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When to Raise Seed Funding - Before MVP or After?

I'm getting ready to launch a new start-up. Idea and market need has been validated. A couple of other VC-backed start-ups have emerged with similar idea so time to market it critical.

I am wondering what the best strategy is for seed funding. I'm ball-parking about $200K - $400K to get an MVP to market and for market dev / customer acquisition. I can fund this myself (with or without co-founder which I am currently seeking) or I can try to raise some seed capital right away. I'm confident I can raise about $1M - 1.5M purely on the idea. This would allow us to go much quicker and get a more feature rich product to market fast. It would also allow for more funds to drive user adoption.

One school of thought being proposed to me is to fund MVP, get a reasonable degree of user adoption and then raise at a much higher valuation. The problem with this approach is that you never really get started out of the gate. MVP may lack features that users want and you don't have the funds to drive user adoption. So you fail before you even start.

Any thoughts?


14 Replies

Clifton Flack
1
0
Clifton Flack Entrepreneur
#PassionateStrategicMarketer
You should always try and raise as late as possible and go for the higher valuation and longer runway on what you raise. But I think the issue / consideration here is more about how much equity you give up at idea stage compared to after achieving adoption. If you give up too much % too early you'll be less attractive for later stage funding Just imo
Misha Britan
0
0
Misha Britan Entrepreneur
CoFounder at Virtual Vizzit
Not sure if this reply works, but that's our strategy for the moment. If there is even 10% of user adoption that you hope to get with a full MVP1, at least you know you've got something...
Richard Pridham
0
0
Richard Pridham Entrepreneur • Advisor
Investor, President & CEO at Retina Labs
Thanks Clifton. Good point. Typically, what's the equity % an early stage VC would take? Would 20% with a pre-money valuation of $7.5M fly?
Robert Clegg
0
0
Robert Clegg Entrepreneur • Advisor
Game Based Learning Expert
I know of no vc that will put in money before traction UNLESS you are a proven entrepreneur in that specific market with an amazing exit under your belt already. Okay, that removes 96.5% of us from the discussion here. Having said that, since you are asking these question here, I'm going to assume you are not in that category.

Therefore, raise the seed round. VC's will want to see you plan and execute. They will also want to see other people's money in the game - demonstrates a whole other range of skill sets and runs you through all these scenarios so you will be comfortable at the vc negotiation.

Then demonstrate scalable traction with that $1M.

Happy to discuss. PM.

-Robert
Clifton Flack
0
0
Clifton Flack Entrepreneur
#PassionateStrategicMarketer
General rule or plan should be around 25% per round.... BUT I'm sure there's better people here to answer that On 19 Jan 2015 16:48, "Richard Pridham"
Michael Brill
2
0
Michael Brill Entrepreneur
Technology startup exec focused on AI-driven products
Taken at face value, if you can raise your $1m-$1.5m quickly, then I'd do that now... especially if you're a bit late to the party. As Robert said, most founders don't have the luxury to raise money ahead of any traction, so take advantage of that. It looks like you've got a fair bit of biz dev on top of any software development, so you're probably talking 6-9 months to get going. With the declining number of seed deals, who knows what the world will look like in 2H15.


Tony Dykes
1
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Tony Dykes Entrepreneur
Director at EnChroma, Inc.
The MVP is really do demonstrate competence in that domain and that you aren't getting an education on their dime before the cram-down comes and you chuck them overboard. If this is your fifteenth app you could get away with pointing to your past successes as an equivalency. If you can raise that kind of money on an idea do it.
Edward Upton
1
0
Edward Upton Entrepreneur
Founder, LittleData. Digital Product Manager and Google Analytics expert
The answers here are all from a valuation perspective, but there's a really good reason to raise funds later if you can afford: you'll build a better, leaner product.

MVP's are not necessarily about flakey prototypes with only mimic what a 'funded' product would do. It's about finding the few features that users really want to pay for.

Having limited funds - but enough that you can have a team of 3 or 4 people full time for 6 months - will enable you to iterate much more quickly over these features. And prove which ones are essential before you hire and spend more money.

I've worked as a 'turnaround' product manager for a well funded ($2m) startup, and they has started marketing spend well before they had a product that engaged users. More money meant a slower moving team, not a faster one. And it was a lot harder to turn around once mistakes had been made at scale.

As one of my mentors (Bill Liao) put it, startups drown more often then they starve!
Hernán Borré
0
0
Hernán Borré Advisor
CoFounder & CEO at mobaires - nearshore staff augmentation
You can follow this steps:

1. Get some money from FFF (Friends , Fools & Family ). You should put some money too in this stage since you want to explicitly show others that you strongly believe in your idea. With this money you can get your design, brochures, presentations, cold market analysis, etc.

2. Look for Angel investors (less than 250K) to develop your MVP software and to show some traction (customer acquisition + customer feedback are the keys in this step)-

3. Once your business model is coherent (pay attention that I didn't said: 'business income/revenue' ) go find some VCs to explode the market, make millions of dollars leveraged by their money, stabilising brand, going big - as big as you can in that round -

With this three simple steps you should be in the path of success. Everything else is experience and going up and down in the roller coaster of life.

Note: Sometime with FFF money you can get your first demo or MVP done but if the MVP has a lot of innovation involved that's quite expensive.


Jessica Alter
2
0
Jessica Alter Entrepreneur • Advisor
Entrepreneur & Advisor
You should try to build out proof of concept and get some data on your assumptions first. Then build something rough but workable for not a ton of money. In today's world where hosting is free for the first year (AWS) and you have tons of services (shopify to twilio) that you can build on top of.

Unless you have an incredible track record or friends and family with deep pockets people don't want to fund you to build an MVP. Part of showing that you have the drive is getting this done on your own.
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