After being
cost effective startup for some time you realize you need to stop innovating
and working with the limited resources possible and start to look for venture
capitals. The question is “when is the right time to do this”. Most of us we
like venture capitalist to invest into our products and ideas at the very early
stage something which totally not advised since it might make you lose a very
large chunk of share from your company.
Even though
to work and innovate require someone to have some incentives to do so but still
the need of running and operating your company your own ways is very important
until your company as matured enough to require support and funding from
outside. Sometimes it takes more than 3 to 4 years to realize what your
customers need is different from what you are offering them. After working with
your own company for sometime only then you will be able to go through your
revenue model and correct some stuffs to come up with a successful working
model.
Is there a
period of time during your startup development you can stop bootstrapping? The answer
is no, every time you require proper management of funds and resources you have
so that to attain maximum profit. So either you got funding from the VC or
angel investor making proper utilization of funds and resources remains
inevitable.
From my
experience, one of the biggest challenges that are facing most of the local
innovators and startups owners is seeking fund from the very early stage of the
product development and idea generation. The problem not only affects them in
the way they run and manage their companies but also tends to push venture
capitalists from investing on their products and ideas. Most of the ideas and
products at this stage they are too risks for an investor to inject money or
even considering supporting them. At this stage it is even difficult for
startup owners to understand their business models, their client base and
sustainability of their ideas or products.
I agree with
the fact that some of the ideas are getting opportunity to attract investors
from the very early stage when they are just at development phase but the
decision of allowing someone wither to invest in your idea or not still remain
something that is very delicate that has to be handled wisely. The call you
make that day when you decide to sell your share to someone is when you decide
to give the power to control your product to someone else.
So when is
the right time to find someone to inject money to your project? The answer is
it depends with so many things but these are among the factors you should
consider before making the tough call.
How much do you know about your
product? Before you
run and start looking for investors to put money in your product you should
understand your product, the value of innovation within your product and your
intellectual property rights. How much you know about your product is directly
proportional to being able to convince someone to put money in your product.
Always remember good ideas don’t exist every good idea have already implemented
and put into practice. This means before starting looking for investors make
sure your idea (product) work.
If you were the investor why would
you want to such a product? If there is something very difficult is to tell yourself the truth, but
if you can manage to do this definitely you can easily realize the right time
to look for an investor. When you are half percent sure that your idea will
work that is never the right time to approach the VCs, you will just waste your
time. If you can’t believe in your product, who will?
Where does
the supreme power of your product come from? Some of the products are directly
related to consumers and their usage depends solely to the usability of the
clients while other products will require intermediate companies that are well
established to link you through. For example having a popular android app that
have over a million user base means the power solely comes from the users. It’s
always about you and the users while having a product that depends on
developing USSD based platforms whereby you have to pay a lot of money to a
certain local mobile company that power is distributed between you, the user
and the service provider. For project that share same execution environment as
the second one, you might be squeezed to look for investors from very early
stage. Why should you run and start looking for funds while you don’t need to
do any major investment in the beginning? If your operation power come from the
people make sure you leverage the opportunity and use it.
What are you losing if someone doesn’t
invest on your product? Opportunity to grow, which is the easiest answer someone can offer for that
question. I don’t believe the only thing you require for your company to grow
is funding. A lot of companies receive funding at early stages of their
operation and ended up bankruptcy due to lack of proper management of funds and
organizational skills. Sometimes what you real need is something far from
funding.
The speed of growth of your product
and usability, they
say patient pays. You should ask yourself one does someone run quickly to you
and offer millions to buy shares from your product. You might not have enough
knowledge on investment skills but always know that investor only invest money
were the possibilities of positive returns are very high. When they came in
running to you it is the time you realize the product you own has the ability
to grow fast than you think. Take your time and be prepared for the bigger
offers.
Finally, you
only can decide the right time to go for external funding of your innovative
idea and there is no replacement for bootstrapping the concept itself is the
reason for success of most of the startups. If you read this article and you
want to understand more please check the concept of venture funding, frugal
innovation and startups management online.
Jumanne Mtambalike
Tech360 Founder
