A founder’s time is the world’s most valuable resource. And every day, I see them waste it.
Let me explain…
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Investable vs. Not Investable
All day every day, I get pitches from ambitious entrepreneurs. I love talking with them — but they usually have the same problem.
Their company isn’t ready for investment yet.
Their product isn’t finished. They have no customers. They have no revenue.
And they all want to raise venture capital.
I get it, we all need money! But consider the investor’s perspective.
Every year, I look at over 2000 deals. I choose around 10, or 0.5%.
At that point, I’m going to pick companies that are launched with some paying customers, right?
It’s an easy way to narrow down the list. Paying customers also show they can build a product people want.
Given the available deals, why would I put money into a company with no product and no customers? It just wouldn’t make sense.
There is the rare investor who wants to invest as early as possible. But they seem to be even more elusive than the unicorn startups we’re all chasing.
Capital Raised Per Hour
Consider your precious time. For every $1 million in capital you raise, how many hours will it take?
If you have a launched product making $20,000/month in revenue, perhaps it takes 200 hours to raise a $2 million seed. That’s $10,000 per hour.
Now, what if you are pre-product?
The odds of raising at all are very slim. Even if you did, it’s likely to be a much smaller pre-seed round of, say, $500,000.
What if that takes up half your time for a year? Perhaps you’re working 70 hour weeks, and spending 35 on fundraising.
That’s just $275/hour, about a 97% lower yield than the founder with some traction.
What Do I Do for Money in the Mean Time?
Accelerators are a great choice. They’re used to working with early stage companies and typically provide $100,000 to $150,000 plus a great network.
But even most of them want to see a finished product. So get that out the door as soon as you can!
But I Need Money to Build the Product!
Time for the hard truth. If your team doesn’t have the technical skill to build an MVP, investors won’t touch it anyway.
You can’t make a software company without people who know how to make software.
But all is not lost!
You can learn coding. And you can also use amazing no-code tools like Bubble to get an MVP out the door.
Wrap-Up
Raising money isn’t the best use of your time at the earliest stages. Especially in a down market, you’ll be beating your head against the wall.
Do you want to have Zoom after Zoom that goes nowhere? Or do you want to build an awesome product and get some paying customers?
Once you have that, we investors will be calling you.
Best of luck!
What are your experiences with fundraising? Leave a comment and let me know!
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2 thoughts on “Putting the Cart Before the Horse”