Funding now, funding later, funding never
When do we start to try for funding? That’s the question that’s been hampering my coding recently and making me sleep a little less soundly.
Research doesn’t help. Web 2.0 patron saint Paul says you need angel funding to succeed:
There is much empirical evidence that this is true. Very very few companies make it without the help of investors.
The wrong question to ask is “Do I need investment?”
The right question to ask is “Will taking investment help me?”
Remember that your competitors may have investment and thus a competitive advantage over you if you don’t.
37Signals, Ruby poster child and prototype Web 2.0 company, says fund yourself:
Outside money is plan B
The first priority of many startups is acquiring funding from investors. But remember, if you turn to outsiders for funding, you’ll have to answer to them too. Expectations are raised. Investors want their money back — and quickly. The sad fact is cashing in often begins to trump building a quality product.
For us the decision is dictated by fiscal reality. Two of us are working full time on our project now, and we have about 4 months of runway before banks start to wonder where the latest mortgage payment is.
But when? Pre-alpha (now), or post alpha?
Pre-alpha:
Pros: We get some cash sooner.
Cons: Technical risk isn’t mitigated yet; marketing plan is immature; market segmentation is incomplete; shape of beta is unknown; we may burn our one chance at a hearing with various angels by presenting them with an vague proposal; valuation will be much lower.
Post-alpha:
Pros: Product is in the hands of some users; technical risk is mitigated; user feedback is coming in; more known about user uptake possibilities; market research further along and marketing plan more mature; higher valuation
Cons: We may run out of money before a check arrives.
In short, post alpha is the clear winner except for the nuclear-level Con: we run out of money.
Solution: code faster.
