Going for small-scale funding for a project
Mike Pence
for a site -- an idea with an immediate revenue stream and an already
mature community waiting to embrace it. Not a pie-in-the-sky grab for
a piece of the Attention Economy(tm), but a very real and very
practical project. Now, all I lack is enough funding for a couple of
months of development to see the thing through.
So, where do you begin to make a pitch like this? How do you approach
going for funding of a small-scale project? How much control should
you expect to give up to an investor? What documents should you
prepare?
Best,
Mike Pence
Philip Hallstrom
How much funding is a couple of months? $20K ? $100K?
If you approach a real VC (angel investor) and all you bring to the table
is skills, they will probably want well over half the company. That's my
experience. Long ago we tried to raise money for a client (around $500K if
my memory is right) and they wanted 80%. Our client had serious
founder-itis and refused all the offers :/
If it's not a tremendous amount of money (ie, closer to $20K) try the
friends/family route. They tend to be a lot more reasonable. Just keep
in mind that Gates owns something like 18% of microsoft and that's
considered *huge* for an original owner.
As for what you need to show an investor...
- elevator pitch
- business plan
- competitor analysis
- path to profibility/ROI (ouch. did i just say that?)
- current ownership/percentages/involvement
Google around... there's info out there on how to best get that all
together and what specifically you'll need.
If it's only a couple of months I'd really try and go the friends/family
route. VC can be a long painful process...
Good luck!
-philip
Paul Doerwald
> So, where do you begin to make a pitch like this? How do you approach
> going for funding of a small-scale project? How much control should
> you expect to give up to an investor? What documents should you
> prepare?
From what I've read and heard and learned about VC's and their money
is avoid them wherever possible. It's not always possible — some
projects demand VC money — but if your project doesn't, or if there's
a way to avoid VC's, then that's often your best bet.
I'm not actually answering your question then, but for this kind of
small-scale project, VC money strikes me as coming with too many
strings attached.
If you're talking about your own time for 2 months of development,
plus some ancillary expenses, then dig into some personal savings, or
take out a small bank loan, or get a small line of credit. (Never take
on credit card debt for a business.) If you can do a small project on
the side, and take 3 months instead of 2, then you can minimize your
risk.
If your project has a mature community waiting to embrace, and you
know they'll pay, and your business is generating revenue at month 3,
then you've got a winner!
Another possible approach is to go to the customers and see if they'd
be willing to front some money for it as investors. For 2 months of
your own time, you shouldn't need much money.
Your opportunity sounds absolutely golden. It's exactly this kind of
business I'd love to get involved with.
Paul.
Long
FATdrive.tv, while in between consulting gigs. It will be tight
budget-wise but it certainly is possible, depending on how comfortable
you feel financially.
Best of luck,
-- Long
http://FATdrive.tv/wall/trakb/10-Long
http://FATdrive.tv/ - store, play, share
Paul Doerwald writes:
...
If you're talking about your own time for 2 months of development,
plus some ancillary expenses, then dig into some personal savings, or
take out a small bank loan, or get a small line of credit. (Never take
on credit card debt for a business.) If you can do a small project on
the side, and take 3 months instead of 2, then you can minimize your
risk.
If your project has a mature community waiting to embrace, and you
know they'll pay, and your business is generating revenue at month 3,
then you've got a winner!
Another possible approach is to go to the customers and see if they'd
be willing to front some money for it as investors. For 2 months of
your own time, you shouldn't need much money.
...
Joseph Hurtado
Take care,
Joseph Hurtado
Toronto, Canada
Joseph Hurtado
Philip Hallstrom
> I agree for the most part a small project should be self-funded in the
> beginning.
>
> But what about one that reaches beta and needs money to scale and grow.
>
> So to rephrase my question:
>
> - Assume a good working 1.0 release
> - Self funded
> - Cash positive, or at least one that can be kept working
> - Growing and in need of investment to grow further
>
> How would a VC value your code base, potential for growth?
> What would they expect to pay to "join you"?
>
> Think something like Tumblr or Twitter say 12 months in the past, when they
> were smaller but working and probably self funded.
>
> How does the VC game would work for such a company?
>
> Ideas Philip, or anyone else on the list?
I don't have any experience at that stage... I would imagine they'd simply
want less of a chunk. Well they will still want the big chunk, but they
shouldn't get as much.
I'd still be leary as they are only interested in getting their money and
then some back out of it, so they might force you to change your plans for
a quicker exit strategy or something...
If you're cash positive and just having growing pains there may be other
ways around it.
Just think of it like this... VC is like your boss. You quit your job and
started this company probably because you don't like working for someone
else. The moment you take VC you are working for someone else again.
-philip
Aaron Blohowiak
Just think of it like this... VC is like your boss. You quit your job and
started this company probably because you don't like working for someone
else. The moment you take VC you are working for someone else again.
Shane Vitarana
--
http://shanesbrain.net | http://crimsonjet.com | http://myfitbuddy.com
Michael Slater
agree that is sounds like VC is not appropriate in this situation.
Most venture investors really aren't interested in something where
there is not at least a proof of concept, if not initial customers,
unless the entrepreneur is very well known to them and has a track
record of building successful, large businesses. They also aren't
interested in businesses that don't have a clear potential to generate
hundreds of millions of dollars in revenue. There are many, many great
businesses that simply are inappropriate for VC funding.
When you need millions of dollars of capital, and you have something
proven, then VC is a great resource. I've raised $2.5 million and
given up only about 40% of the company, and that was without a product
built. But then again, that was in early 2000.
Individual (angel) investor deals vary wildly. If there's someone who
knows and trusts you, you'll get a far better deal that if you are
approaching people cold. There are lots of angel investor groups you
can approach with a proposal, and if they like it you'll get invited
to present at a screening committee, and if they like it you'll get
invited to present at a member meeting, and if they like it you'll get
an investment offer. But this is a long path -- if you can get it done
in 6 months you'll be doing well. If you can find an individual who is
interested in the space you're in and who will meet with you, it can
be much quicker.
If there's any way you can self-fund (living off credit cards or
savings), then you're way ahead of the game in terms of equity. But
keep in mind that a good investor also brings value in terms of
advice, experience, contacts, and an independent perspective. I've
found this to be very valuable with the right people -- more valuable
than the money, and well worth the equity I gave up.
As to how much you give up, the thing to think about is the valuation
of the company at the point when you're raising the money. If they
value the company (post-investment) at $500K, and they put in $50K,
then they get 10%. If they value the company at $100K after their $50K
is in, then they get 50%. Valuation for an early-stage company is very
subjective, and depends on your track record and the investors
attitude as much as on the idea.
Michael
www.BuildingWebApps.com
On Apr 8, 9:58 am, Paul Doerwald <doerw...@gmail.com> wrote:
> On 8-Apr-08, at 11:51 AM, Mike Pence wrote:
>
> > So, where do you begin to make a pitch like this? How do you approach
> > going for funding of a small-scale project? How much control should
> > you expect to give up to an investor? What documents should you
> > prepare?
>
> From what I've read and heard and learned about VC's and their money
> projects demand VC money -- but if your project doesn't, or if there's
Evan Weaver
Evan
--
Evan Weaver
Cloudburst, LLC
Michael Slater
typically is written as a loan, which can either be repaid or
converted to stock at the price of the next financing. It is simpler
from the legal perspective than an equity investment and lets you
delay the pricing of the equity. It often gets less scrutiny from
investors, because they don't have to decide then what the company is
worth. On the other hand, more sophisticated angel investors often
don't like it for that very reason -- they are essentially leaving it
up to future investors to decide at what valuation the equity will be
issued.
Michael