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Vaness859

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Dec 10, 2019
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I really appreciate all of your advice, so I want to say thank you. How far should I be established before I present my business plan to investors? Should I hire a business attorney, accountant and essentially develop a team before scouting out investors or find investors and then hire the rest of the team?
 

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Kak

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I really appreciate all of your advice, so I want to say thank you. How far should I be established before I present my business plan to investors? Should I hire a business attorney, accountant and essentially develop a team before scouting out investors or find investors and then hire the rest of the team?
Like most things in business... There is no right answer.

Business is an art not a science.

It depends.

What do you have going on?
 

arl

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As @Kak said it vastly depends on many variables.

  • How much money are you trying to raise?
  • Do you have something to show (an MVP or product)?
  • Who is your potential investor?
  • What do you need the money for?
 

bootstrapper

Contributor
Jan 26, 2020
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United Kingdom
I really appreciate all of your advice, so I want to say thank you. How far should I be established before I present my business plan to investors? Should I hire a business attorney, accountant and essentially develop a team before scouting out investors or find investors and then hire the rest of the team?
I ama full-time investor and spend most of my time helping companies with financial topics like strategy, accounting and subsequent investment rounds. What I'm going to say will sound a lot like other Fastlane advice.
The first thing you need is a business with traction. That depends on the stage of the business but it looks something like this
1. pre-product: either signups and emails for a trial or actual trial customers helping you to develop it
2. pre-revenue: trial customers using it and giving feedback. path to first sales.
3. post-revenue, but subscale: show me that you have sales, are growing them, and that the unit economics are solid and improving.
4. ready to scale: show me that everything has been refined and testsed at a micro level and now you want to scale up (ie repeat what works at a larger scale). this can mean pushing much more marketing budget behind it, or copy/paste to new geographies/new customer bases

a business with traction is investable.

next you need a clear WHY you need the money. you should have a budget for where the money will go and also what the investor should expect from that. e.g. "I am raising 100k, with 50k to put in marketing and 50k for hiring two sales people, and this should get us to 750k of sales in a year". beyond that, you should show how an investor will get their cash back or more. is it through dividends, selling the business, or what?

the number you are seeking to raise should be a function of your BUSINESS PLAN, i.e. you should think that you can take your marketing spend from 5k to 50k and make it work. if you're not sure, revise the business plan to a number that you think can work. the fundraising plan is a function of your business plan and always remember that!!

nice to have:
- a team to show that you have a business, not just one person
- a good set of books and records kept by you or an accountant
- a well-designed presentation that shows you can present your idea coherently and why to invest in the business (this is a proxy for your ability to sell the product, which is why it matters)


TLDR: if your business has traction and is growing, and you have a good use for the funds, then you have a good chance to raise money
 
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OP
OP
V

Vaness859

New Contributor
Dec 10, 2019
14
6
12
Like most things in business... There is no right answer.

Business is an art not a science.

It depends.

What do you have going on?
Thank you so much for responding, as I am very new to all of this and am trying to learn as much as possible. I am at the very beginning of my journey. I have an app idea and have been researching agencies to develop the product. I also have been researching business lawyers because I want to make sure legally we are all good. I don’t know whether It would be smart to find investors to help fund the development or if that would be disrespectful to waste someone’s time with no product to show them.
 

bootstrapper

Contributor
Jan 26, 2020
7
22
13
United Kingdom
Thank you so much for responding, as I am very new to all of this and am trying to learn as much as possible. I am at the very beginning of my journey. I have an app idea and have been researching agencies to develop the product. I also have been researching business lawyers because I want to make sure legally we are all good. I don’t know whether It would be smart to find investors to help fund the development or if that would be disrespectful to waste someone’s time with no product to show them.
get as far as you can without their money. if your product costs $100 to develop, then fund yourself. if it costs $1 mln, then try to get as far as possible before asking
 
OP
OP
V

Vaness859

New Contributor
Dec 10, 2019
14
6
12
I ama full-time investor and spend most of my time helping companies with financial topics like strategy, accounting and subsequent investment rounds. What I'm going to say will sound a lot like other Fastlane advice.
The first thing you need is a business with traction. That depends on the stage of the business but it looks something like this
1. pre-product: either signups and emails for a trial or actual trial customers helping you to develop it
2. pre-revenue: trial customers using it and giving feedback. path to first sales.
3. post-revenue, but subscale: show me that you have sales, are growing them, and that the unit economics are solid and improving.
4. ready to scale: show me that everything has been refined and testsed at a micro level and now you want to scale up (ie repeat what works at a larger scale). this can mean pushing much more marketing budget behind it, or copy/paste to new geographies/new customer bases

a business with traction is investable.

next you need a clear WHY you need the money. you should have a budget for where the money will go and also what the investor should expect from that. e.g. "I am raising 100k, with 50k to put in marketing and 50k for hiring two sales people, and this should get us to 750k of sales in a year". beyond that, you should show how an investor will get their cash back or more. is it through dividends, selling the business, or what?

the number you are seeking to raise should be a function of your BUSINESS PLAN, i.e. you should think that you can take your marketing spend from 5k to 50k and make it work. if you're not sure, revise the business plan to a number that you think can work. the fundraising plan is a function of your business plan and always remember that!!

nice to have:
- a team to show that you have a business, not just one person
- a good set of books and records kept by you or an accountant
- a well-designed presentation that shows you can present your idea coherently and why to invest in the business (this is a proxy for your ability to sell the product, which is why it matters)


TLDR: if your business has traction and is growing, and you have a good use for the funds, then you have a good chance to raise money
Thank you so much for responding, I really appreciate the great ad
I ama full-time investor and spend most of my time helping companies with financial topics like strategy, accounting and subsequent investment rounds. What I'm going to say will sound a lot like other Fastlane advice.
The first thing you need is a business with traction. That depends on the stage of the business but it looks something like this
1. pre-product: either signups and emails for a trial or actual trial customers helping you to develop it
2. pre-revenue: trial customers using it and giving feedback. path to first sales.
3. post-revenue, but subscale: show me that you have sales, are growing them, and that the unit economics are solid and improving.
4. ready to scale: show me that everything has been refined and testsed at a micro level and now you want to scale up (ie repeat what works at a larger scale). this can mean pushing much more marketing budget behind it, or copy/paste to new geographies/new customer bases

a business with traction is investable.

next you need a clear WHY you need the money. you should have a budget for where the money will go and also what the investor should expect from that. e.g. "I am raising 100k, with 50k to put in marketing and 50k for hiring two sales people, and this should get us to 750k of sales in a year". beyond that, you should show how an investor will get their cash back or more. is it through dividends, selling the business, or what?

the number you are seeking to raise should be a function of your BUSINESS PLAN, i.e. you should think that you can take your marketing spend from 5k to 50k and make it work. if you're not sure, revise the business plan to a number that you think can work. the fundraising plan is a function of your business plan and always remember that!!

nice to have:
- a team to show that you have a business, not just one person
- a good set of books and records kept by you or an accountant
- a well-designed presentation that shows you can present your idea coherently and why to invest in the business (this is a proxy for your ability to sell the product, which is why it matters)


TLDR: if your business has traction and is growing, and you have a good use for the funds, then you have a good chance to raise money
Thank you for responding, I really appreciate the advice. I am new to pursuing a business and am trying to soak up everything I can. I am working on creating an app and as an investor, do you experience people who fund the development of their app and then come to you or do they come to you with an idea and data that supports the future success of it and ask for funding?
 
OP
OP
V

Vaness859

New Contributor
Dec 10, 2019
14
6
12
As @Kak said it vastly depends on many variables.

  • How much money are you trying to raise?
  • Do you have something to show (an MVP or product)?
  • Who is your potential investor?
  • What do you need the money for?
I am working on an app idea, that I would need to be developed. Ideally, I would love to find an investor(s) to fund the app. I’m new to this whole pursuit, so I appreciate you responding, thank you.
 

Scot

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JScott

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I've been asked to fund several "apps" -- because the startup costs are relatively small (only development, no inventory) and the marketing appears to be built-in (Play Store, App Store), a lot of people think that creating an app is an easy way to start making money.

Unfortunately, that's not the case. There are typically two types of apps:

1. Those that have value on an individual level -- if someone uses the app standalone, they will get value from it; or

2. Those that rely on network effects -- the app becomes more valuable when there are LOTS of other people using the app.

To be successful with #1, you need to be able to sell the app or otherwise monetize it. As an investor, I want to know your plan to monetize, and I want proof that people are willing to pay for your app, or that whatever monetization method you're targeting is actually viable. Do you have customers who have committed to paying? Do you have advertising committed to paying? Do you have affiliates committed to paying and customers committed to using?

For this category of app, you need to prove out the business model, not the app.

To be successful with #2, you need to be able to generate these network effects. You can't have the "If I build it, they will come" mentality. As an investor, I want to know how you plan to market the app, how you plan to build the network, and what you plan to do prior to gaining critical mass in that network to encourage users to actually use the app. Do you have a network ready to go? Do you have a million screaming fans asking for your app? Do you have another network that you're positioned to siphon from?

For this category of app, you need to prove out the marketing and scaling, not the app.

So, which category does your app fit into? And have you proven out your business/marketing model appropriately? Assuming so, that's what you need to be prepared to present to investors to get them interested and potentially willing to invest.

Long story short, the app itself is rarely the important part of an app.
 
OP
OP
V

Vaness859

New Contributor
Dec 10, 2019
14
6
12
I've been asked to fund several "apps" -- because the startup costs are relatively small (only development, no inventory) and the marketing appears to be built-in (Play Store, App Store), a lot of people think that creating an app is an easy way to start making money.

Unfortunately, that's not the case. There are typically two types of apps:

1. Those that have value on an individual level -- if someone uses the app standalone, they will get value from it; or

2. Those that rely on network effects -- the app becomes more valuable when there are LOTS of other people using the app.

To be successful with #1, you need to be able to sell the app or otherwise monetize it. As an investor, I want to know your plan to monetize, and I want proof that people are willing to pay for your app, or that whatever monetization method you're targeting is actually viable. Do you have customers who have committed to paying? Do you have advertising committed to paying? Do you have affiliates committed to paying and customers committed to using?

For this category of app, you need to prove out the business model, not the app.

To be successful with #2, you need to be able to generate these network effects. You can't have the "If I build it, they will come" mentality. As an investor, I want to know how you plan to market the app, how you plan to build the network, and what you plan to do prior to gaining critical mass in that network to encourage users to actually use the app. Do you have a network ready to go? Do you have a million screaming fans asking for your app? Do you have another network that you're positioned to siphon from?

For this category of app, you need to prove out the marketing and scaling, not the app.

So, which category does your app fit into? And have you proven out your business/marketing model appropriately? Assuming so, that's what you need to be prepared to present to investors to get them interested and potentially willing to invest.

Long story short, the app itself is rarely the important part of an app.
Thank you so much for this great advice! I appreciate your perspective as an investor and I will absolutely take it moving forward. It’s such a puzzle figuring out what the next right step is (especially when you are new in the game), but I am determined and thankful for your guidance.
 

Vigilante

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get as far as you can without their money. if your product costs $100 to develop, then fund yourself. if it costs $1 mln, then try to get as far as possible before asking
LOVE THIS
 
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Vigilante

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The best investments are in people that don't need investments.

Once, a few years ago, @Kak was at a lunch meeting, when the guy took out his checkbook and wrote out a check (a check!) for $500k. I can't remember if he took it or not, but if memory serves (as I am getting old) I think he (KAK) passed.
 
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Vaness859

New Contributor
Dec 10, 2019
14
6
12
The best investments are in people that don't need investments.

Once, a few years ago, @Kak was at a lunch meeting, when the guy took out his checkbook and wrote out a check (a check!) for $500k. I can't remember if he took it or not, but if memory serves (as I am getting old) I think he (KAK) passed.
Wow that’s very inspirational!
 

Kak

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The best investments are in people that don't need investments.

Once, a few years ago, @Kak was at a lunch meeting, when the guy took out his checkbook and wrote out a check (a check!) for $500k. I can't remember if he took it or not, but if memory serves (as I am getting old) I think he (KAK) passed.
Yeah, I basically passed.

It was a woman and her son... Family acquaintances. They somehow felt entitled to my company, which rubs me wrong. They acted as if they could just buy their way in if they so desired. The woman was kind of nice, but her son thought he knew everything.

The offer was $500k. I already had plenty of money in the business account and nothing to deploy their money on so I said... "Ok, I will take it at a $10m valuation and THIS is why." I proceeded to tell it like it is. Listed the headwinds, tailwinds and the potential given some big contracts.

Was the company worth 10m at the time? No, it wasn't, and I told them that. The stock I am going to give up for no real operational reason, while things are going great, is going to be expensive. I still thought in the long run they would get a solid ROI.

Those were my terms... They could take or leave them. They felt like they still deserved market price. I said you can't just hostile takeover a private company. They became troublemaker investors to someone else's venture.

We were there on MY terms. If MY terms weren't met, there wouldn't be a deal. They BEGGED me to go to lunch. So I went to hear them out and told it like it was. I even paid.
 
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Andy Black

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Yeah, I basically passed.

It was a woman and her son... Family acquaintances. They somehow felt entitled to my company, which rubs me wrong. They acted as if they could just buy their way in if they so desired. The woman was kind of nice, but her son thought he knew everything.

The offer was $500k. I already had plenty of money in the business account and nothing to deploy their money on so I said... "Ok, I will take it at a $10m valuation and THIS is why." I proceeded to tell it like it is. Listed the headwinds, tailwinds and the potential given some big contracts.

Was the company worth 10m at the time? No, it wasn't, and I told them that. The stock I am going to give up for no real operational reason, while things are going great, is going to be expensive. I still thought in the long run they would get a solid ROI.

Those were my terms... They could take or leave them. They felt like they still deserved market price. I said you can't just hostile takeover a private company. They became troublemaker investors to someone else's venture.

We were there on MY terms. If MY terms weren't met, there wouldn't be a deal. They BEGGED me to go to lunch. So I went to hear them out and told it like it was. I even paid.
I love this.

  1. Don’t say No, get them to say No.
  2. State a price and conditions that you’d be delighted with if they said Yes.
  3. Your cheque-book doesn’t make you smart, or my boss.
 
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mauamolat

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Yeah, I basically passed.

It was a woman and her son... Family acquaintances. They somehow felt entitled to my company, which rubs me wrong. They acted as if they could just buy their way in if they so desired. The woman was kind of nice, but her son thought he knew everything.

The offer was $500k. I already had plenty of money in the business account and nothing to deploy their money on so I said... "Ok, I will take it at a $10m valuation and THIS is why." I proceeded to tell it like it is. Listed the headwinds, tailwinds and the potential given some big contracts.

Was the company worth 10m at the time? No, it wasn't, and I told them that. The stock I am going to give up for no real operational reason, while things are going great, is going to be expensive. I still thought in the long run they would get a solid ROI.

Those were my terms... They could take or leave them. They felt like they still deserved market price. I said you can't just hostile takeover a private company. They became troublemaker investors to someone else's venture.

We were there on MY terms. If MY terms weren't met, there wouldn't be a deal. They BEGGED me to go to lunch. So I went to hear them out and told it like it was. I even paid.
Intense! lol
 

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