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When would be the right time to start fundraising?

We just recently did a beta launch and we are improving our MVP as we speak. Our development team is in India and we have managed to bootstrap our way into a decent product. Now we need to scale our back-end and set it up to a point where we can add large amounts of users and support e-commerce. We are have bootstrapped as much as we could and we will be in need of funds in the next 2-4 months and to improve our back-end. My questions are :

1. When should I go out and raise a fund? Would I be able to convince investors through a BETA testing?

2. Is there are any good resources to obtain beta users in a certain city?

16 Replies

John Seiffer
4
0
John Seiffer Advisor
Business Advisor to growing companies
It's been my experience that customer growth is more critical than a back end than can scale. Maybe you should focus on that first. For one thing it will bring in revenue so you may be able to continue to bootstrap. In any case it will make it easier to raise funds from investors if they can see traction in the market.

So the best time to raise funds? After you've proven a scalable business model which means:
  • You know the cost (in time and money) to acquire a customer
  • You know the payback period - when will the gross profit from the customer cover the cost of acquiring that customer
  • You know the lifetime value of that customer (in gross profit and time)
  • You have some good data on an exit that shows what return investors can expect and when.
Note that much of this info can be gotten using customer development techniques that often don't cost very much.
Manav Chaudhary
1
0
Manav Chaudhary Entrepreneur
Healthcare | Consumer Experiences & Journeys | Analytics | Start-ups | Mentor
Nveen: I agree with John on the first two points given the stage your in. You must show that the product has a decent traction (and would get more customers in short-term with X amount of marketing budget). You should also be able to calculate cost of acquisition / contribution margin calculations which would go into your projections and financial modeling. Very important from investor perspective. They usually prefer a product with minimal features + solid customer traction. Adding more features / improving the performance can always be done with more money - easy part. Securing customers is challenging.

How many users you have secured until now? How quickly? And how have you secured your users? Do you have a very tightly defined target user segment? Have you tested your revenue model as well? What has been the usage of your app amongst the testers? Is it trending or not?

Are you looking for big amount of money? Then it won't be alone for just getting more server space / hardware or database space. You are looking at marketing + improving the infrastructure + expanding tech team + mgmt team etc. So you would need to explain all that to the investors. So getting users on-board at this stage (and loads of them) would answer many critical questions for investor quite convincingly.

Which city are you operating from in India?
Nveen Verma
0
0
Nveen Verma Entrepreneur
CEO & Founder at Creativforce
I appreciate the feedback. With an accounting background, I was able to put together a financial model and projections. We are working on a social networking app that focuses on the nightlife cultural. Please check our website to have a better understanding (www.cinchgrid.com).

We just launched our beta through itunes connect/ testflight. Currently we are signing up users usings through social media such as twitter and fb however the app is not live yet. We have about 20 users on board but thats because we had to go back and fix some issues which occurred during our last beta testing. We fixed those issues have started testing again and are looking for more beta testers.

I agree we need traction but more importantly we will using the funds to grow our team and to implement our marketing plan. We would like to setup a team in the US that will work with our team in India simultaneously and if possible to move our key programmer to the US to increase turnaround time.

We have a freemium model where users do not pay to download the app. We features that helps user connect with people when they go out. Our financial model depends more on e-commerce/advertisement through nightclubs, bars, restaurants etc. So, in reality we need to do two things simultaneously, increase our user base and improve our frontend/backend to where users can benefit from.

I am from Punjab but I actually live in Las Vegas, Nevada but I know our app can be used in India in cities like New Delhi and Chandigarh because I have seen the nightlife there.
Michael Mills
0
0
Michael Mills Advisor
Personal Trainer, Wellness Director, and Owner of EDGE Holistic Fitness
Thank you, John and Manav for your excellent contributions. Your feedback will be very useful once I get my wireframe/prototype ready for testing.

John Seiffer
0
0
John Seiffer Advisor
Business Advisor to growing companies
Nveen,
I appreciate your background and ability to do a financial model and projections. But without numbers from actual customers investors tend to look at those things as fictional exercises.

An advertising model depends entirely on how fast users take up your app, and how long they keep using it. Since cultural and nightlife social apps are not hard to build from a technical perspective, and there are probably many already out there, most investors will not consider funding till they see some user numbers.

Sorry to be the bearer of bad news, but that's my experience as past president of an angel investor group.
Nveen Verma
0
0
Nveen Verma Entrepreneur
CEO & Founder at Creativforce
John,

I appreciate your feedback. Although, it might sound as bad news, I find it insightful in improving ourselves and our objectives. Our number one goal is to launch the app and obtain users as quickly as possible. What would be a good number of users to convince investors that we have traction?
Alan Matthews
0
0
Alan Matthews Advisor
Entrepreneur
Think of fundraising as performance art. You have a show to put on. The more compelling the show, the better the valuation.

Your audience will tell you most brutally how well your performance is playing. The nice thing about small (investor) audiences is that they'll also suggest ways to improve your performance.

When you go out to buy a house you look at all available product to understand the market, and evaluate the overall landscape before you buy. Even if the first thing you see is the best bargain in the market you'll probably pass because you're not educated.

So it is with fundraising. Get comfortable with your performance and know your art well and you'll know when the right partner has arrived.
Roz Biles
0
0
Roz Biles Entrepreneur
Business Development - Strategic Planning
Do you have revenue or is it Pre Revenue?
I use a process driven approach to create the collateral for a presentation to investors. Getting ready for investors means being able to tell the story visually, in words and in numbers.
(PPT - Investment Brief - Dynamic Financial Model)
Pragmatic, rational sales driven approach for creating a valuation and financial model that can be used by investors for gauging progress.
Nveen Verma
0
0
Nveen Verma Entrepreneur
CEO & Founder at Creativforce
Roz,

We are currently Pre Revenue.
Peter Kestenbaum
0
0
Peter Kestenbaum Entrepreneur
Advisor, Investor, Mentor to Emerging firms
there are a 100 questions to answer first... do you need money? how much for what? what is your revenue situation? burn rate and related financials? what exactly is your product? personal track record. etc etc etc... what type of money do you want and why.. corp structure... founders history without saying knowing more, I will say that the world is very different than it was years ago... beta in many spaces is not a qualifier for serious money beside angel money.. sorry cannot help you more
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