Investors invest in people and not product/services unless that service has some traction. If the product/service has traction then the person generally becomes someone of importance.
Generally speaking, someone with a track record will have an easier time getting funded with a shitty product/service than a first time founder who has a great product/service, will have a more difficult time 9/10 times.
The strange this about this is that a 'track record' seems to be loosely defined. In SV, it seems like if you're associated with a success story as an employee you will also have an easier time raising money than a first timer. So working for a funded startup can be helpful.
I am wondering if anyone has stats that shows it is better to invest in someone with a "track record" vs someone who is going at it for the first time. Seems like hitting it out of the park twice is rare unless you are the the "lucky" exception, which doesn't seem to happen often.
All in all, I think the easiest way to decide whether to invest or not is... traction.
My experience so far as a first-time founder is similar. We invested thousands of hours of our spare time into building a strong foundation and a working product running on top of it, but lack traction mainly because we had day jobs and truly pushing and marketing our product was impossible.
The incubators and investors we've talked to seem undeterred by our presence of a product without traction, but the equity they're seeking puts us more on par with a couple guys with an idea. It makes sense, but the low valuation means we're now looking at consulting options and other means to build out enough infrastructure to attract paying customers.
I don't regret the route we've taken (yet) and I'm excited to see how creative we can get, but it is interesting to see our experience eloquently presented by someone else and some reasons why. It's obvious now, but like most obvious thing it wasn't obvious until it was.
Loved the info. Very informative. Thanks for sharing. We are building a web command prompt portal http://www.kaanzi.com/ . We have a working prototype out there. We've pitched the idea to a few investors, and as impressed as they are, everyone seem to have their eyes on traction. We are working to push our prototype to the next level, get real traction, and then hopefully raise money for this. Your post was very reassuring in that we are giving priority to the right problem at the moment.
I would highly suggest having someone proofread your site. Your about page says you're from Dallas, so it sets the assumption you're American, but the grammar is very poor.
How Buffer (150kUSD/y runrate for 60k users) makes money:
Buffer is freemium based on number of tweets you load into the buffer. Up to 10 tweets is free, 50 tweets is $5 a month (with three Twitter accounts and two team members per account) and unlimited is $30 a month (nine accounts, four members per account).http://www.readwriteweb.com/archives/take_the_hassel_out_of_...
Makes sense. But if I should delay fundraising until I have enough traction, how do I fund the development of the product. Should I keep a day job with a high risk of slowing down development a lot? Or should I just jump for it, reduce my expenses as much as possible and hope for the best?
This is a good question. Everyone's situation is different, but if you are young with no family to support, I think it's best to minimize expenses so you can minimize time spent at a day job, and thus maximize "free time" to work on your project. You may have to be creative and/or lucky about finding a free or cheap living situation, that is still conducive to productivity. If you are really passionate about your startup, though, it will be worth it; you'll know for yourself what sacrifices are worth it to you.
If you can find a part-time job with relatively high wages per hour and some flexibility, that's a good compromise between working a full time day job and being completely unemployed.
Depending on your personal risk tolerance and risk attitude, you can supplement/replace your part-time income with savings or credit.
If you're really creative, you can do something akin to Airbnb's cereal stunt to raise money. :-p
Again, the answer to this question is going to vary depending on your situation, and even for the same situation, people will have different advice based on their own experiences and values.
From my experience watching people trying to start a business (not as a entrepreneur since I'm also first time entrepreneur but just as an observer), I found out that it is very very hard to get traction if you have a day job.
However, during day job you can do a lot of market research and customer development and get to the point that you are confident that startup will succeed (or at least it will not fold immediately). Basically, find customers first (use demos and prototypes) then build a product.
And what I found out is that some people will actually stick with you as customers/users even if your product sucks - they believe in you. In other words, finding some normal people to believe in you and what you are doing is much easier that finding investors who believe in you.
I'm currently in a similar situation, I want to see how far and how quickly I can take my ideas, in my personal time, while keeping a comfortable day job.
I think there are a lot of variables involved, such as how much you value your current job vs. your passion and belief in the product you're personally trying to develop, as well as how much technical expertise you already have in the problem domain.
There may never come a time when I feel completely comfortable with the thought of losing the day job, but this makes the most sense to me right now.
Depends on how much you believe in what you're building.
If you think it's really that great, you should jump in, slash your expenses to the floor, and work 100 hours per week. Particularly if you have no family / kids to take care of; you can afford a greater level of risk.
If it's not that great, consider not doing it at all. Save your investment (time, money, heart, etc) for something better that will inevitably come along.
If you're not willing to suffer intensely, if necessary, for what you're building, it might not be the right thing to dedicate your time to. Sometimes it takes an extreme amount of sweat to get to the finish line, you have to factor that in if you're going to run the race.
You can absolutely raise a strong seed round from high profile investors without either traction or a strong track record. I know because I've done it.
You have to compensate with either a great product that you've already built or an ok product with a great concept of where it can go. As a founder you have to be able to craft that storyline and make it believable. It's extremely possible.
All generalizations are just that. I don't think he was saying that anything is impossible. A first-timer could also raise if they had great luck (bumps into the RIGHT investor), great connections, great salesmanship, great pedigree (went to Stanford, worked at Twitter), etc.
He's saying that first-timers (generally!) have pretty crappy odds of closing quickly, with good terms, and with top-tier investors.
I don't disagree with the difficulty involved, I think that's prominent in any attempt at starting a business.
I believe the odds / luck factor can be substantially altered in a favorable way by having at least an above average product to show off, combined with a vision for where you're going to take it.
Most good investors will spot very quickly whether your product is crap or not; they'll obviously size you up based on what you say, how you act, your confidence in your product and vision for it, and so on. If you have it, they'll see it, but you've gotta have a product to show off and you have to speak confidently to where you're taking it and how. You've gotta sell the investor on you + the product + the future.
Do those things, and any investor worth having will take notice regardless of your background or traction.
If you have an "above-average product to show off", the first question any investor is going to ask is, "how are people liking it?". If you have a lot of satisfied users, you have traction! If not, having the completed "above-average" product does two bad things:
(a) it gives the investor an easy "out" ("let's work on getting you in front of users and see how that goes"), and
(b) it creates a signaling problem ("great looking product; no paying users; what's wrong with this idea?").
All that aside, I've done the VC tour a couple times, once in the first bubble and once out of it, and my experience has been that without a thrumming business already built, it's all about your track record. If you've made money for investors recently, they'll pay attention. Otherwise, they'll string you along.
Sometimes people get lucky. It's possible to flop 7-7-2. That doesn't mean it's a good idea to go all in on pocket 7-2. Courting investors is tremendously expensive. It probably does make some sense to divert some or all of that effort into building up a business instead.
Can you elaborate on who you are / what your company is? I always find it infuriating (in a nice way) when I read of peoples success in a disconnected manner on hacker news. :)
Most people are pretty close to the vest with founder dilution numbers. It also tends to be complicated and hard to sum up. Convertible note or priced round? If it's a note, is there a cap, a discount, warrants? Participating preferred shares or no? Liquidation prefs?
Generally speaking, someone with a track record will have an easier time getting funded with a shitty product/service than a first time founder who has a great product/service, will have a more difficult time 9/10 times.
The strange this about this is that a 'track record' seems to be loosely defined. In SV, it seems like if you're associated with a success story as an employee you will also have an easier time raising money than a first timer. So working for a funded startup can be helpful.
I am wondering if anyone has stats that shows it is better to invest in someone with a "track record" vs someone who is going at it for the first time. Seems like hitting it out of the park twice is rare unless you are the the "lucky" exception, which doesn't seem to happen often.
All in all, I think the easiest way to decide whether to invest or not is... traction.