Angel investing · Early Stage Funding

What is the best avenue for funding for a start-up stage fully functional app that has almost no revenue or users yet?

Jason Riggs Experienced Product Management Consultant, Start-up Fundraising Advisor, Entrepreneur, Strategist

Last updated on August 6th, 2017

Hello,


I am working with a client who has a really cool Ed-Tech app that she has essentially funded with her own start-up money to the tune of about $150K.


She is seeking VC investment to further develop the app and add more data, but most of the VCs we've spoken with are only interested in apps with a user and/or revenue story which I anticipated. All of them are giving us the usual story of being interested, but finding the app too early in its lifecycle to justify investment.


The app works very well, is super easy to use and already has data from three universities (with another 750 in the queue pending funding).


Does anybody have any interesting ideas (other than the usual "family, GoFundMe) for finding another $100K or so in start-up seed money? I know the equity play will be large given the risk, but she is open to that scenario.


Thank you in advance.

Simon Gifford Entrepreneur with corporate baggage!

August 6th, 2017

150k is quite a lot of money - what does she already have and why are there not more users to date? It my be worth doing a pre-revenue valuation as a start as this can be useful as to seeing the weaker points in her pitch. Have a look at: https://www.mashauri.org/how-to-value-your-startup-pre-revenue/

There is another useful tool called the minimum fundable company test at https://www.mfctest.com/

I would also be happy to have a skype call to investigate further.

David Maguire Colorist/Online Editor at Renegade 83, Inc

August 6th, 2017

Jason (and the Entrepreneur you represent),


I just invested my own money ($30k+) in an app and am in the launch stage. I've thought about finding investors to grow the market, along the lines of "go big or go home", but I'm opting for the profit/reinvest option.


I've done the research on how VC's work - that this is the path for a startup, this is the convention, this is the way it is... but I don't buy it. Sure, it's easier to get a whole bunch of money and speed everything up (especially recouping your investment) but if you already have two institutions on board with a long line of them waiting to join then I'd focus on that as either leverage or steady growth.


You might be able to get a commitment from some institutions that would guarantee near future revenue and then go get a loan. You could take any revenue from existing clients and invest in adding one more, then another, then another. You could partner with an institution to cover certain costs, offer them a discount and/or a share of future revenues.


Personally I think VC's are more detrimental to early startups and are best considered only when you have enough value and leverage to negotiate great terms in your favor. They are in a high risk business and expect extremely high returns to offset significant losses. Not a place for seedlings.


Robert Johnson I help people start and build their business.

August 10th, 2017

I've been asked this question numerous times and from working with startups, I've determined that there is no ONE answer that fits all. There are a number of possible ways to bring capital into a fledgling business and it is important to "match" the method with the specific situation (company stage, industry, entrepreneur's preferences, team, etc) Based upon the info you've given, I would not rule out some type of private offering.


Feel free to contact me directly if you want to discuss the situation in more detail.

Niaz Panhwar Experience Sales & Marketing

August 6th, 2017

Hello

I usually invest in early start ups along with my two other partners but it all depends on few things.

No 1. Team

No 2. Milestone achieved so far

No 3. Idea and where the money will be spent.

No 4. Equity

if all above looks good then we are happy to support.

if possible send me short executive summary and we can take it from there.

thanks



Joseph Wang Chief Science Officer at Bitquant Research Laboratories

August 7th, 2017

Your first priority is to get paying customers. Do whatever it is that you have to do to get paying customers. If you have family and friends, get them to sign onto the system and become paying customers.


One of the first things to do is to talk to the industrial liasion group of the university and see if you can get funding from them. The best situation is if you can get them to be a paying customer, but if you can get a grant from them or a professor to "sponsor" the app that will help a lot.


The problem is that without paying customers it will be extremely difficult to get funding. One issue is that without a funding model, it's not clear how the VC is going to make back the money, so the first thing is to get a funding model together.


The other thing is to network with other people that are selling ed-tech apps. It turns out that with ed-tech, one app is rarely a magic bullet, but you might be able to partner with someone that's doing a non-competing app to develop a sales channel.

jalak rawal I am an enthusiast who likes to try stuff out of my comfort zone. www.jalakrawal.wixsite.com/jalak

August 6th, 2017

Hey Jason,


It's a very valid doubt specially in a tech based solution its difficult to justify the revenue model. However let me brutally honest VC's are here for the money they don't care what difference it makes to world.


If I were you, I would try to increase user base and then provide at a minimum fee. Hope this helps. Good luck to your friend.



Clay Nichols I was a startup before startups were cool

August 6th, 2017

Hmmm.. 150K into it, does ehs have a minimal viable product? I.e., something that someone will pay something for?


How many active, engaged users does she have?

(Not just people who created accounts)


How fast is it growing?


How many customers did she talk to before she started?

What % of them said the'd pay for it?

Why are they not paying for it now?


The hardest part of being a startup (and I'd argue it defining characteristic*) is getting Product-Market fit. And for most apps (Facebook /Twitter not withstanding) the best indication of that is paying customers.


She's got to find a way to show how she will make money in the future. If she had 100s of thousands of active, engaged users that would hint that should could generate revenue.

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

August 6th, 2017

One option is to find an angel investor (or two or three) willing to take a chance on an pre-revenue product. The good news is that she has a functioning product. But investors are also looking for a reasonable business model and marketing strategy, as well as a competent team. Is this company fundable? The free Minimum Fundable Company Test at www.mfctest.com is a quick way to gauge if a startup is "investor-ready."

Jim Bulgatz

August 6th, 2017

I'd like to hear more about this - an exec summary, business plan or pitch deck, forecast of revenue and growth strategies, etc. Do those already exist? If so, I've funded such startups in the past, am currently launching one of my own, and open to investing in others. Would need to start with basic details of course. And if interested, can always help shop to other investors as well.

Parvez Husein Co-founder and CTO @ Portable Office Company. Exited.

August 6th, 2017

Hi Jason

what you're asking is probably going to the same across the whole funding stack. Most investors today will want to see at minimum some users, a traction model otherwise they are largely uninterested. Not everyone, but most.

The volume of money you're asking is also uninote resting for vc's. You're more at the angel end.

The only other way to get angel funding is if you have patentable or some sort of unique technology or business model. You can still get money for that.

Otherwise crowdfunding is an option. Entry into an incubator will help. They could help your friend develop a revenue model which will help find that next round funding.

In U.K. here are organisations like Seedrs which might be able to help. Unlikel but unless you ask the answer will always be no.

i recognise that it's not the ideal answer and also a bit negative but hopefully helps a little.

get to some form of repeatable revenue model and your taks for finding that further cash for growth will become significantly easier.