Fundraising · Hardware

When is the right time to get seed funding for a hardware company?

Anonymous

February 11th, 2016

Where I'm at: I'm 1yr in, $10k out of pocket, and my prototype is a demonstrable proof-of-concept but not ready for user testing. The grind of being full-time on a startup and full-time on a day job is leaving me burnt out. I'm thinking that a seed round would allow me to quit my day job and be full-time on the startup.

I hear conflicting input. Some say that others have received seed funding with less than what I've achieved, while others assert the great risks and expenses of receiving funding, from the great trouble and risks of guesstimating a pre-revenue valuation (and I was instructed to use convertible notes). Yet angel list gives an abbreviated how-to and promotes syndicates as a viable way to get money really quickly.

Do I start showing my proof-of-concept to angel list investors now? Or do I drag it out till I'm able to do user testing, and take longer in the process (which I see as adding risk).

[UPDATED]

As for the market, several companies are currently profitable in the space, having raised several million themselves. The consumer pain point has already been validated, but getting users to test a working prototype would definitely be significant for my efforts.

What I'm building is a hardware product, so applying lean startup methods is harder.I'm happy to get ideas though.The prototype can and is being built using 3D printers, but getting the functional prototype is not trivial.
As a founder, you’re always in fundraising mode (whether active or passive). In this course, we’ll teach you how to successfully raise follow-on capital, establish a valuation for your company, build an investor pipeline for your next round, and more.

John Seiffer Business Advisor to growing companies

February 11th, 2016

Seems like you skipped the customer development part. That's where you find out if anybody cares enough about the problem you're solving to pay for a solution. Only after that should you cobble together a proto-solution to test what they think of it. Along the way you learn incredible things like how to price, how customers buy (hence how you should market and sell) and lots more.

If you don't have that learning and data to go with it, it's too soon to say IF you should be raising money, never mind when. 


Jessica Alter Entrepreneur & Advisor

February 11th, 2016

Actually tons of discussions on this TOPIC

Here are a few

and http://members.founderdating.com/discuss/2045/When-to-Raise-Seed-Funding-Before-MVP-or-After

Anonymous

February 12th, 2016

In 2001 I sold my venture MicroTool for $5.5M.  We had ~2,000 customers and $2.8M in revenue.  We started 3 years it when we were working full time.  When I think back and ready your post, I think.  "No Flippin Way"  Do not quit your day job.  Fight harder.   Take some time off for yourself so you don't get burnt out.  But absolutely not quit your day job.   Somehow it will find a way forward.  Investors always want to see revenue.   Make relations with people like me that can help you get your idea out the door with minimal costs.   Think long term.  Raising caital sucks way more, especially when you have investors breathing down your neck when you should be focusing on the project and the customers.  

Slug it out and smile at your co-workers because you have a great plan B going and they probably do not.   Good luck.  Call me if you want more thoughts.

Pat

719.684.3155

Gabor Nagy Founder / Chief architect at Skyline Robotics

February 11th, 2016

It depends on the type of the product, but I would probably hang in there and build a customer base / revenue stream, or at least get some exposure.
John makes a very good point about customers there.
Without traction and exposure, it will be hard to find investors, unless your prototype is mind-blowing.
On the other hand, once you have revenue, why would you want to take "other people's money" and all the risks and strings that come with it?
Being an entrepreneur is all about stamina, grit and obsession with your product.
Honestly a year, working on it "on the side" and $10k is nothing.
I'm 2.5 years in (full time) and over a $100k out of pocket (complex hardware / robotics project). I love my independence, so I haven't actively looked for investors, (although I'm not completely opposed to it).
That said, it doesn't hurt to look around. Go to meetups that are a "target rich environment" etc., be casual about it and make sure it's the right kind of investor.

James Mudgett Senior iOS Engineer at Path

February 12th, 2016

If you have a prototype built it would've a good idea to get out and start talking to investors. You can craft a pretty short opener to email angels you may know or get some introductions. You should get a good feel of where angels are comfortable investing. Since I know nothing about your business it's hard to tell if it's enough to convince with a proof of concept. You're likely to get more resistance in this market. My founder and I have pretty extensive backgrounds and have been pitching with a prototype, no data, we have been hearing a lot of "you're too early" NOs. there's definitely some pullback. This doesn't mean you will face the same, it is really more idea/team/timing. You won't know until you try. If you have talked to customers and have conviction that it will work, the timing may be right. Hopefully you have a cofounder. I know how difficult it can be to have a full-time job and work on startup. And working on startup alone requires a special breed. I'm married with kid on the way and few months into startup only, it's HARD mentally and emotionally, and having a cofounder is helps you get through it. You can do both for a while but you won't get a critical benefit of doing one, well. If you have no job and are trying for a startup you will be hungry to get to that next step which may require iteration or pivot. The constant fear of total apocalyptic failure should keep you burning the midnight oil. Get lots of advice, read books... be inspired, then tune it all out and ask yourself if you feel the time is right.Good luck! _____________________________

Rob G

February 12th, 2016

If you don't have experience raising money there's no time like the present to get your feet wet, but understand that at this stage it is 99% a learning exercise as it is highly unlikely that you will raise enough to quit your day job.  I echo Pat C's comments - do not quit your day job.  Even if this were a software product 12 months and $10k is just getting warmed up.  Put on your investor shoes and ask yourself if you would invest in some guy/gal with no startup success, perhaps no success building execution/operations/manufacturing teams, a proof of concept with no real customer validation in what sounds like a rather crowded HW market?   This entrepreneurship thing isn't nearly as easy as the press would have you think.  Now, with your investor shoes on would you invest in a guy/gal who invested 2-4 years (full time?) and $100k of their own money and had backorders for his/her product and needed expansion capital?  As an investor who gets pitched lots of deals which one would you choose?  

Bill Adkins

February 11th, 2016

I can empathize but there has to be *something* you can share with the customer. Don't overthink it. Distill the problem to its core and your idea (what makes you different vis a vis your competitors) to its essence and find a way to convey that in a minimal sense. Customers don't expect "perfect", they want alignment and those folks will be very forgiving (and in many cases excited) to take the journey with you.

User validation of *any* kind will help guide your product direction and additionally give you a huge confidence boost that you are probably needing if you have been working "in the dark" for this whole time.

Michael Brill Technology startup exec focused on AI-driven products

February 11th, 2016

Other than your time, there is no real downside in having angel investor discussions right now. You may not be able to raise money right now, but at least build some relationships so that when you're further along, you can go back to people who can see the progress you've made. And you might just find someone who believes in you and what you're doing enough to enable you to do it full time. Worst case you'll get some great feedback.

Go talk to investors. Be a line:
http://www.bothsidesofthetable.com/2010/11/15/invest-in-lines-not-dots/

Jessica Alter Entrepreneur & Advisor

February 11th, 2016

Traction always wins. As soon as you raise money the clock starts ticking - so be sure (for yourself) that the idea has legs. That it's a hardware product is probably the most important piece of information you gave.  Seed rounds for hardware startups need to get you to big milestone so you have to raise more. Have you estimated how much a small batch would be? Can you do a kickstarter or IG? Investors will ask why you haven't.

John Currie ITERATE Ventures - Accelerating Science & Technology Ventures www.iterateventures.com

February 12th, 2016

I certainly didn't hear enough about "Customers". Doing more interviews - not sales calls - with Customer development will help you make decisions about how correct your assumptions are for your 'anti-gravity device.'

You also be seeking out senior advisors, board level executives, who fill gaps in your skill sets.  They should be wealthy, and preferably have worked with startups.  Your ask is ot for their money!  You are approaching them for their experience, knowledge, and ability to get you accelerated.  After 6-9 months of working with them in that capacity, and you/your team doing more Customer Development, I'll bet that you'll have several options to consider, all good.