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I'm currently finishing up a business plan that's based on a social network that would solve a critical problem in the recruitment industry.

I am working on this project with one other person who has the same level of experience I have - roughly 6 years in the work force.

We have a mix of strong technical(QA Analyst, Business Analyst), Sales, and Business Development experience. We don't have the knowledge or resources to put together a prototype of our idea.

How critical is it to have a working prototype in order to get seed funding? If not critical, what else do we need beside a business plan and passion? We think we have a winning idea that will scale, like everyone.. Thanks in advance for the feedback.

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HI, I am interested in contributing to a startup technically. Let me know if i can be of any help for you. See questions asked by me for further details. – Siddharth Nov 12 '09 at 18:02

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up vote 2 down vote

If you can't put together a prototype then your team is incomplete, and you are ask people to invest when you may not be able to build a suitable team.

That would mean higher risk, so they would probably want more equity, but, since your idea is just an idea right now, you don't even know how long it will take to build, so your numbers will be very suspect.

I haven't been through a VC round, as I am going the self-funding route, but, I would expect that the odds are very low with the risks being so high.

The farther along your prototype is the better off you will be, as you are able to then give a better idea as to how long before it could be complete, and to demonstrate some of the abilities, even if they are hardcoded.

At the very least your team needs to be complete, first, so you need an architect that has the ability to do what you want, and how fast he can do it will be based on resources available.

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they are not going to want more equity. If they are interested at all the valuation will be lower. There's a big difference. – TimJ♦ Nov 12 '09 at 15:49
@Tim - Can you explain the difference between a lower valuation and not wanting more equity? I don't understand the difference, because to me it will end up being the same, they will have a higher percentage. – James Black Nov 12 '09 at 16:17
I might start another question. You are right, they are two sides of the same coin, but you need to look at it form the investor perspective. No sane investor will want more than 49% (and in reality it will be 40% or lower - and you don't want them to take less than 10 - 20 to 40 is probably the right range - and again - that is all the topic of another question) – TimJ♦ Nov 12 '09 at 17:27
Your choice of words "will want more equity" is the real problem. They don't "want more equity" - they want/need a fair valuation. So their percentage of equity they want will always be in the same range (typically) so that means the only things that change are the valuation and the price of their equity based on the valuation. Based on your statement one might presume that if you need $1M to get going, you can just sell up to 90% of the company. That is clearly not the way it works. – TimJ♦ Nov 12 '09 at 17:30
up vote 2 down vote

Funding is all about trust.

My experience, we have people willing to seed-fund us only based on idea alone (except, we have worked together before). The investor said it bluntly, "I am funding you, not your idea". There is that trust involved that we are smart enough and won't mess up his money for no reason.

Having said that, we lose our interest for the investment. At that early stage, we knew we haven't proved most of our assumptions in real world. There are many things that might go wrong and i feel bad having to use that money just to prove the initial model. After all, i rarely see business plan work as how it is written.

That is good problem to have. If you haven't got that level of trust with someone or having a rich uncle (family, friends and foes), then your best bet is probably to get someone to do the screen-shot, do a cheap advertising campaign (Google Adwords / Facebook Ads) and prove that there is a traction to your idea.

Try to use oDesk, 99designs etc to do the screenshots. It should be affordable.

If you can prove that people are coming to your site, and clicking 'Sign up' or 'Register' even before you build the back-end, that means, you have something that people want. It's easier to convince investor with all those data available than just a 'plan' that full of assumptions.

If my explanation is unclear, maybe you want to do some reading about 'Lean Startup' or 'Minimum Viable Product'.

Hope that helps.

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I can not find the book titled 'Lean startup' on amazon. Where do you get it? – jpartogi Nov 13 '09 at 3:13
It begins from a book called 'Customer Development' by Steve Blank. amazon.com/Four-Steps-Epiphany-Steven-Blank/dp/… To learn more about Lean Startup, google these few names: Eric Ries, Steve Blank, Sean Ellis and to certain extent, Andrew Chen – Hendro Wijaya Nov 13 '09 at 4:17
up vote 1 down vote

At the very least make some wireframes or screens that walk someone through the use cases.

You're going to need technical people anyway, you might as well engage some now.

You have to decide whether you want to bring on the technical talent as a cofounder or as hired help or outsourced. Outsourcing is the worst option - you are taking a huge gamble there.

I think in order to be taken seriously you will need to have a technical person in the founders camp. (not to mention higher chances of success)

So, go find someone who can actually implement it.

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Agreed. Thanks for all the answers and advice. – Mike Nov 12 '09 at 17:41

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