How to fund pre-investment development
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Today’s question comes from Miguel. I have a great product in mind but I’m hung up on how I can fund the development in order to bring the product to investors. What do you recommend?
I get asked this question a lot and I have a few pieces of advice that can help you make that decision. But a couple of things first: 1) It’s impossible to know that investors will love an idea you have. This can set you up for disappointment and unrealistic outcomes later. 2) You have to figure out what it is your are trying to build. Is it just a prototype, which is just designs, or is it an MVP (the first version of your product, but lightweight)? I am pointing these out because it plays into your decision on funding.
Funding development of a product
Raising funds without having a product that someone can use is a very difficult task. Investors will not be impressed with a pitch deck and an idea. The only way this works is if you already have a relationship with the investor or you have a track record of successful startups.
You will need to come up with money to fund the original build of your product, though. So how do you do that? These are the stages you should follow:
- Validate the idea with real users. This is not about talking to your friends and family or getting people to sign up for an email list. It is finding a way to ensure that people will actually use your product once it’s live.
- Build an MVP. You should try to spend as little as possible to build an MVP. Groupon did this successfully by building a one-page website that had an opt-in form. They would go to different restaurants and ask them if they got 100 people to opt-in to buy a particular meal, how much of a discount they would get. Then they would go back and update their website with the new deal they had. They would then work with the restaurant to make it happen. This is what a true MVP should look like — lightweight and solving for the primary problem you are trying to solve that ensures people will use it.
- Talk to investors. Once you have traction, then it’s time to build your deck and business plan and seek out investor meetings.
“You cannot impress investors with a pitch deck and an idea these days. You have to have something they can use and see to get funding.”
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