1. If you haven't spent much time in your Build-Measure-Learn feedback loop, getting real feedback from real users and iterating on your MVP, then that is where the money should be spent. This doesn't require a lot of sales and marketing, just some hustle on the part of the founders to drum up some early adopter testers. It makes no sense to throw money at sales if you haven't proven that your product solves the right problems, in the right way, for your target market. You will want to figure out exactly what your hypothesis is, what the most important metrics are to legitimize your solution, and then iterate.

2. If you have already done the above to the point where you have proven that your solution solves the right problem, in the right way, only then would I move on to Sales. This step would include defining your "uniques", you should already know your Vision and Niche so that you can communicate them, defining your proven sales process, etc.

Michael Barnathan

October 18th, 2013

Since you're both on the founding team and compensated in equity, I would take a minimal salary if you can afford it rather than going full market with only $150k of funding. The less you take right now, the more you can invest in outside expertise and grow the value of your equity. Applying much of it to sales / marketing makes sense, as it sounds like you have a good product development team but need to find a way to sell it once it's done. Note that a difficult sales play to scale could indicate an opportunity to find a better business model / monetization strategy which has better scaling behavior.

Michael Brill Technology startup exec focused on AI-driven products

October 18th, 2013

Rob, there's no way to know until you're out there with a real product in real people's hands. You can/should certainly try to reduce risk with as much customer development as possible but plenty of products fail/struggle even with A+ customer development. Great startup sales people are execution machines - not strategic thinkers. You want to feed someone a proven formula and have them focused on making as much money as they can. The last thing I want out of a sales person is them thinking [only slightly tongue-in-cheek].

John, I'd consider that responsibility to be back in the product management realm and, imho, product management can't easily be hired/outsourced in a two-person company. My gut tells me that if Luis is able to raise money, then he'll need to demonstrate enough domain competence to investors - if he's got that, then he's got enough to do the early sales work himself. Even if he sucks at it, he'll get an insane amount of valuable feedback that would get lost in translation from a sales person.

And, to loop back to Luis' original question, if I had a choice between eating and doing the evangelical work myself or starving and hiring someone else to do it... it's an easy decision.

Rob G

October 18th, 2013

every member of the team needs to wear a lot of hats. a small startup team can make up for a lot of short comings in the eyes of an investor with traction, i.e. revenue.  Luis is the dev/CTO and his partner has a FT job.  Even if Luis can do the dev and/OR sales my suggestion is that he focus on his strengths.  That likely means sticking with dev for now because he knows the code and hire someone (heavy commission weighted) to bring in sales. as soon as s/he makes the first sale dev will be buried.  If it is the right kind of customer perhaps he can get some upfront $$ (this takes a lot of guts by the customer) to hire more dev.  He certainly should be involved in as much of the customer face-to-face activities as he can muster - the sales person will need his help.  I know nothing about "home health care agencies" and am assuming they are enterprise-scale prospects.  if this is the case then your sales person better be a strategic thinker or don't bother. If the prospects are S/M orgs then yes, you will likely have to settle for a 'doer' not a 'thinker' because you can't afford a strategic sales person in SMB markets. Luis doesn't yet have a 'proven formula' - that will be the job of the team, but much of that weight will be on the shoulders of the strategic sales person.  Again, if his target market is (or he thinks it is) Medium sized businesses then i would still lean toward having Luis stick with dev (for now) and hiring a commissioned sales person (and he will need to do the strategic parts), but he can't expect that person to be a strategic thinker - great if he can find one though! 

John Sechrest

October 18th, 2013

I agree that early teams need to do the evangelical work themselves. Without that, there is far too many barriers to learning

Candice Hughes, PhD, MBA

October 22nd, 2013

I agree it definitely slows down progress when the team consists of only one or two people trying to fill all the roles. Progress is slowed even more if founder/co-founder are working full-time jobs on top of trying to run the company. My impression was that when taking outside money, investors want the founder/co-founder to be working 100% on the start-up since otherwise progress will be quite slow.

Being self-employed can help because you may be able to take on limited projects to bring in some revenue while still having a fair amount of time to devote to getting the start-up off the ground. Although once a product launches, the start-up is going to require full focus.

One way to get around having limited staffing is to hire sales people on commission once you have launched a product. You also want to identify and enlist evangelists within your target market who love your product/mission so much they will spread the word. (More effective than a sales person).