Loading...
Answers
MenuWhen is a good time for a startup that has an outsourced MVP to look for funding?
Answers
Exciting stuff! I see a few questions here:
1. When is the right time to look for seed funding?
2. How do I appropriately talk to angel investors about said funding?
As for the first question, consider what your goals are and whether this funding can help you achieve those goals. Hopefully, one of those goals is to step out of your full time job and concentrate on this project full-time. It's perfectly acceptable to be doing this on the side, however, you'll find it VERY difficult to get any sort of funding unless your plan is to "quit your day job" the minute you accept your first bit of funding.
If you think some amount of seed funding will help you accomplish your goals short term (perhaps getting to prove out product-market-fit and position yourself to scale), then I would say that you're ready to begin talking to investors when you're able to articulate what your business is, your plan for getting to product-market-fit, AND you can visually show them something. Whether this is your MVP or a visual demo of some sort -- be at a point where you can *show* them your product.
In terms of how to position yourself to potential angel investors:
I'd specifically seek out people in your area that have something to add aside from just money. Angel investors invest money, yes -- but they also invest their time, knowledge, and connections. At this stage, you need this just as much as the money (whether you realize it or not). Position the meeting as "getting feedback." Meet with as many people that fit this mold as possible. You'll start to get a sense -- very quickly -- for who is a real potential angel investor for you, and who is not.
I'm happy to talk things through with you more, if needed. I hope that some of this helps...
An angel investor is likely to want to:
(a) See that you have thought about the desired profile of the other cofounder, who will complement your skills, and who you'll need to attract to the startup. Even better if you have identified a few potential candidates.
(b) A plan for you going full-time in this venture.
(c) Some kind of feedback from the potential market that you are solving a real problem, and some market sizing analysis (even if it is very rough).
At startup networking events, go prepared with a 30-60 second elevator pitch about your startup to gauge how people react to it, and who shows interest in follow-up discussions.
Happy to talk more on the phone with more details (e.g. whether it is a B2B or B2C venture), so the suggestions could become more specific.
Also, please feel free to check out some of my other answers (on my Clarity profile): e.g. what investors look for in a technical cofounder, etc.
Mahesh & Mike have both given good answers here. I'm writing only to underline and expand the potential issues they've raised that you will likely encounter.
By way of background, I am a non-technical solo founder that raised a great angel round based on a solid MVP. I'm also an active angel investor myself so can talk from both perspectives.
The point about being part-time is a real issue. What it says to investors is you might be lacking a real commitment to your own cause. So let me make it clear: IMO, you're not ready to really raise from great investors until you yourself are all-in.
The difference of a couple of months of you living and breathing this will undoubtedly improve your odds of raising successfully and also give you time to complete your MVP.
You *can* raise money with a great MVP and no full-time team but you will often run into the "team" objection. You can get a lot done with contractors (I relied on them a lot in my early builds) but the inability to attract a co-founder or CTO or other senior tech resource raises the potential flag. From an outsider's perspective, the concerns range from "does this person have hidden personality issues" to "is (s)he not convincing enough or lacking credibility with tech people?" to "they don't have enough hustle to get a team, so how can they hustle to win their market" and so on.
A single angel investor does not fill an angel round. If this person believes in you and what you're building, that's great. It might even make sense (depending on the terms) to take their money now *but* I *guarantee* that the best thing for you to say to this person is "hey, I'm going to quit my job and really fully explore this for the 30-60 days and really make sure we're on the right path. Would you mind if I come back to you then to discuss your interest?" If I were in your shoes, that's what I'd do.
Leaving a full-time job and plunging full-time is scary and not an easy decision and not for everyone. Happy to talk with you about how to evaluate this with a bit more clarity.
The key 2 parts to when you should raise money comes down to:
1. Do you need to raise money now? If your business is revenue generating from the early days then you might not have to raise money right at the beginning?
2. Are you ready to raise? Most investors want to see a launched product with traction and some growth numbers. For early rounds you want to prove that people are using it and its working out well. If you have the numbers to show that you are growing well and that users enjoy using your product then you are much more likely to raise.
With regard to your second point, its very hard to raise without having a full time team as investors will see that you are afraid to take the risk of dedicating yourself full time to a company so they will usually pass on the idea.
You want to show that you are dedicated to the business and that your team is. With all the requirements of running a startup its more than a Full time job so its going to be difficult to convince investors that you can compete in the market when you are not fully committed.
I have 25 years of experience working with early stage technology companies and investors.
I’m often asked about fundraising strategies for VC funds and angel investors. After raising capital and exiting from multiple startups and investing through 15 venture funds and dozens of angel investments I have seen thousands of deals.
I’ve found that the most productive use of time for both of us is scheduling a call through my profile.
Related Questions
-
Does anyone know of a good SaaS financial projection template for excel/apple numbers?
Here is a link to a basic model - http://monetizepros.com/tools/template-library/subscription-revenue-model-spreadsheet/ Depending on the purpose of the model you could get much much more elaborate or simpler. This base model will help you to understand size of the prize. But if you want to develop an end to end profitability model (Revenue, Gross Margin, Selling & General Administrative Costs, Taxes) I would suggest working with financial analyst. You biggest drivers (inputs) on a SaaS model will be CAC (Customer Acquisition Cost, Average Selling Price / Monthly Plan Cost, Customer Churn(How many people cancel their plans month to month), & Cost to serve If you can nail down them with solid backup data on your assumption that will make thing a lot simpler. Let me know if you need any help. I spent 7 years at a Fortune 100 company as a Sr. Financial Analyst.BD
-
What happens to a convertible note if the company fails?
Convertible notes are by no means "earned." They are often easier to raise for early-stage companies who don't want to or can't raise an equity round. Equity rounds almost always require a simultaneous close of either the whole round or a defined "first close" representing a significant share of the raised amount. Where there are many participants in the round comprised mostly of small seed funds and/or angel investors, shepherding everyone to a closing date can be very difficult. If a company raises money on a note and the company fails, the investors are creditors, getting money back prior to any shareholder and any creditor that doesn't have security or statutory preference. In almost every case, convertible note holders in these situations would be lucky to get pennies back on the dollar. It would be highly unusual of / unheard of for a convertible note to come with personal guarantees. Happy to talk to you about the particulars of your situation and explain more to you based on what you're wanting to know.TW
-
When raising money how much of equity do you give up to keep control? Is it more important to control the board or majority of shares?
It entirely depends on the kind of business you have. If you have a tech startup for example, there are pretty reliable assumptions about each round of funding. And a business plan and financial forecasts are almost totally irrelevant to sophisticated tech investors in the early stages of a company's life. Recent financial history is important if the company is already generating revenue and in that case, a twelve-month projection is also meaningful, but pre-revenue, financial forecasts in tech startups mean nothing. You shouldn't give up more than 10-15% for your first $100,000 and from that point forward, you should budget between 10-20% dilution per each round of subsequent dilution. In a tech startup, you should be more nervous about dilution than control. The reality of it is that until at least a meaningful amount of traction is reached, no one is likely to care about taking control of the venture. If the founding team screws-up, it's likely that there will be very little energy from anyone else in trying to take-over and fix those problems. Kevin is correct in that the board is elected by shareholders but, a board exerts a lot of influence on a company as time goes-on. So board seats shouldn't be given lightly. A single bad or ineffective board member can wreak havoc on a company, especially in the early stages of a company's life. In companies outside of tech, you're likely going to be dealing with valuations that are far lower, thus likely to be impacted with greater dilution and also potentially far more restrictive and onerous investment terms. If your company is a tech company, I'm happy to talk to you about the financing process. I am a startup entrepreneur who has recently raised angel and VC capital and was also formerly a VC as part of a $500,000,000 investment fund investing in every stage of tech and education companies.TW
-
What is the generally agreed upon "good" DAU/MAU for mobile apps?
You are right that the range is wide. You need to figure what are good values to have for your category. Also, you can focus on the trend (is your DAU/MAU increasing vs decreasing after you make changes) even if benchmarking is tough. Unless your app is adding a huge number of users every day (which can skew DAU/MAU), you can trust the ratio as a good indication of how engaged your users are. For games, DAU/MAU of ~20-30% is considered to be pretty good. For social apps, like a messenger app, a successful one would have a DAU/MAU closer to 50%. In general most apps struggle to get to DAU/MAU of 20% or more. Make sure you have the right definition of who is an active user for your app, and get a good sense of what % of users are actually using your app every day. Happy to discuss what is a good benchmark for your specific app depending on what it does.SG
-
What exit strategies do angel investors want/prefer for a service business?
Keep in mind that investors invest for returns. Telling a prospective investor that you want his or her money to grow your business but don't plan on ever generating a liquidation event that pays him or her a dividend is not likely going to work; angel or not. You may be better served with debt financing where returns are generated in the form of interest payments not equity value growth. BUT, if equity financing is the plan, you're going to want to develop a strategic exit plan right from the start. That means identifying prospective buyers, strategic channels etc and characterizing the value drivers for each right up front. You'll find prospective buyers come in a number of forms; competitors, bigger versions of you, strategic partners, private equity, etc. Each will value your business in different amounts for for different reasons. Understanding this is vitally important for you to navigate to securing the right money, from the right sources, with the most favorable terms. Once you've qualified and quantified each of them, then determine what (specifically) you're going to need to do to align your business with those prospective buyers generating the highest returns. This will drive your business model and go to market strategy and define your 'use of funds' decisions. This in turn result in a better, more valuable business whether you exit or not. Do it this way and you'll have no trouble raising money from multiple sources. You can learn more about the advantage of starting with a Strategic Exit plan here: http://www.zerolimitsventures.com/cadredc Good luck. SteveSL
the startups.com platform
Copyright © 2025 Startups.com. All rights reserved.