Do you need an MVP to secure early investment?

As an advisor, mentor and someone who is in regular contact with startups and early-stage founder’s/leadership teams, one of the most common stages and ‘blind spots’ that I encounter is around early stage investment.

Specifically, the questions — do I need it, when is it required and what do potential investors need to see to part with their hard earned (in most cases) cash?

There is disparity here for sure and most of the first time entrepreneurs and founders we speak to are bound to a well-worn view that investors — whether pre-seed, seed, multi-investment Angel — at an early stage at least there should be a proven MVP (Minimum Viable Product) in place.

For me, MVP’s are often shaped far too early and founders are unfairly encouraged by advisors, consultancies and agencies to get to MVP and launch their product out there. In this way, test and re-iterate ad investment will come. But is this a stage too far?

What makes more sense to me is a valid idea that has a clearly defined problem statement to be prototyped and validated. After that, it needs some financial input to build a much more qualified and validated 1st stage product/ MVP. That’s the quickest way to user adoption and revenue — the key indicators in the potential success of a tech-based product.

If I were an investor (maybe one-day sire), then I would rather put some of my early stage money into a super validated idea. An idea that’s going through the necessary motions of scoping the minimum feature set off the back of interaction with potential users whilst securing some early stage adoption for a soft launch into the big world!

Call it what you like — Beta, Proof of concept, Minimum viable prototype, the facts state this initial stage is a lot less costly overall and allows for large pivots or re-thinks earlier on where change is less damaging to a potential product as well as the founding team behind. In fact, the ideation stage is at its height here and this is where the Design Thinking process of divergent and convergent thinking really delivers value.

Put simply, would investors rather invest in A or B below:

A.

Invest in the development of an MVP where the founders have already allocated working capital to validate and position their proposition; they have initial validation by potential users, with 1st stage user research and a working prototype backed by a pitch deck shows clearly the potential scope, a narrative and some well thought out branding.

B.

Invest in a business plan, a founding team and a minimum set of features that have not come from users — they will look great but there is no in-depth validation, there are a brand and some design but no cohesive narrative. A hunch as this will work and usually experience led by the team themselves.

A. as much as possible right?

In my opinion, if A is present and looks promising then B is a much more qualified and risk-averse investment — many founding teams and CEO’s are pushed to position B initially when the reality is that A is in itself a valid step and leads to a much more attractive option B.

The actual amount that is required by potential investors is usually less or in the least more forecastable due to a rudimental understanding of cash allocation, initial feature set scope, the team required to deliver and time-scale — actually the key metrics that lead to early user adoption. This is an initial road-map.

All around, it makes sense for investors and founders. There is a cost associated with the founders but its minimal and it achieves a great baseline and in most cases a more attractive proposition for the required ongoing investment.

The investment brings with it the ability to grow and scale. An important part of this is the team that joins the vision. Its all part and parcel of the early stage journey.

Founders need money. The money men need to see ROI and massive potential. In order to demonstrate potential, a great product and a team are needed and you can’t get a great team unless you have a great product — this is the cycle.

The best talent joins the startups that will make waves, the ones that solve real-life problems, the ones that have the absolute best chances of making it through.

The way this journey is started is super crucial and missing out any stages pre MVP can hurt, ultimately it can result in failure. In most cases, all of this can be avoided.

At Squid40 we try to work on amazing ideas with inspiring founders only.

It’s our role along with the other product agencies out there which are enabling early stage business, to make sure that the ideas that truly have a chance of becoming a valuable commodity not just a commercial.

There may be a great idea and there may be a requirement but it’s the market and the users that decide what go-to-market looks like.

This is why we are so passionate in the early-stage process — its generally good all round. In a world where startups are everywhere and words like ‘disruption’ and ‘innovation’ have taken over, steering, supporting and partnering founders through the early stages of product is crucial.

In summary, what am I saying..?

What I am really saying is that I believe startups shouldn’t have to get funding before they get in front of users to start validating and testing.

It’s comparably affordable to get your amazing idea off the ground, there is a process and if you jump to an MVP without validating you are running a very large risk of having to rebuild or at the least reshape your product at some stage — extra cost, time and pain that could have been avoided initially.

Investors and especially those who specialise and are interested in minimising risk with early-stage tech platforms should be looking to have as much validation as possible before investing in tech builds — it just makes sense.

I meet great people, passionate founders and CEO’s and they say to me ‘I have a native app, an MVP and it was built for x amount over x months’ — they seem happy, it seems great value. When I ask them whether they have millions, even thousands or maybe just hundreds of users and a validated product roadmap that results in new releases from feedback, and they answer ‘no’ they want to know why this is important.

At this point, it's too late and it's more than likely that in the immediate future they will be familiar with what could have come before and why.

A shame — this ends multiple early-stage ideas — some of which have great base-line ideas and real problem statements they could address.

Even if you need investment to build your MVP it’s super important you follow a trodden product path in the very early stages, it makes life a lot easier in the future. If I were an investor knowing quite a few specialists at an early stage, this is when it gets even more interesting to put hard earned money in!

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