Now Presenting: Liminal Warmth's guide to why you need less money than you think you do to launch your company/project/idea (and also probably why you're not ready for funding yet).
I have seen a TON of variations on this pitch: "I have a killer idea, but I just need money to build it and market it."
This is usually for some kind of software product.
The other variation I've seen a lot of is "I have a killer idea, but I need capital for the physical startup materials/tools/space."
Of these two pitches, the latter (the physical goods argument) is usually more persuasive to me.
But unfortunately, the latter case is actually HARDER to get investment for because you usually 1) need more for a physical/factory/medical process and 2) it's going to be much harder to scale than a digital product.
Let's talk about digital products first.
When someone tells me they need capital for marketing before they even have a product concept my response is usually to blink very slowly at them for a long period of time.
This is because they have very likely not validated market fit well enough.
There are not many cases I can think of where your PRIMARY barrier is marketing capital. You can blow tens of thousands on marketing if you want and if you can't retain users it's all a waste. You have to KNOW you can hook users before you invest in marketing.
Attention is expensive, so if you're going to buy it, make sure that you're selling something people want.
"But LW, how do I do that if no one knows about my product?"
Simple. That's YOUR job as the founder to go figure out.
Let's assume that you do have a killer idea for an app that solves an actual problem people have and that people would want to pay for if they knew about it.
This is it. That's all you need. You just need to solve a problem people actually have.
If you have this, the next step is to figure out how to talk about it. If it really does solve a problem for someone, you should be able to get people excited about it just by talking about it.
This is the first test of product/market fit.
If you can't get strangers hype on your concept, either your concept actually has flaws you're not thinking about, you're not solving a real problem they have, you're talking to the wrong people, or you need to refine your pitch.
Most product ideas people have fall into the first two categories. You're trying to enter into a market where an incumbent already does what you're talking about doing, or legislation blocks the idea, or the problem you THINK you're solving isn't really a problem.
Make sure you're not inventing a problem or blowing it out of proportion in your mind due to wishful thinking about wanting to get rich. Lots of people have the "Field of Dreams" problem. It has to be an idea that actually would delight users to be on board.
You should be able to get people excited about the concept just by talking to them about it.
Your next problem might be that you're talking to the wrong people (friends and family for example). Talk to people who HAVE the problem you're solving. See if they get hyped by it.
If not, don't get upset that they don't see the brilliance of your idea. Ask them why. Ask them what problems they see with it. And then challenge yourself to think about whether you can address those objections. This is product 101, by the way. You have to understand users.
Your last issue here is that you might be bad about communicating your idea (your pitch). If that's the case, find friends willing to talk it through with you and ask for help refining the value proposition.
It's possible you have a great idea you're not communicating well.
But once you have an idea you can get people excited about and you know it solves a problem they have, you know you have at least the seed of an idea that's actually good.
So let's assume you have that. Killer idea. Solid pitch. People get hype when you talk about it.
Now you just need $20k to build an app and market it, right?
Wrong! People are liars. Also maybe you can't actually execute on the idea as well as you hoped. And maybe you're not really AS passionate about it as you thought you were.
These are all barriers you have to work through. You need to actually TEST your idea and see if you can get people to pay for it. There are tons of free ways to do this.
You can kickstart your pitch. You can offer a service manually for a while. Get creative.
At a minimum, see if you can get people to sign up for a mailing list to hear more about the project. This is such a low barrier that if it's a good concept you should be able to do this for $0 just by talking and writing about it. It also gives you a user base to market to.
If all of this testing and talking and writing sounds like too much work, you are DEFINITELY not ready for investment or primetime. This is the easy part, folks. You're gonna have to do a lot more of this before you're done AND deal with biz stress on top of it.
Next, challenge yourself to think very carefully about WHY you need investment and how much you really need. Remember that investment = equity usually. Most people are WAY too eager to give part of their company away to someone who does one-off work for them.
What are you going to spend it on? Development work? You always need more development work. So if that's the case, you're better off trying to find a development partner who can help you build it and will continue to grow with the firm.
If you don't have this, you'll need a LOT of investment or a VERY fast and direct path to revenue to continue growing. So you'd better have an airtight business case or you'll be living in a state of anxiety and stress about how to pay back your angry investors you screwed.
It's so much better to get revenue going early, find out what you weren't thinking about, and pivot/grow as you continue to get better about solving your user problems.
If you can't get a technical partner on board, ask why? What are you missing? Ask for honest feedback.
If the money is for marketing, I've already explained why you don't want to drop a bunch of cash in marketing until you know you have a good product. And if it's for food/shelter, you're better off getting a part-time job and living as cheaply as possible while you build.
This is because you don't actually WANT to take investment early if you can at all avoid it. Early stages are where you'll have to give more of your company away for less money. Taking $5000 for 10% of your company is a terrible deal for most people.
When you're pulling in $500k ARR, that 10% stake is now worth about $250-500k. Ask yourself honestly if you'd be willing to bootstrap or think creatively to avoid paying out $250-500k TODAY. Do you REALLY need that $5k to get your idea off the ground?
$5k doesn't go very far in any kind of venture. You can almost always bootstrap something to leverage yourself into a better position where you can increase your projected value and at least get a better deal on the funding.
Do you believe in your idea or not?
If you really DO need the funding, consider taking on a partner who has the skills you need instead of an investor. This is true for coding/sales/marketing whatever. The reason for this is that your partner should be invested in helping you bring the project to success.
Getting a dev or a killer sales guy on board who will continue to help you build the firm is worth a lot more to you than taking $5-20k to pay for limited services in that area in exchange for equity. What's your own time worth? Think about how much effort YOU'RE putting in.
If you're working 80-hour weeks to make this successful, you're valuing your 90% a lot lower than that 10% you just sold for $5000 or whatever. Find someone with skin in the game who believes in your idea because it's a GREAT idea and wants to help you.
A thing I hear a lot from people is "But LW, I don't know anyone with the skills I need. What do?"
You're the founder! This is literally your job. Get networking. Get recruiting. Go persuade people of your vision. To make this a success, you'll be doing a lot of this.
People LOVE to talk. You can get so much good feedback just talking to people about what you wanna do. Don't make the mistake of thinking people will steal your idea. You already have passion and vision (in theory). Are they going to have that much passion?
You can almost always find creative ways to bootstrap yourself to a point where you have an MVP and some kind of demonstrated market fit or revenue if you're creative about it for 98% of ideas, and then you're in a much better position.
Let's briefly touch on the physical goods angle again: Sometimes you actually DO need startup cash for COGS. But that should come after you've done everything I just described to validate market fit as much as possible. Kickstarter-type sites are great for stuff like this.
Because they let you validate demand for the pitch you honed by talking to people and give you cash to get going when you have a solid business plan and suppliers identified and so on.
If you can't persuade people to fork over money for a product there, what makes you think you'll be able to sell it later? This is a FANTASTIC acid test to see if your pitch is good enough.
Now, this thread is not me saying "don't look for funding." There are plenty of cases where funding is necessary. But you go for funding when you KNOW you can scale and the barrier is cash. Not when you're hoping your idea might take off if you just get the ads right.
Times you want funding are when you have demand in excess of your ability to produce enough goods because you can't float the COGS, or in a competitive situation where you're the market leader and need to outpace competition on your heels.
You also want funding when you're already seeing a strong return on your marketing investment and want to capitalize on an opportunity to blow those numbers up because you can't pour revenue in fast enough and your sales cycle limits you somehow.
But again, in 99% of the pitches I see where someone wants funding, they aren't really ready for it yet and don't understand that.
Then they get mad when no one wants to invest and assume the system is stacked against them.
If you're getting in front of people who are interested in investing and they're not biting, the right question isn't "Why won't anyone help me achieve my vision?"
The question is, "What's wrong with my vision?"