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What did you spend your initial funding on?

Hi all,

Let me begin with a little background.
* Product is a SaaS B2B product. Our target market is Home Care Agencies.
* We are in private beta right now and are actively pursuing and adding more beta users.
* I am the developer/CTO and my co-founder and I split "CEO"/biz dev duties.

With that said... the Angels in our area like to invest in the $50k to $200k range.

Let's say that we want Angel funding in order to complete the beta and to have a runway of a year to a year and a hlaf. We'd be asking for $150/$200k. I would take a minimal salary... enough to cover my bills. My co-founder does not necessarily need one. She has a full time job. We're thinking that most of the money would be spent on Marketing/Sales.

I'd like to hear what yall think on the following:

1) As the lead developer, should I take a fully salary or bare minimum?
2) Assuming our situation is it typical to be spending the bulk of the Angel money on marketing/sales? We are thinking $80-$90k.

We don't need to spend too much on design/development since I can do that. The expertise we dont have is the sales/marketing.

Thoughts/Feedback?


Many Thanks!
Luis

My co-founder and I are starting to think about talking to Angels and VC. The Angels in our area


14 Replies

John Sechrest
3
0
John Sechrest Entrepreneur • Advisor
Mentor at Startup Mentor
With the Angel Groups that I work with, the range of investments are much larger than what you indicate. But they depend on the traction and quality of the project. Most of the Angels that I work with, expect to see the founders pulling salary out of revenue, not out of investment. If you are pulling money out of investment, then you may not have enough resources to make things work well. That is you may have too high a financial risk. the key is to get early traction and early revenue. Can you get early adopter customers to pre-buy into the product and be part of setting things up?
Michael Barnathan
0
0
Michael Barnathan Entrepreneur • Advisor
Co-Founder of The Mountaintop Program, Google Alum
Since you're both on the founding team and compensated in equity, I would take a minimal salary if you can afford it rather than going full market with only $150k of funding. The less you take right now, the more you can invest in outside expertise and grow the value of your equity. Applying much of it to sales / marketing makes sense, as it sounds like you have a good product development team but need to find a way to sell it once it's done. Note that a difficult sales play to scale could indicate an opportunity to find a better business model / monetization strategy which has better scaling behavior.
Michael Barnathan
1
0
Michael Barnathan Entrepreneur • Advisor
Co-Founder of The Mountaintop Program, Google Alum
John also hit on a key point: you don't want to personally have so little that you're making decisions out of panic because money is getting tight.
Rob Gropper
0
0
Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
minimal salary if any. i second John's comments. If truly B2B then spend significant effort on finding a solid B2B sales person paid on commission - this only really works if 1) the sales person believes in the vision and 2) if your price point is high enough to justify his/her commission and 3) the sales person has significant relationships with your target customers. "marketing" should be minimal and highly targeted at this point and used primarily to drive leads.
Michael Brill
2
0
Michael Brill Entrepreneur
Technology startup exec focused on AI-driven products
Pay yourself enough to cover your bills. If an angel investor doesn't think you should be paid at all - especially after you've built the beta on your own dime - then look for a more experienced investor. Obviously you're not taking full market, but as Michael mentioned above, it does an investor no good if you're making bad business decisions because of personal finances.

I'd also really think twice about hiring a sales person until you've got problem/solution and product/market fit... and that's what angel money is for.
Rob Gropper
0
0
Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
Michael, i would argue that if he already has a product / MVP built to the extent that he is in beta then he'd better already have problem/solution and product/market fit - that should have come before building a product. one key job of his sales person will be to help refine that product/market fit. problem/solution confirmation should be long on it's way by now. all this assumes B2B (i'm assuming 'enterprise' here based on Luis' brief description). B2C would be a somewhat different story, but not drastically. my $0.02 worth.
John Sechrest
1
0
John Sechrest Entrepreneur • Advisor
Mentor at Startup Mentor
Don't mix up the work of the Marketing person who is very early in the process before the product is developed and who gets all the customer data/feedback/segmentation vs the Sales guy who is about closing enterprise sales at the end after the product is build... These are rarely the same guy.
Michael Brill
0
0
Michael Brill Entrepreneur
Technology startup exec focused on AI-driven products
Rob, there's no way to know until you're out there with a real product in real people's hands. You can/should certainly try to reduce risk with as much customer development as possible but plenty of products fail/struggle even with A+ customer development. Great startup sales people are execution machines - not strategic thinkers. You want to feed someone a proven formula and have them focused on making as much money as they can. The last thing I want out of a sales person is them thinking [only slightly tongue-in-cheek].

John, I'd consider that responsibility to be back in the product management realm and, imho, product management can't easily be hired/outsourced in a two-person company. My gut tells me that if Luis is able to raise money, then he'll need to demonstrate enough domain competence to investors - if he's got that, then he's got enough to do the early sales work himself. Even if he sucks at it, he'll get an insane amount of valuable feedback that would get lost in translation from a sales person.

And, to loop back to Luis' original question, if I had a choice between eating and doing the evangelical work myself or starving and hiring someone else to do it... it's an easy decision.

John Sechrest
0
0
John Sechrest Entrepreneur • Advisor
Mentor at Startup Mentor
I agree that early teams need to do the evangelical work themselves. Without that, there is far too many barriers to learning
Rob Gropper
0
0
Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
every member of the team needs to wear a lot of hats. a small startup team can make up for a lot of short comings in the eyes of an investor with traction, i.e. revenue. Luis is the dev/CTO and his partner has a FT job. Even if Luis can do the dev and/OR sales my suggestion is that he focus on his strengths. That likely means sticking with dev for now because he knows the code and hire someone (heavy commission weighted) to bring in sales. as soon as s/he makes the first sale dev will be buried. If it is the right kind of customer perhaps he can get some upfront $$ (this takes a lot of guts by the customer) to hire more dev. He certainly should be involved in as much of the customer face-to-face activities as he can muster - the sales person will need his help. I know nothing about "home health care agencies" and am assuming they are enterprise-scale prospects. if this is the case then your sales person better be a strategic thinker or don't bother. If the prospects are S/M orgs then yes, you will likely have to settle for a 'doer' not a 'thinker' because you can't afford a strategic sales person in SMB markets. Luis doesn't yet have a 'proven formula' - that will be the job of the team, but much of that weight will be on the shoulders of the strategic sales person. Again, if his target market is (or he thinks it is) Medium sized businesses then i would still lean toward having Luis stick with dev (for now) and hiring a commissioned sales person (and he will need to do the strategic parts), but he can't expect that person to be a strategic thinker - great if he can find one though!
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