The only way to predictably raise money for a start-up is with clear evidence of customer happiness and revenue, but here’s how to do it in a less than perfect world.
Between a team with no launched product and a mature, predictable business lies the art of raising money. But, even at the earliest of stages, it’s important to create a sample set of evidence that shows what you are doing is actually solving the problem of a customer.
It’s easy to hear stories of multi-million dollar venture capital rounds on the back of a PowerPoint but even the days of that are coming to an end. And, even then, that’s mostly due to the previous success of the team members involved with the start-up versus what has been achieved so far with the current one.
There used to be a chicken and egg problem with web start-ups. If the company couldn’t raise millions of dollars, they couldn’t afford to buy the software and database licences and servers needed to launch the product. That’s no longer the case and it’s a lot easier to prove out the initial crumbs of success with very little money.
At the same time, because it’s easier to prove out the initial crumbs of success, investors will rationally expect that a lot more should be proved before their angel investment goes into the business (Side note: The founder might also expect that angel round valuations should have come up from a decade ago because more risk has been removed relative to the proposition ten years ago!).
So the most important thing to do in a young start-up is to prove that what you do works on a really small scale. This could be tens of paying customers each forking out $30 a month. The scale is minuscule, but the lessons you learnt in signing up those few customers provide a wealth of information and learning.
The second most interesting thing an investor wants to know is that now that someone has paid something, will they stick around and keep paying or even pay more? Showing that you have 20 paying users and that none have unsubscribed in the few months you have been going all are positive signs for an investor.
You need to sell a vision, but you also need to show small examples with actual metrics that what you are talking about is not complete fiction. And ultimately, by doing that, you’ll give yourself a greater chance of being able to raise money in a predictable way.
