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I have a startup idea and have made a working prototype. However, I have no programming skills and no technical co-founder. Would angel investors ever consider funding a company like mine, that hasn’t actually put their product on the market?
Dear Early Days,
Congratulations on your working prototype – that’s an awesome first step to building your business. The fact that you have gotten that far without programming skills or a co-founder certainly serves as a testament to your determination. It still sounds quite early, but if you are attacking an interesting problem and you have a real chance of solving it, you may very well be able to find funding for your company even in its nascent stages.
It is impossible to speak for all angel investors, as everyone has different criteria for their investment decisions. I am sure you hear many horror stories of entrepreneurs spending countless hours meeting with potential investors and hearing “No” hundreds of times before getting a “Yes”. Though fundraising is a challenging process no matter what, you can save yourself hundreds of meetings and rejections by only reaching out to angels and funds with a history of investing in your type of company, at your current stage, in about the amount you’re looking for.
An investor’s willingness to invest ultimately depends on their risk appetite, their ability to add value, and their relationship with the founding team. In this case, you should probably be looking to connect with investors with a high risk appetite (they are willing to lose all of their money), who can add a lot of value to what you are doing, and have worked with you or had a relationship with you previously.
Based on the feedback from these initial meetings, you may find that you’re still too early in the process. In that case, be sure to ask investors what they would need to see from you to invest – the more specific targets they can give you, the better. Then, focus on building a team, refining your product, hitting those numbers. Once you do, get back in touch. At that point, those that turned you away the first time will be incredibly impressed that you listened to their advice and were able to follow through, which should make your fundraising conversations even easier.
I have a really awesome idea for a tech startup. How do I know if I am ready to raise money from investors?
Startup Sensation Waiting to Happen
Dear Startup Sensation,
The fact you are asking this question means you are most likely not ready to raise money. A lot of people have really awesome ideas. Only very few are actually able to make them happen. Even fewer yet are able to turn them into profitable businesses that provide solid returns to investors.
Because of these odds, unless you have an incredible track record, there are very few investors (besides maybe your Mom), who will invest in you before you have proven your concept and taken very tangible steps toward making your idea a reality.
At Fresco Capital, as early stage and seed stage investors, we are some of the earliest investors you would potentially have on your team. However, before we make an investment, we always want to see objective validation that your product works, your users love it, and you have customers that will pay for it. In technical terms, we call this product/market fit, evidence of customer love, and recurring revenue.
Once you have proof of concept and some real traction in the market, you should start considering raising a seed round from investors who understand your vision, your mission, and your culture. If you’re one of the few people out there who has done a good job of executing your awesome idea, there will surely be quite a few people interested in investing in you. At that point, taking money can be tempting, but remember that your first investors are essential members of your team — you must choose them wisely!