
Never raise money before launching a product - jsherman76
http://leantechnews.com/never-raise-money-launching-product/
======
Kelbit
"Never" is far too strong a word here. There's more to the startup world than
SaaS.

Good luck launching a consumer hardware product without raising money if
you're not independently wealthy. Even getting a relatively simple product to
mass production is going to take on the order of 12-18 months and 1-2 million:
you've got several iterations of prototyping and testing, UL/IEC approvals,
set-up at a CM, and the long tail of retail to deal with. If you have
something truly innovative, consider adding an order of magnitude to that cost
estimate.

~~~
sheetjs
The title is clickbait. The real message is to avoid raising money if you are
in a desperate spot. The deals may not be favorable and you need to be able to
say no, and you can't say no if you feel desperation.

~~~
ttul
Nobody ever _wants_ to raise money. You raise money when you _can_ or when you
_have to_, in that order. If you're Slack or one of a very tiny number of
other startups that are vastly successful because they hit it out of the park
on every metric, money raises itself at a price you can't turn down. For
everyone else, you raise when you can, or when you have to. And it's not
always pretty, because if the future was risk free, you wouldn't be running a
startup.

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hw
Quite a few companies have gone down the crypto ICO route to raise funds
instead of dealing with traditional investors / VCs, which I think is a great
(albeit unregulated) way to raise some money without giving out a huge chunk
of your company. It's also an easier way to raise money without having an
actual product in hand.

It's just unfortunate though that ICOs have a bad rep due to greed and the
fact that a lot of the ICOs that happen are scams and will never deliver an
actual product.

~~~
ttul
ICOs are hot because they haven't yet been through the full hype cycle. Some
time in 2018, there will be an ICOpalypse, and investors will run for the
hills. ICOs will then no longer be hot.

------
adventured
"If you take money too early (and give away a lot of equity), it turns off
future investors"

That's dependent on who the early investor is. If you sell 1/3 of your company
before product launch, to one of the most respected people in the segment in
question, you'll lure talent and capital to your shores.

A prominent early investor lends vast, instant credibility to what you're
doing. They share their reputation with you.

Doing a genetics or CRISPR start-up? Sell 1/4 of the pre-product company to
George Church and Feng Zhang, get them to be involved in any meaningful
manner, and see what happens.

Convince Mark Cuban to buy 20% of your pre-product company. Your profile just
instantly skyrocketed. Every media outlet in the US will now take your contact
and at least listen to your story. Cuban just lent you a tiny piece of his
fame and credibility, other major investors will (under most circumstances)
immediately take you more seriously. A similar story would play out with a few
dozen other big angel investors (with varying degrees of attention &
credibility attached, some investors lend more or less of each).

~~~
DrJid
I guess a follow up to this is.. if you had a product, could you then convince
Mark Cuban to buy 10% instead of 20%? You still get benefit of having Mark
Cuban's name alongside your company while still retaining more of it.

Plus, that 10% can then go to future investors. (I think that's what the
article was trying to say)

~~~
rokhayakebe
What percentage of tech companies succeed/ed because of "Big Name?"

~~~
hodgesrm
Umm, Theranos?

------
trhway
>When you are first building your platform or product, you need to focus on a
couple of things: The technology, putting together a great team, user
acquisition and gaining traction, and hopefully earning revenue as well.

>Once you have all four of these things, you will be in a much better
negotiating position when it’s time to talk to investors about raising a round
of funding.

until of course seeing your product, revenue and traction would only worsen
the impression :) Watching how some acquaintances have been showered with
money (investors have been borderline begging to get in, and they were right -
one is already a unicorn in just a few years with strong revenue and pile of
cash in bank) just upon starting i can't even imagine how a better deal is
possible :)

Though it is B2B where to make a Fortune 500 sale in the 1st/2nd year, you
have to start selling well in advance, just from the get go, well before
MVP(if MVP even makes sense at all, instead there is POC)and you can't do that
on a shoestring budget. Development too must be scaled pretty quickly to be
able to deliver of what was already sold. There is no time to find a business
model, for market exploration, etc. typical B2C startup staff. The people here
come with experience, they know the field, know what they want to do.

------
gsylvie
I would do a small friends & family round pre-revenue. E.g., 8 friends and
family @ 12.5K each = 100K. I don't mind if my success makes my friends &
family some money.

But I'll sure feel bad if I take their money and lose everything. Perhaps that
would be motivating...

(Note: where I live (BC, Canada), the provincial government offers a
refundable 30% tax credit for investments like this, so if I did lose
everything, friends & family would only be out 70K).

~~~
jboggan
I wish I could do something like that but my friends and family are not
accredited investors, even if they have $10k to give. From my understanding of
securities law and compliance it really isn't possible.

~~~
gricardo99
In the U.S., depending on the state, there may be an exemption for friends &
family:

[https://www.strictlybusinesslawblog.com/2011/08/15/can-a-
fri...](https://www.strictlybusinesslawblog.com/2011/08/15/can-a-friends-and-
family-round-include-non-accredited-investors-should-it/)

~~~
gsylvie
Exactly! Here's the BC, Canada website on exactly this (British Columbia
Securities Commission):
[https://www.bcsc.bc.ca/For_Companies/Private_Placements/Priv...](https://www.bcsc.bc.ca/For_Companies/Private_Placements/Private_and_early_stage_businesses/#FamilyFriends)

------
tryingagainbro
>> _You should always focus on building your platform and proving that you can
get customers before taking in any money. This way, when you do raise money,
you’ll be using it to scale your company, not build it._

Great in theory. But who pays my rent, health care and sandwiches for those
years? I get that married people with children shouldn't even try. Kids get in
the way of working like a slave

------
ThomPete
While overly sensationalist and click-batish the amount of people I talk with
who raise money before they build their base product in areas that do not
require capital or aren't hard problems to solve is quite staggering.

But I am fine with people doing that as it means mostly they won't succeed.

------
revelation
Nobody seems to have told Magic Leap.

~~~
adventured
Or Jeff Bezos & Amazon. One of the greatest venture capital results in history
(20 people put in $50k each to get it started).

The article is far too vague to be taken seriously. There are a lot of
segments where you have to take on an investment to get to launch. Tesla and
SpaceX were not going to get started on peanuts, they required tens of
millions in start-up funding.

~~~
rokhayakebe
"Tesla and SpaceX," but certainly the significant majority of apps do not
require the same level of funding to get started.

------
mamcx
This is a problem elsewhere. For example in Colombia (where I live) is common
for "investors" to ask for more than 50% of your company and become de facto
owners.

Here, a lot of people can't even think in build a startup because lack of cash
and troubles getting bank loans.

A small investment (for example US 10.000) could lift some of us from the
ground! but the investors here are not savvy enough to spread the money among
many and reap the profits :(

------
brucephillips
"Why you should never raise money on bad terms" is really the point of the
article.

~~~
rokhayakebe
They did not enumerate all the reasons, but those are some. Perhaps the
biggest is being locked into a product you do not know will gain traction or
not. I rather find some traction no matter how small before raising,
"derisking" the product a bit more.

------
DrJid
Curious if anyone has experience with this. If you did build a product first,
are there cases when having said product can actually harm raising money?

------
rokhayakebe
"It takes money to grow money, not make money."

------
danbmil99
This advice may make sense if you're either independently wealthy, or young
enough and unencumbered enough with life's obligations that you can afford to
work for a year or two without a salary.

Actually, I think Silicon Valley uses this as a bit of a filter. It filters
for people with a background and social network where a couple hundred
thousand dollars, or working for a year or two without pay, are not a big
deal.

Exercise for the reader: what cohort of people does this filter exclude?

~~~
throwaway2016a
A MVP does not take a couple hundred thousand dollars or years without pay.
Many people here on HN have built apps and gotten traction in their free time.

The real trick is getting a job where your contract does not try to claim your
employer owns things you make in your free time...

~~~
jonreem
In California at least, regardless of what’s written in your employment
contract, you own anything you produce on your own time and with your own
equipment as long as it doesn’t directly relate to your employer’s business.

~~~
jboggan
It's difficult to get something started on the side when you work for Google
for that reason.

~~~
brucephillips
Not really. Can you cite any instance of Google suing a company founded by ex-
googlers that wasn't founded on the basis of the work those founders did at
Google?

