Currently I am in early stage of client acquisition for my very unique product as on cloud solution for Salary appraisals in HRTech. Some of my seniors in industry have said, they are willing to invest. Is it the right time to seek funding or should I spend some more money and resources to get some clients on board and then reach them.
Thanks in advance.
Hello, you have a very interesting product in an interesting and growing industry. Anything with automated HR solutions is probably a good venture right now. There is a client of ours actually, www.BetaBulls.com who has specialized in automated Human Resources software (SaaS) as a CTO for other companies. I have learned a lot from working with them and based on that experience and the few startups I have launched myself including an online job posting platform and a game, I would say that generally speaking a good time to go for outside investment is when you have a validated concept, all legal documents in place and any type of demand from either partners or clients. Think of it as a business loan - you should only get one when you don't really need it, but for strategic leveraging is better to leverage borrowed money than your own. An investor should be the same, you get an investor if you need to buy yourself more time to improve on your technology or for market reach such as production or marketing. Not to prove the concept. It sounds like you are already there, so my recommendation would be to proceed with caution not giving any major control in any one area of your company or product.
Great question! Thank you for asking it here on Clarity as I'm sure the healthy discussion will also benefit many members of the community.
I have to admit that my answer will be biased as both of my first two successful startups that I sold ("exited", more here: http://www.linkedin.com/in/exitcoach) had no outside investors, thus my co-founders and I walk away with a HUGE smile on our faces because we had NOT diluted our equity. Why would you want to dilute your equity stake unless there's STRATEGIC reason, right? Raising funds for the sake of raising funds (aka joining the fundraising "frenzy") has a multitude of negative effects, for founders, their employees and even the startup ecosystems. Unfortunately it happens a lot: http://ExitCoach.fyi.to/ExitMess. Perhaps a discussion for another day. :)
Back to your question! The 2 main factors in the "equation" are the investor and the investee (yourself). Ultimately, it's the underlying mindset of both that will be fundamental to a successful outcome.
I believe in using EXTREME examples to understand concepts. Let's say for example that you are a veteran entrepreneur that has built and successfully sold multiple companies. You also have the Wisdom to not be used by the excess cash (the "temptation is REAL, first thing I see after a fundraising announcement is a hiring spree), but put it good use, wisely. And on the other side you have an investor that has all the industry connections, that is a serial entrepreneur as well (has built and successfully sold multiple companies) AND is a "saint" (extremely favourable terms for you), then BY ALL MEANS take the money!! It's a no brainer.
Any other type of "equation", unlike the one above, carries extra additional risk and should be analysed on a case by case scenario. Many startups fail, precisely because they lacked the Wisdom and did not think strategically fundraising. Rather than seeking proper advice, as you already have, they followed the fundraising "frenzy".
I'd be happy to take your call here on Clarity and help you write a beautiful story out of your own successful entrepreneurial journey. Thank you!
If your business idea isn't either super 'sexy', or super obvious that it's going to work, then you'll need to get some traction before approaching investors. If you have enough confidence in your idea though, and if you need the money to get traction, you could look into letting friends and family get involved as early investors.
If you'd like to discuss the problem in more detail with regard to your specific idea let me know,
The right time to reach investors is when you can get the following:
1. Maximum valuation of your startup
2. Investment Opportunity that has at least 5x to 10x multiplier
3. Optimum traction
4. Right team to use the funds
This can be ascertained through analysis of your startup. Please setup a call with me. I can analyze the details and suggest you the right path.
We've recently raised $500k pre revenue on a startup.
There is not a 'right time' because every investment avenue, fund or 'investor' is very different. You need to understand what type of investors you're pursuing first and then determine what their requirements are. Only then will you know what the right time is.
If it helps, I like to describe it as a black box of confusion, with very little transparency and tons of time wasted going after the wrong people. The more you can understand what's out there, you can better tailor your pitch and timing around your options.