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I am starting up an internet company based on an original concept. My strategy is to, first build the architectural base and implement the main use cases of my website and thereafter, look for funding in order to speed up the development (it is very important that the website is released before May 2010) and the promotion of the website.

So following my initial plan, I am currently building the website but, now, it becomes time to go outside and start talking about my project. So, here I am:

  1. Where do I start? How do I approach some potential investors? Where can I find them?
  2. Confidentiality : How can I present my ideas or attract investors with assurance that it will be kept confidential and not be stolen?
  3. What factors will influence the calculation of the share percent of the investors? How do you bargain between the cash invested and the percent shares you give ?
  4. How much time does it usually take to find an investor and make a deal ?

Thank you,

Fabien.

EDIT : According to 90% of your answers, it seems that my question was "Do I need funding?" instead of "Where do I start funding?". This is quite paradoxical, for a startups forum, that the majority of the members advise you against getting investment. However, I do agree with most of the answers that it is always preferable to bootstrap. But guys, sometimes, alone, you cannot do so much and sometimes you don't have choice!!! In my situation, for instance, my business should go outside soon AND identified competitors have already raised 2M$ (before any kind of proof-of-concept !! )

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They are all based on original concepts. :) – James Black Oct 29 '09 at 22:17
www.venturehacks.com – pclark Oct 29 '09 at 22:46
You might also want to read The Art of the Start by Guy Kawasaki. He covers funding options, dealing with VC guys, presenting yourself to them etc. – Paul Filmer Nov 14 '11 at 7:41

10 Answers

up vote 3 down vote accepted

I have not been through the fund raising ringer but I can still offer you some advice:

  1. You are wasting your time with an NDA. Your idea is useless to plenty of people (without even knowing the idea) so the probability of stealing is low. Plus, nobody will do this like you (you should have that confidence) so screw the competition. Really. Competition is a beautiful thing so embrace it.
  2. Why do you need the money? If so how much are you willing to put in? Investors want to know your skin, nuts (if you have any), and guts are on the line. Make sure you have skin in the game. They want to know you will leave your clothes at the beach and bare all.
  3. Can you bootstrap? Few investors will not look at you if you do not have something up and running that can be measured and that is already producing some success (Rev, etc) or B) you have been very successful in the past. The latter is probably not the case given the question you are asking. Try and bootstrap if you can. It is a long marathon, not a 100 metre dash. A long journey starts with many little steps. Take some steps!
  4. How old are you? There may be funding available based on your age? Are you Technical? Y Combinator may be an option (may be too late given your time frame)? Vencorps.com might be a resource. I just know of them, so I am not certain of their reputation.
  5. Your timeframe is very short as well.
  6. What is your development requirements? Sounds like me you have the development part covered and you need to promote it, etc. If so, find someone you can sell but understands business because your question you asked says you lack it and that is totally fine. Remember: Common Sense is not all that Common. It is very important you take your time if you do look for a sound partner, etc.

Personally I think it would be a foolish move to seek investment at this point of time if you can somehow scale slowly without it. If you are not running out of cash then you won't go out of business. Getting an investment outside of the 3 F's (Friends, Fools, and Family... go hog wild with these people as they may HELP you and this would most likely be a loan) is simply too hard at this stage and you will get eaten alive on the equity they will want.

Bootstrap if you can, read Getting Real 37 signals, get something out there in terms of your core product and ask your users for feedback. A DJ thinks his music is all too often awesome until he realizes he is good but the crowd wants something different. Listen to the crowd and give them what they want to hear (within reason). Start talking about your site now and tell people what is coming (share your idea, no need to be afraid), run a blog, be a social media nut, run to the roofs, and talk to everyone you are waiting for. It sounds like now you need to get out and sell/promote which you do not need funding for that.

There is a beautiful thing in scarcity and lack of capital, in that it force's you to piss or get off the pot, and be very creative with the little you have which is far more valuable then cash that you have to pay back. Capital is often a lack of resources and promotes wastefulness so I would advise not being in such a rush to seek out investment. I hope this helps you in some way.

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Thanks for your awesome answer. You see, I would apply your advices but my website will be worthless if I go out after my deadline. That is my problem ! And unfortunately, alone, I will not be able to achieve the minimum required for the usability of the site. So basically, I can invest my own money and hire people (and I might end up with that)..but you see, I have already taken many risks for this venture! (quit my job for instance!). So I wanted to share the risks a little bit. Anyway, I cannot expect to succeed without the help of a (good) marketing guuy and 2 (very good) developers – fabien7474 Oct 30 '09 at 15:01
Good luck. You are taking big risks so that is a good sign. Get out there and pound the pavement for funds, etc. Be resourceful. Good luck! – Jaret Manuel Oct 30 '09 at 16:10
up vote 4 down vote

I have a whole series on raising venture capital on my blog http://bothsidesofthetable.com where I cover all of the topics you've inquired about.

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up vote 3 down vote

Investors hear so many pitches that if you ask for an NDA they will probably show you the door, as they have dozens of other people waiting for their time.

If you are that worried about confidentiality then you may best want to approach friends or try to get a personal loan, but both of those are incredibly risky.

I spent time with a startup that has a prior related product and yet after 9 mths they had zero luck finding an investor, so, how long it takes is purely a guess, and without knowing details it is a very bad guess.

The share percentage in part will be based on how far along you are, and how badly you want their money. If you basically give them controlling interest for example, then they may be more willing, as they will control the company, but, again, unbelievably risky option.

Where do you start is in large part based on where you are at, but, you may want to start with connections within your network, so, ask friends of friends of friends, as, if they have some tenuous connection to you it will help, if you don't have any past record of success.

You will need to have a good explanation of what you want to do, and show that you have designed it enough to be able to actually do it, as they will be less willing to risk money if they don't believe you already have a team that can get you basically done.

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up vote 1 down vote

Depends on the money It'll take a lot of time. If you looking for something low, still you looking up to 2 months. If it's really low, take personal loan don't bother with an angel.

If it's high at least 4 months, so it won't work for you.

What factors will influence the calculation of the share percent of the investors? How do you bargain between the cash invested and the percent shares you give ?

It's the matter of how much you need them, and how much value they'll bring into the business. Let's say if everything fails without that money they can even aim for 75% since they are bringing the actual value and you idea is meaningless without their money.

This is casual negotiation, depends on how you need each other, each side will try to get the best out of it. You need to have walk-away numbers in your mind and stick with them.

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up vote 1 down vote

If you want to raise money, you need to do a few things before you ever talk to an investor. Check out this post on the three things you need before you seek investors: http://www.thedailymba.com/2009/06/11/three-not-so-easy-pieces/. Once you have those 3 pieces, then you can figure out what you need when.

The best way to find investors is to get introduced. Directly contacting a VC or Angel will not work. So, find people who know investors and ask for an into.

No investor will sign an NDA. If you idea is steal-able by looking at a power point pitch, then you should really think about the value you bring.

Evaluations are tricky. You have to tell a story as to what you want, in terms of an investment and what it's worth. In the end, a VC will not budge much on the evaluation, once he makes an offer. An Angel might be a little more flexible. The best advice is to do your homework on similar deals and ask for that. They like to see similar deals for similar stage companies.

It takes 4-6 months to close a deal (from first contact). Longer in a market like this. Angels are quicker but it all really depends.

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The link you have provided is a great article. Thx – fabien7474 Nov 17 '09 at 9:55
up vote 1 down vote

Seriously consider changing your business plan... Not to give up the idea behind it, but so that the idea can be successful (by some definition) before trying to raise the money. Without showing some success with your idea is as good as the next persons 'frozen cat' selling website. You will find it to be hard to get attention from investors, and if they do invest they will also want alot of equity. Beyond these, your fear of hiding the idea will prevent you from getting the feedback that you need to polish and make the idea successful.

If you absolutely need to get money before hand - you would need to assemble a team that has had exits in the $100M+ before hand and you would need a detailed plan on how and why your customers will give you money.

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up vote 0 down vote

You haven't stated as to why you need the investment?

Is it for marketing or hiring more developers to speed up the process?

Either way if I were an investor I would not be very interested at this stage.

The most common route taken by startups that do secure funding is:

  1. Build the minimum viable product as fast as you can.
  2. Get user feedback.
  3. Build user base to a decent level to show some level of traction.
  4. Approach investors to take to the next level.

In todays day and age you should be able to reach step 3 without the need of funding given that you operate in the online space.

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Hi Usman. As I explained in my question, I need investment to "speed up the development and the promotion of the web site". So basically it means, hiring developers and some marketing staff. Concerning the standard route of startups, I am currently working on step 1 and try to get step 2 from dedicated beta-testers. But concerning step 3, I prefer not to unveil the website unless I assure a serious marketing promotion and a high-quality and high performance website. Last but not least, it is essential that the website is online before May 2010 so I cannot for building a decent user base – fabien7474 Oct 30 '09 at 13:15
As stated by Jared I would suggest using the 3F's route to secure funding. How much are you looking at? Take a look at forbes.com/2009/10/27/… should get you a much clearer idea as to what investors will be looking at. – Usman Sheikh Oct 30 '09 at 18:48
up vote 0 down vote

Seeking outside investment is much more likely to slow down your development than speed it up.

The time it takes you to sort out funding is time you aren't working on the site. Then consider that you are unlikely to get funding (Angelsoft says that in 12 months only 470 out of 21,721 submissions have received funds with a further 569 in due diligence)

Far better would be to try and bootstrap or seek money from friends and family. If you can't convince friends and family that your idea is worth something, you definitely wont convince third party investors.

To put it succinctly - just start building

Going a bit further (based on your plan) I would suggest you get the bare minimum done and get it 'out there'. Keep it simple and focus on the main purpose of the site - don't be distracted by additional features. Be ruthless about this. Get it out fast and get customer feedback fast. Chances are your customers have a different idea of what is important than you do.

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up vote 0 down vote

At our VC firm we got a large number of referrals from service providers we know and trust (i.e., lawyers, accountants, etc...). You can typically find these folks at venture/startup-related events in your area. Ask around and find out who is good, and setup a meeting with them. Most will give you at least a 30 min "freebie". If you engage with them, they are often a great path to get in front of investors.

Beyond the referral, it is essential that you have good legal representation when raising money from investors, so this should be a required step regardless...

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up vote 0 down vote
  1. bootstrap a minimum viable product
  2. launch fast and iterate a lot (from feedback of your beta/first users)
  3. get ramen profitable
  4. if you reach this stage then you would know if you need further funding (and lose some control) or continue what you're doing but on a larger scale.
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