“Do I have to have customers to get seed financing?”
“How many users are required to get our first investor money?”
Great questions, often asked lately.
Let’s begin with what’s in the news these days. Blogs, tales told at lunch, angels and VC panels sound like “When you’ve got a million paying customers, send me an email.” That is pretty discouraging to first time entrepreneurs lacking million dollar savings.
Good news: Nothing could be farther from the truth.
Real life – as well as startup life -- is filled with a wide range of possibilities. So let’s examine several, then you will be able to decide for yourself what to do to get your first financing.
TIPS FROM SERIAL ENTREPRENEURS AND THEIR VENTURE INVESTORS
- Your track record: Who you are counts for a lot.Yes, people known to the investor have an advantage. They will be favored, even if they lost all the investors’ money in a prior startup, yet emerged respected, wiser, and ready for the next (better) startup.
- And people who are “startup famous” indeed have an advantage. Meaning they have lead or participated in the early stage of a startup that got headline news for a while – and crashed in a burst of world-wide publicity. You don’t have to be a founder of such a startup, simply being there early increases your attraction to investors.
- Prior startup experience counts, even if the enterprise was not famous, even if it died. Startup experience counts for a lot, even if you were there for a short time. It’s much better than just large corporate experience, even if it was at Google recently.
- Intrinsic knowledge of the space your startup is in adds value. This is tricky. Investors want something radically different, not something better. So knowing the taxi and limo business helps, but you’ll also need to have a game-changing bplan to get your seed money (Uber).
- Are you a first timer? How can you demonstrate that you have what it takes?
- As an encouragement, many of today’s startups that turned into giants were founded by people who “didn't know better” (Facebook, Pinterest). They just started and figured out how to get it right.
- Also, in your prior life you can point to projects and events you have started from zero that concluded well. In college years, in your personal life, there can be many to point to.
- Leading groups of people you recruited is powerful. Startup angels and VCs will look you in the eye as you talk to see how you might form and direct a group of the first employees.
- Proof of concept can be done without launching a service on the Internet. And it can be a demonstration that one key, critical aspect (e.g. the artificial intelligence coding works) of the technology.
- Working prototypes can be used to test a sample of end users and get their (hopefully enthusiastic) responses. Such “surveys” count for a lot when investors are looking for “evidence” that your idea is more than just an idea.
- Customer references can come in the form of early, carefully selected users of your service or product. Whether they are alpha or beta users is less important than what they’ll say to investors who call on them.
Finally, there is a vital soul central issue you need to understand:
- Intuition of venture investors is your ace card to play as a first timer. I’ve found the world-class angels, VCs and marketing winners make decisions based on how their intuition reacts to what you say and show during your meetings with them. They are the bold venturers who backed the startups that became great, many lead by first timers with little more than an idea in their head. Sure, you will be in a stronger position if your startup has advanced beyond simply an idea, yet do not be daunted just because you are a first timer with little more than an idea. These great investors got great by seeing what greatness might come out of a strange idea, often presented by people like you. How you prepare for and tell your story is critical to getting money from such investors. I've got lots of tips about doing that in my blogs.
BOTTOM LINE: First time entrepreneurs can boost their unfair advantage by doing some simple things before contacting venture investors. And while startup experience does help, some of the most amazing giants have grown from the seed idea of a first time entrepreneur. That might be you.
I wish you The Best on your Adventure!