How To Raise Dollars Before Having a MVP

That’s an easy one (!!) …. But only for those who have had an exit in Silicon Valley! The rest needs to be creative & stand out from the crowd. But how to do that? What does it mean, being creative and standing out? What does it take to get others enchanted about your early-stage startup?

5 fundraising patterns for pre-product early-stage startups.

It’s Thursday morning. The team and I were preparing for the last 13 days to meet this potential angel investor. Meeting is confirmed for 4pm. Our developers are heads down, hacking away at important parts of the sprint to make sure “those” features can also be shown. My co-founder and I spent numerous hours formulating the value proposition in a way that’s easy to digest but at the same time compelling enough. Time to leave now … We headed over to Palo Alto and got to Coupa Cafe a few minutes early. Once John arrived — the angel investor — we took our seats. He ordered his coffee and joined us after 10 minutes. “Shoot, we only have 20 more minutes to go.” After a short intro chit-chat, John mentioned he has a hard cut at 4.30pm. What pressure to convey how we’ll change the world in only 15 minutes! Sadly enough we were squeezed between two tables, so it made it impossible to show the deck on my MAC — nor the dashboard with our new features. We had to pitch with no visual support.
“What stage are you in?” …. “Hacking the MVP.” “And you have some users?” … “Not yet but we have a plan on how to get initial traction once we launch the product.” “Great, listen — I don’t want to be rude but I can’t be late to my next meeting. It really sounds great what you guys are doing and I definitely want to stay in contact … So please keep me posted once you have released the product and let me know how that goes. Cool stuff guys!”

Does it sound familiar? Sure it does, right? But the actual sad part of the story is that because entrepreneurs hear only what they want to hear, once in the office — they discuss how to speed up development to get the MVP sooner. Right, because the MVP brings traction and the investors said “…to be interested once you have users!” Bull s@*#t! … Sorry — but I had to say that!

1. MVPs are not for raising money — but to leverage data

Every first product is a mass of bugs with poor user experience — and as such it won’t get “traction” (of course, not your MVP — your MVP will rock the market). The MVP’s goal is to collect real-life learnings and data analytics on what to improve. Which means — if you think you can raise money based on the numbers of your v.1, you better start applying for your next job. First time entrepreneurs that believe their MVP (= first publicly-available minimum viable product) will fly through the rough, better get some advice on reality and facts. Picture what happens once you meet “John” again with your MVP: “Awesome job guys & congrats on your release … and PLEASE let me know when your K-metric is going hockey stick, your Cohort after 12 weeks is greater than 50%, when you have one million users, 10 first paying customers or how your version 2.0 is accepted on the market …. AND PLEASE come back when you have traction.” “The MVP is not thought to raise money — but instead gets initial data from your potential customer.” Now, if this is the case — with what do you raise money, and when?

2. Set and measure KPIs for your Prototype

Entrepreneurs might need to get an extended perspective on the term traction should start planning to have KPIs for early stage phases. The word “traction” stand for the quantitative validation of the entrepreneur’s endeavor. It is commonly used for values that define KPIs for a startup phase where a product is released. The market associates “traction” mainly with users/customers/revenue related KPIs as well as institutional investors. This is absolutely right — as those KPIs relate to a phase where a product has or is about to have its product-market-fit. This is what investors consider to mitigate their investment risks. This is what sparks the investor’s interest … What’s your traction? But, what if you are not in that phase?

“Startups don’t raise funds with initial KPIs of an unripe MVP which usually fails expectations. Entrepreneurs need to concentrate on getting their first valuable traction during the ‘Building and validation’ phase — based on an intriguing prototype-strategy.”

The sooner you start having validation data that shows you are able to attract and enchant your target group — the higher the chance you can raise funds with this data. By being an early stage startup, you don’t have users/customers/revenue. The fact that you put a team together, got the idea and its USP defined, quit your paid job, invested your own money, validated customer opinions (if Lean Startup) — is not credited, but a given expectation. It is a form of traction but only compared to those who just have an idea and don’t do anything. On the other hand, it is not traction for you to raise money with, because it’s expected from an entrepreneur to do so. The MVP is not when startups should aim to raise initial funds. Even though investors ask you to come back when the product is live, it’s a subterfuge which doesn’t lead to investments because of the poor traction of your v1. It’s a weak plan to raise money with a MVP… But with a prototype…

3. Raising dollars with a sexy Prototype-GTM plan

While the MVP represents “a small product” with some minimum scope that differentiates from the competition (you must have some) and at the same time fulfills the minimum expectations requirements (MER) of the competitor’s users, the primary prototype scope is to collect your target group reaction — based on your product’s value proposition. In other terms, a prototype focuses on creating demand around mock ups, design and messaging — rather than hacking stuff. Which means it saves you time and money — and if you do it right — you raise initial funds. Cool thing about that is that you start early on bringing your value proposition to your potential target group BEFORE having any kind of a product — which validates a lot of assumptions. You start early on leveraging a database of potential customers — that in best case take action around your proto product.

A very well-known, successful prototype GTM strategy was the one from Mailbox App which ended in a $100 Million acquisition from Dropbox on the first day of its release. What was their secret sauce?

1. They gave early access to very influential users like MG Siegler, who regularly kept teasing about how good the app was
2. They created a great video which gave a taste of how well this was done Meet Mailbox
3. They (artificially or not) created a first-arrived, first-served reservation system and involved some media in letting users know about it Reservations open for upcoming Mailbox for iPhone app | Macworld

Another, much simpler case, you can relate better to (because it’s a “common”, smaller startup next door) — that rolled out a successful proto GTM which led beyond just pre-product funding is swaaag — of which I’m founder and CEO.

How did swaaag raise pre-product money?

Some background to understand the context: swaaag’s vision is to create a fun communication tool for digital natives — where teens can express excitements, moods and love with the same vibes they have when meeting offline.

Once we put the initial team together — the goal was to validate the assumption that teenagers would send virtual kisses and Oscars to people within their network — that convey how much they liked what they saw. Because we had not started to develop any MVP at all, we broke down user stories to make the “problem” as tangible as possible. Once we had a couple of stories together describing in a very elaborate way what the user was doing before, while and after the user would use our envisioned app — we decided to take one story that would represent our prototype GTM efforts.

The story was describing a 16 years old teen that went to a concert and the playing band group invited them to express their sentiments — kiss them — using the swaaag app. By then, the question we had solved was if the user would prefer commenting on Snapchat or Instagram — or using swaaag, which allowed them to express themselves beyond traditional tools. Because this was a very sexy differentiator / value proposition we went ahead and contacted teen influencer bands. We pitched to them that they might be able to join, very early on, a tool their fans would love to use, because the first-time followers could interact beyond the limitation of a like and get visibility on a leaderboard based on how much they have interacted.

Once we hooked one group — we went ahead and told them that only followers that joined the available “reservation tool” would have access to the app.. The reservation tool was a badge generator app we developed for iOS and Android, that when a user signed up, the app generated a number which stood for the position the user had (first come, first serve) in line.

The influencers announced the badge app, asking people to join, at a concert on stage (3 min pitch) with 7k audience.

Within 3 weeks we got 2250 downloads (focusing the Brazilian market), many intros and the ball rolling lining up potential investors — remember — we had NO PRODUCT — NO MVP.

In parallel, we captured a 30 sec video with the band — inviting followers to download the app. The day the band posted the swaaag video (formerly called selebrety) on their Facebook page with 3 million followers, the post got 6k+ likes in 8 hours and another 1k downloads — of the prototype badge app we had developed. This was data enough to leverage the momentum and accomplishments to raise an early convertible round without any product.

Rolling out swaaag’s prototype GTM got to validate:

• the general market interest
• the ability to get to the target group and overcome initial challenges
• the talent to enchant social influencers to promote the app
• the willingness of our target group to take an action (such as sign up, like, leave their contact info)
• the “team players” within the newly assembled startup and those who “thought it would be different”
• the flexibility within the team to play with the product vision
• the appeal as an investment opportunity
• the ability to raise funds

4. Everybody is an angel investor.

Now that you have KPIs and traction without a product, be clear about who you can get enchanted. In this phase — you don’t want to waste time with “investor groups”, but instead invest your time in hooking VPs, Directors and other entrepreneurs that buy into you/the team and the vision and are excited about the traction you got. Differentiate between angel investor groups that behave more like micro VCs with funding rules, an investment focus and due diligences — and people you can meet but are not professional investors. Everybody is a potential investor now — it’s about your hustle, the passion and the numbers you present. Since you have traction, a natural FOMO (fear of missing out) is created — and therefore time matters. Make sure you raise enough money to support 2 to 3 pivots — and my 2 cents is, don’t go live before you get that done. ‘Cause once the MVP is available a whole new dimension of factors will impact the business case in a way you can’t predict and it’ll be hard to raise money again without “new traction”.

Get crazy things done before others have even started to think about it. -Tommaso db

TAKEAWAY

• MVPs are not meant to raise money, but get data
• Set KPI goals for a prototype strategy
• Prototyping validates many aspects beyond the product itself
• Everybody is an investor — pitch your vision to people, not institutions
• Leverage momentum to syndicate investments
• Raise enough to navigate through MVP pivots

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