Funding. At what point?

[Limitless]

I am working on a project and have started wondering at what point can someone look for funding to take things to the next level.

A lot of start up stories sound similar. "Joe and his friend came up with this website that does this and that. Then they got funding from investors and became a household name."

They never go into details of where in their process did they look for funding and where. What are some good organizations? What do investors look for? At what point of the process are you more likely to get funding?

 

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[paulosully]

I think there's a lot between, Joe came up with an idea and investors gave him money.
I've never gotten investor money so my authority on this topic is limited, but I do remember getting laughed out of a loan officers office when I applied for a loan for my anemic little business at the time.
However, I would think the best time to approach investors for money is when you can show you don't necessarily need their money. In other words, you probably need to show some revenue and some profit.

 

[HenkHolland]

I have actual experience from both ends of the equation, i.e. as an investor and as an entrepreneur with start-up companies that needed funding.
From the perspective of the start-up, I fully concur with paulosully's comment.
Wait till you can show revenue and some profit, even if it is only small. This will put you in a comfortable position when negotiating the terms with the investor.

The first question you always need to ask yourself is whether you need any funding from an investor (VC or business angel) at all. Or can you just get financing from a bank.
If you do need an invester I recommend to look for someone who brings more to the table than just money. In my experience an investor with an extensive network of contacts in your industry is what you should ook for.

 

[Limitless]

I think there's a lot between, Joe came up with an idea and investors gave him money.
I've never gotten investor money so my authority on this topic is limited, but I do remember getting laughed out of a loan officers office when I applied for a loan for my anemic little business at the time.
However, I would think the best time to approach investors for money is when you can show you don't necessarily need their money. In other words, you probably need to show some revenue and some profit.

That is exactly my point. I know there is a lot between the beginning of the process and the end result. Most writers focus on the end result and hardly mention the process (for example the story below). I understand that they can't go into details because its a short story on a blog or column. I was just curious if anyone on this forum has had any experience with investors or investing themselves.

Boyhood Pals Create iPod Speakers
Livespeakr
Erik Groset and Robin DeFay

There are a gazillion accessories for the iPod (AAPL) and iPhone, from thongs to toilet-paper holders to handbags. Undaunted by the competition, childhood buddies Erik Groset and Robin DeFay, now both 25, have added another device to the lineup: Livespeakr, a petite but powerful (15-watt) portable speaker system designed to blast tunes from the iPod, iPhone, or any other device with a headphone jack. Originally, the duo hoped to license the concept to a manufacturer. Good thinking—since neither has background in audio engineering or product design. To get feedback, they posted 3-D drawings of the prototype on a Web site they built and elicited interest from peers and investors. So in 2007, Groset and DeFay, who had kicked business ideas back and forth since sixth grade, decided to try to make the product on their own. Two years later, with the help of $400,000 from two angel investors, an outsourcer who set them up with a manufacturer in Shenzhen, China, as well as $50,000 investment of their own savings, the pair started selling their speakers via their Web site and Amazon (AMZN) in January for $80. They say their Carlsbad (Calif.) Digital Group Audio has doubled sales month to month, selling a total of about 4,500 units, and expect $600,000 in revenue by the end of the year.
—Nick Leiber (posted on Sept. 22, 2009)

 

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[Limitless]

I have actual experience from both ends of the equation, i.e. as an investor and as an entrepreneur with start-up companies that needed funding.
From the perspective of the start-up, I fully concur with paulosully's comment.
Wait till you can show revenue and some profit, even if it is only small. This will put you in a comfortable position when negotiating the terms with the investor.

The first question you always need to ask yourself is whether you need any funding from an investor (VC or business angel) at all. Or can you just get financing from a bank.
If you do need an invester I recommend to look for someone who brings more to the table than just money. In my experience an investor with an extensive network of contacts in your industry is what you should ook for.

When I start making money from my project I am just going to invest every penny from profit back into it instead of looking for investors. I will use your advice if I really need an investor.

Thanks

 

[MJ DeMarco]

What do investors look for? At what point of the process are you more likely to get funding?

Investors look for growth, and potential market share. If they see you are growing and that the money will facilitate that growth, getting $ is easier. If you notice on Shark Tank/Dragons Den they always ask "How many have you sold?" -- they are seeking proof of concept and growth potential. I believe it is far easier to get funding for a growing company than to get a company growing.

 

[Kung Fu Steve]

Simple.

When demand increases way faster than you can physically or financially serve.

 

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[Darkside]

Investors look for growth, and potential market share. If they see you are growing and that the money will facilitate that growth, getting $ is easier. If you notice on Shark Tank/Dragons Den they always ask "How many have you sold?" -- they are seeking proof of concept and growth potential. I believe it is far easier to get funding for a growing company than to get a company growing.

True. No matter how great an idea is, most investors will not want to invest their money in the person proposing it unless that person shows that they've actually proven themselves to a certain extent by showing sales. They're not so much investing in the idea as they are in the entrepreneur.

That's why entrepreneurs who've had successful companies find it much easier to get venture funding, because investors know that they're going with a proven winner rather than an unknown entrepreneur who could end up losing their money through laziness or incompetence.

 

[Pat]

In the niche for my next project there is a guy who spent the last 4 years making the perfect software and is still talking about launching soon. Found out he needs someone to invest 500'000$ so he can advertise.

Well... My plan is to get a running software with basic features out asap and then start advertising a little and reinvest profits.

He is definitely handicapping himself by thinking that he needs an investor. A lot of businesses do.

But unless you have a physical product, ask yourself if you REALLY need one.

 

[Limitless]

Thank you all for your thoughts and comments, I appreciate them.

I have realized that investors wont invest unless they see big potential that far out weighs the risk. They want to see numbers that show demand and a need for growth to meet such demand.

 

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[Darkside]

Thank you all for your thoughts and comments, I appreciate them.

I have realized that investors wont invest unless they see big potential that far out weighs the risk. They want to see numbers that show demand and a need for growth to meet such demand.

Exactly. The only time investors will fund an entrepreneur without showing the numbers is if that entrepreneur already had a successful company and is therefore well regarded. It's sort of like if you were picking players for a basketball game and LeBron James happened to walk onto the court, everyone would want to pick him over the unknown players, regardless of how good the unknown players might be. Sometimes this tactic works, other times it fails.

For instance, recently Sequoia Capital which is the most well known venture capital firm, along with Bain Capital and Silicon Valley Bank invested 40 million in a startup called Color because it was being founded by several entrepreneurs who either succeeded in the past or were important employees at major companies, even though the company hadn't even launched yet. They recently launched and it was a total disaster. Some of the founders left to work at other companies. Now they're trying to pivot by developing another product. You can read about it on techcrunch:


Color Me Badd | TechCrunch

 

[Gymjunkie]

For all things about anfel and VC investing everyone must be reading 2X Entrepreneur Turned Venture Capitalist | Both Sides of The Table It's an amazing blog by 2 time entrepreneur turned VC, Mark Suster, I've posted this couple of times before already, people love it!

 

[Limitless]

For all things about anfel and VC investing everyone must be reading 2X Entrepreneur Turned Venture Capitalist | Both Sides of The Table It's an amazing blog by 2 time entrepreneur turned VC, Mark Suster, I've posted this couple of times before already, people love it!

Thanks for the link. Very interesting and helpful!

 

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