Avoid Chasing Investors Too Early
I spoke with an entrepreneur today looking to commercialize some university IP. He graduated with the IP in May 2012.
Since then he’s spent much of his time chasing investors. First, he moved to Silicon Valley upon graduation to hunt down investors there, including looking for big company strategic money, and came up empty. Then he came to Atlanta and came up empty again. Now he’s in New York and has found an individual investor that put $15k in on a convertible note. He has a few angel groups circling and some interest from a name-brand accelerator program.
For 10 months of work, $15k and some angel interest is not a great outcome. I personally think he has some good idea and has great skills and determination. But considering he only has an idea and some university IP, I would not have guessed that he would have done much better than that.
It’s amazing how quickly time can fly when you’re out raising money. You can jump from one “interested” party to the next and live in this world of everyone-loving-the-idea. There’s always the lure that maybe one of these conversations will pop. Then you look back and realize months have passed by without real progress on the business.
The situation he faces is a common one faced by entrepreneurs trying to get something rolling. He has some ideas and IP, but does not have the capacity to produce a minimally viable product himself. So he needs to find other resources.
Raising money is tough, especially without a product and users. Few people or organizations will place any value on university IP that has not been put through the test of commercialization and real usage.
I prefer looking for other approaches to build the initial product and get traction, rather than trying to sell slideware and IP to investors. Here are things that can be done:
- Figure out something “you” can build by yourself and get that out to the market (no dilution; immediate product focus)
- Find a technical co-founder to help build that initial prototype (heavy dilution but absolutely worth it if the fit is good; immediate product focus)
- Contractual projects that fund your product (excellent choice if the contracts are not too consuming; some distraction)
- Find a day job and do the startup work on-the-side until you have traction (not ideal in terms of cash flow or product attention)
- Government grants and community prizes (excellent choices if available, e.g. TAG Business Launch and SBIR grants; some distraction)
- Accelerator programs are a much better option than angels for those with just an idea and no product/users (some dilution; no distraction other than the application process)
In addition to looking for other ways to get started, I highly recommend beginning go-to-market well in advance of product release. I’ll talk about how you can do that tomorrow.
What strategies have you used to get your startup off the ground? How have you funded getting from an idea to an initial product?