I decided to break my radio silence again. I’ve just written an article about our 13th birthday and figured out I feel creative enough to write another one. I wanted to choose something that would be valuable to our clients and interesting to others as well. Hence the topic “how to approach funding as an MVP”.
Tl;dr I know my stuff regarding the investment and getting the funds, so if you think you have a great idea, reach out to me and I will assess your idea and connect you with an investor. Visuality will of course be glad to build that MVP for you ;)
Many times in our history we were dealing with clients that wanted to create an MVP from scratch. I’m not going into what MVP truly is, because that is a topic for another article. Let’s assume all parties involved have a good understanding of the concept. Most often clients do have (limited) a budget to create the first version and this is the exact case we’re going to look at.
Building the MVP naturally should be based on the business requirements while maintaining code quality to make sure the MVP would be
- Ready for further development.
Usually during the pre-development workshops we discuss further phases with the assumptions that they will be executed once the product-market fit is confirmed and budget is gathered.
The first likely mistake is looking for the funding too early. Very often young CEOs are so much focused on the vision of their product that they forget about something way more important - the business. Any internet-based product is only as good as the business it generates. By business I do not necessarily mean INCOME/REVENUE. Not all products will be focused on those factors but here we will be talking mainly about the ones that plan to make some money;)
Before reaching out to an investor I recommend finding first clients, so called early adopters. In my humble opinion the investment market these days is focused on real businesses rather than early bird projects. So we need to show them that our product is regurarly used and (ideally) people are paying for it. Of course the price doesn’t have to be final, as we’re talking about MVP. My general idea is - if somebody is willing to pay for a product half (or less) done it means that the product is actually solving an important problem - and this is exactly the first step in assessing the investment opportunity. It also means that they will probably be willing to pay more for a product that is 100% ready.
What are the further things that may be important?
THE MARKET & GROWTH POTENTIAL
One of them is the market itself. We need to analyze what the market potential is. Let’s assume our product will cost 10$ a month - if the market size is 100 businesses then it simply won’t work. BUT if the market is hundreds of thousands - it’s a different story. So pay attention to what the scale of your possible sales is. We need to show that we understand those numbers and that we see a true (no bullshit) potential to grow. Of course when a market is small the price of your product may influence the general profitability BUT from what I’ve seen investors are not that excited about very niche products.
This also brings another important topic - pricing strategy. You have to plan and understand your business model. Looking at the competition is always a good idea. Oh, and by the way - having no competitors at all is usually not a good sign. It either means that this is not the right product, solving not the right problem or simply the timing is not good If your product/service does not have competitors you should be able to answer a very simple question “WHY” and “WHY YOU WOULD SUCCEED”. When it comes to the market I would strongly encourage you to think not only about your local market, but rather think how you can enter other countries as well (if applicable of course). Having a product with international potential is another good sign for obvious reasons.
Another important aspect. In very rare cases the team may be much more important than the product itself, but I assume that most of my readers are not people with few exits behind them, so let’s focus on what we can do in such a case:) First of all - the rule “the more the merrier” is not applicable here. You should focus on gathering only essential founders. Each of them should bring some value to the table. All of the founders should also be able to work ONLY on the product - no investor would be willing to give funds knowing that the founders are doing it half-time. When talking about the team you have to focus only on one thing. WHY this particular person may succeed. So any experience in the field of your product is really important. Don’t say anything that is not related to your business.
In my opinion there is one thing that people are very often forgetting. Investment is not a charity. The only reason for investors to come onboard is the chance of making huge profits. Of course in any investment portfolio not all products are bound to make 10-20-30x. But still, the expectation is the same. Their representatives may be saying that the idea or the team is important. I call this BS. The only thing that matters is the return on investment. And that is ok - that is what they are for:)
Most of the things I mentioned above relate to VC investors. Individual investors on the other hand may have different approaches to all points mentioned above. What’s more - individual investors may be interested in coming on board for different reasons that profit only. So in your moves regarding gathering funds always think about the right fit. In order to understand that you should answer the questions mentioned above:)
Of course this article barely touches the surface and I tried to focus only on the most important aspects (in my opinion). If you have any questions or are in the process of gathering funding do not hesitate to write to me directly. I’ve already helped a few companies in gathering funds from thousands to millions USD.