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When is the right time to get seed funding for a hardware company?

Where I'm at: I'm 1yr in, $10k out of pocket, and my prototype is a demonstrable proof-of-concept but not ready for user testing. The grind of being full-time on a startup and full-time on a day job is leaving me burnt out. I'm thinking that a seed round would allow me to quit my day job and be full-time on the startup.

I hear conflicting input. Some say that others have received seed funding with less than what I've achieved, while others assert the great risks and expenses of receiving funding, from the great trouble and risks of guesstimating a pre-revenue valuation (and I was instructed to use convertible notes). Yet angel list gives an abbreviated how-to and promotes syndicates as a viable way to get money really quickly.

Do I start showing my proof-of-concept to angel list investors now? Or do I drag it out till I'm able to do user testing, and take longer in the process (which I see as adding risk).

[UPDATED]

As for the market, several companies are currently profitable in the space, having raised several million themselves. The consumer pain point has already been validated, but getting users to test a working prototype would definitely be significant for my efforts.

What I'm building is a hardware product, so applying lean startup methods is harder.I'm happy to get ideas though.The prototype can and is being built using 3D printers, but getting the functional prototype is not trivial.

31 Replies

Jessica Alter
4
0
Jessica Alter Entrepreneur • Advisor
Entrepreneur & Advisor
Actually tons of discussions on this TOPIC

Here are a few

and http://members.founderdating.com/discuss/2045/When-to-Raise-Seed-Funding-Before-MVP-or-After
John Seiffer
6
0
John Seiffer Advisor
Business Advisor to growing companies
Seems like you skipped the customer development part. That's where you find out if anybody cares enough about the problem you're solving to pay for a solution. Only after that should you cobble together a proto-solution to test what they think of it. Along the way you learn incredible things like how to price, how customers buy (hence how you should market and sell) and lots more.

If you don't have that learning and data to go with it, it's too soon to say IF you should be raising money, never mind when.


Gabor Nagy
3
0
Gabor Nagy Entrepreneur
Founder / Chief architect at Skyline Robotics
It depends on the type of the product, but I would probably hang in there and build a customer base / revenue stream, or at least get some exposure.
John makes a very good point about customers there.
Without traction and exposure, it will be hard to find investors, unless your prototype is mind-blowing.
On the other hand, once you have revenue, why would you want to take "other people's money" and all the risks and strings that come with it?
Being an entrepreneur is all about stamina, grit and obsession with your product.
Honestly a year, working on it "on the side" and $10k is nothing.
I'm 2.5 years in (full time) and over a $100k out of pocket (complex hardware / robotics project). I love my independence, so I haven't actively looked for investors, (although I'm not completely opposed to it).
That said, it doesn't hurt to look around. Go to meetups that are a "target rich environment" etc., be casual about it and make sure it's the right kind of investor.

Bill Adkins
2
0
Bill Adkins Entrepreneur • Advisor
Founder at 12Locks
I can empathize but there has to be *something* you can share with the customer. Don't overthink it. Distill the problem to its core and your idea (what makes you different vis a vis your competitors) to its essence and find a way to convey that in a minimal sense. Customers don't expect "perfect", they want alignment and those folks will be very forgiving (and in many cases excited) to take the journey with you.

User validation of *any* kind will help guide your product direction and additionally give you a huge confidence boost that you are probably needing if you have been working "in the dark" for this whole time.
Michael Brill
2
0
Michael Brill Entrepreneur
Technology startup exec focused on AI-driven products
Other than your time, there is no real downside in having angel investor discussions right now. You may not be able to raise money right now, but at least build some relationships so that when you're further along, you can go back to people who can see the progress you've made. And you might just find someone who believes in you and what you're doing enough to enable you to do it full time.Worst case you'll get some great feedback.

Go talk to investors. Be a line:
http://www.bothsidesofthetable.com/2010/11/15/invest-in-lines-not-dots/
Tom Collopy
0
0
Tom Collopy Entrepreneur
Fiduciary at Securus Inc.
What were you told were the reasons not to use convertible notes? I have used them successfully before. Tom
Jessica Alter
2
0
Jessica Alter Entrepreneur • Advisor
Entrepreneur & Advisor
Traction always wins. As soon as you raise money the clock starts ticking - so be sure (for yourself) that the idea has legs. That it's a hardware product is probably the most important piece of information you gave. Seed rounds for hardware startups need to get you to big milestone so you have to raise more. Have you estimated how much a small batch would be? Can you do a kickstarter or IG? Investors will ask why you haven't.
Thomas J. Kaled
0
0
Thomas J. Kaled Advisor
Business Development Consultant @ thomas.kaled@gmail.com
Will you be able to obtain a patent?
John Currie
2
0
John Currie Advisor
ITERATE Ventures - Accelerating Science & Technology Ventures www.iterateventures.com
I certainly didn't hear enough about "Customers". Doing more interviews - not sales calls - with Customer development will help you make decisions about how correct your assumptions are for your 'anti-gravity device.'

You also be seeking out senior advisors, board level executives, who fill gaps in your skill sets. They should be wealthy, and preferably have worked with startups. Your ask is ot for their money! You are approaching them for their experience, knowledge, and ability to get you accelerated. After 6-9 months of working with them in that capacity, and you/your team doing more Customer Development, I'll bet that you'll have several options to consider, all good.
Eric Sullivan
1
0
Eric Sullivan Entrepreneur
CEO at FoundationLab
A good model to follow from conversations that I have had with investors is if you don't have a track record a safe bet where they will actually take you serious is to have a working MVP with a few users and some data to talk about. This shows that you have made some investment to prove ok people actually want this. Not saying it can't be done with less or more but from all the conversations I have had over the years this seems to be the sweet spot.
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