Obtaining Investment

off.the.walls

Hi Everyone,

Few other software heads and myself have come up with an idea that we are currently writing up a business plan for. However the one thing we are wondering is where exactly should we be looking for funding. What options are available for new software based companies out there.

I'm fairly new to the idea of creating a business from scratch but it seems to me that the most important thing we do is find capital to get this idea off the ground.

Any advice would be much appreciated.

Thanks

Graham

First questions would probably be:

what's the product/market
how much are you hoping to raise
what's it for
do you need it yet
how much are you prepared to give up for it

off.the.walls

Graham wrote: »

First questions would probably be:

what's the product/market
how much are you hoping to raise
what's it for
do you need it yet
how much are you prepared to give up for it

Hi Graham,

Product market is something we're still trying to clearly define,
We're hoping to raise about 30-40k.
We don't need all of it yet but would like to have it to back ourselves without stress through development.

When you say give up do you mean shares/% of company or time and our own money?

Thanks

pedroeibar1

off.the.walls wrote: »

Hi Everyone,

..... but it seems to me that the most important thing we do is find capital to get this idea off the ground.

Nope. The most important thing is to have vision of what the product is, does, how much of it can be sold, where and for how much. You need all that done first. In writing, with projections. Then consider how much you can invest yourself and how long you can work for nothing. Then consider how much of the co. you are prepared to give away. Then think about looking for investors. And if you expect it to be done without stress, don't bother.

pedroeibar1

pedroeibar1 wrote: »

Nope. The most important thing is to have vision of what the product is, does, how much of it can be sold, where and for how much. You need all that done first. In writing, with projections. Then consider how much you can invest yourself and how long you can work for nothing. Then consider how much of the co. you are prepared to give away. Then think about looking for investors. And if you expect it to be done without stress, don't bother.

Indeed. And if you are all software guys, then where is the cost in setup as you are building it yourselves right? The only cost will be your labour and servers which you should be able to cover yourselves. The only 'investor' who is going to fund something like that is a friend or family. A software investor will look at your finished product, and maybe even not invest until you have some customers already.

Cianos

Is the product aimed at consumers or B2B?

Software investors are often as interested in investing in the team as they are the product. If you're seeking investment without having put in any serious efforts first to at least prototype the product then this will be a big turn off for an investor as it suggests that you're not very hard workers and are just interested in an easy ride.

Others seeking investment will already have spent every spare minute they have available working on their respective projects and in doing so will already have the solid foundations of a productive team.

A few software lads with an idea have faced none of the realities of bringing a project to realisation as a team (i.e resolving disputes, working as a team, overcoming hurdles etc). In other words, even if the idea is great an investor has no proof that you're the guys to make it happen.

off.the.walls

Hey guys, this info is all perfect! we are still building up our business plan at the moment and are looking at a few different research avenues into this product! But thank you for all the feedback.

Graham

If by 'without stress' you mean you'll take a wage out of any potential investment, I'd have a rethink.

off.the.walls

Graham wrote: »

If by 'without stress' you mean you'll take a wage out of any potential investment, I'd have a rethink.

Oh i'm not expecting no stress! I'd say getting this off the ground will probably be one of the most stressful things I ever do.

dbran

Sadly I do not think your chances of getting funding in the way that you suppose are very good. That does not mean that you should not try, but initially at least I would suppose you will have to rely on your own resources and time to get this moving. As another poster put it, no-one is going to put their hand in their pocket just to give you an easy ride. If they did, then you would be employees and not entreprenuers.

You have to look at things from the prospective of a potential investor. All they are interested in is two things. Firstly what sort of a return am I going to be getting from my investment and secondly what is the risk that I will loose the entire lot on this venture. Those two variables are weighed up and the decision is then made to invest. If the risk is high then the potential reward is going to be very high. That usually means loss of control or a very high rate of return. If it is low then the reward is low.

Are you putting any money in yourselves. If not, this would be a serious point that would be picked up on.

What you need to do therefore is to figure out what are the costs that you will need to incur to get this project off the ground. Is there any way that these costs could be mitigated in some way. Can you do any of the work yourself.

You also should be wary of a potential investor stealing your idea. After all if they have the money and the idea, why do they now need you?

Best of luck with it

dbran

off.the.walls

Just one thing I would like to clear up with this thread as it seems to be recurring throughout the answers. We are not going to look for funds without a functional product. We are going to get our product working first and then go to market while hoping to obtain investment. As it is software all we need is somewhere to access wifi and power sockets so our costs will be rather low.

The main thing we are worrying about is after we have developed our system and we are trying to find ways to market it and get it out into the market place. That's when we're probably going to need something on top of the funding that we are putting into it ourselves.

Thanks

Atomic Pineapple

Very interested in this topic from a personal point of view too, hopefully me adding my questions to the thread is OK.

Say I as a software developer create an application, get it tested and hosted and spend my own money getting it to production where it's in a beta form with some users. The applications value is in the data it will generate for businesses so won't initially make any money from users.

At this point I might need money that is above what I can put into the project for things like marketing. But is this a bad time to seek investment as the project wouldn't have any actual paying customers at that stage.

Would a personal loan or something like linkedfinance be a better option at this stage?

dbran

off.the.walls wrote: »

Just one thing I would like to clear up with this thread as it seems to be recurring throughout the answers. We are not going to look for funds without a functional product. We are going to get our product working first and then go to market while hoping to obtain investment. As it is software all we need is somewhere to access wifi and power sockets so our costs will be rather low.

The main thing we are worrying about is after we have developed our system and we are trying to find ways to market it and get it out into the market place. That's when we're probably going to need something on top of the funding that we are putting into it ourselves.

Thanks

Thanks for the clarification however my points remain valid.

Until such time as you have a product that is generating real income from already existing customer base your project will be a high risk exercise for any investor.

There are a million pieces of software out there that solve a problem that either does not exist or if it does can be easily copied or is too expensive. No investor is going to pay to find out.

Welcome to the world of startups.

Dbran

dbran

Atomic Pineapple wrote: »

Very interested in this topic from a personal point of view too, hopefully me adding my questions to the thread is OK.

Say I as a software developer create an application, get it tested and hosted and spend my own money getting it to production where it's in a beta form with some users. The applications value is in the data it will generate for businesses so won't initially make any money from users.

At this point I might need money that is above what I can put into the project for things like marketing. But is this a bad time to seek investment as the project wouldn't have any actual paying customers at that stage.

Would a personal loan or something like linkedfinance be a better option at this stage?

If you were happy to suffer a bad credit rating for years if it does not work out then you could try a personal loan. You would want to be super confident that it will work though.

As far as I know linkedfinance will only take on companies with a 3-4 year trading history and track record and you may or may not get all the money you need at a cost you can afford.

dbran

Over the last year and a half Ive developed a complex software application. The last 5 months I've been negotiating with major potential clients and am very very close to closing a huge deal.

My process was as follows - (and I am not a technical guy, although I feel like one now after all of this!)

Came up with idea and vetted it with close confidants
Found a partner more technically minded then myself who helped me map out the technical side of things and a roadmap of what was necessary.
Earmarked an amount of funds to bring it to a point where we could approach potential clients circa 30K
Recruited a database/server guy (a very good one through boards) and a team of client side people and a graphics person.
Managed the process over the year it took to build it, and that is whatever hours were needed to be put in were put in at whatever time. Holidays/weekends/days off/sleep do not exist when a problem arises or something must be done.
Approached the big industry players. Met with ignorance and scepticism by most, but was quickly able to open their eyes using numbers and sales skills. All I might add were contacted via Linkedin which was basically the only sales avenue in the industry this software is in.
Just recently a high level employee wouldn't even talk to me after fobbing me off a number of times. An Irish guy too which pissed me off even more! I got in touch with his COO and told him his employee was not doing his job by not even taking a look at an amazing unique piece of software not available anywhere else on the market. COO got back to me on the phone within 5 mins. Staff have an obligation to talk to you if your product is good enough if you ask me I have no problem hammering a guy I'm trying to sell to if he is not doing his job properly.

In terms of serious finance - what we have built is worth something, but in my eyes its worth peanuts because there are no sales yet. And even if I was to get a VC on board now they would want a big chunk for a small amount of money to make it worth their while. Without sales their risk is exponentially higher.
If and hopefully when I close this major client, then the value of the company is huge instantly. That is when I'm going to hit the VC's and be able to put a proper value on the company based on realistic projected revenue whereby most of the risk is gone already for a potential investor. And I won't have to give away as much equity for said investment.

I'm not saying this is the definitive way to do it as its my first foray into the software application business. But if I can close the first deal then it was justify itself. I would stand by however not looking for serious investment until sales are made. By having a very low burn rate, and guys not working on big salaries at the start, just breaking their balls to get it right, this will impress a potential investor.

Hopefully you'll all be able to see this application in action in 2016 if I get that slice of luck needed!

deathtocaptcha

No investment needed if it's a software company and you're a bunch of developers.

Build the product, monetise it and then talk about investment. If you have a working product / prototype, some interested clients and a commitment from one or two, that lowers the risk in an investor's eyes from "Allow me to burn my money right here right now" to "90% chance of failure, but maybe there's something here"...

ishotjr2

Advice I wish I knew and believed at the time.

A decent VC wont give a monkeys about sales at this level, they will care about passion and product. Fail early, pivot etc... etc...
The moment you get one customer a large proportion of your time will go into keeping that customer, that you should be spending innovating a good VC knows this. Advice again, be very upfront with the customer and try not to ask for money until you both agree they are receiving value, setting the wrong expectation will mean long hours coding very fast .

But look its horses for courses and I can only really talk about enterprise software startups, the world of app's and B2C is foreign to me really.

I am sure you heard of Ycombinator and the likes, I would have a look at a few of them.

I listened to the guy from Docstoc Jason Nazar (have a search for him on youtube) thought he was really good and hit the nail on the head.

But from the sunscreen song "Be careful whose advice you buy, but be patient with those who supply it. Advice is a form of nostalgia. Dispensing it is a way of fishing the past from the disposal, wiping it off, painting over the ugly parts and recycling it for more than it’s worth"

deathtocaptcha

ishotjr2 wrote: »

Advice I wish I knew and believed at the time.

A decent VC wont give a monkeys about sales at this level, they will care about passion and product. Fail early, pivot etc... etc...

All I hear there are buzz words... the reality is the vast majority of startups don't get VC funding because VC funding requires owners with a proven track record of shipping and selling.

Shipping proves you can manage a team, execute on ideas, go through planning, design phases etc.. selling proves that you can judge what a market needs, hustle a bit and have the skills to close deals and sell your product.

Startup is the cool, fun, modern term for 'business'. Business is about making money. The sooner you make money, the easier everything becomes and the more negotiating power you have.

ishotjr2

It depends on what sector you are in I think. In enterprise software you cannot build an enterprise class quality/innovative/some patents/support unless you have serious cash. Which means you need a VC. Get to market before you have that cash and your best people will be bogged down in customers and usability issues.

History would show that VC's do take gambles on founders with little track record. Or the right Angel with some skin in the game.

But frankly, I take your point and it sounds like you have a firm vision, sincerely I hope it works for you.

Ycombinator did a report a few years ago on why startups fail #1 reason was trying to scale to soon.
Also have a look at the history of a company called Zeus Technology.

NotaSheep

Assuming that the business idea falls into the high growth/export potential area, I would recommend the Enterprise Ireland New Frontiers programme with its 15k stipend as first step, followed by CSF (50k for 10% equity EI Investment). Both processes are competitive and you will need to prove your business case.

Avatar MIA

Mum, Dad and from among yourselves.

Because they are the only ones going to fund a product that is being developed without a market in mind.

Another word that comes to mind is hobby.