

Ask HN: Is it a good idea to seek funding pre-launch? - optimus

I've built, and validated the need for, my app but I don't have the funds to grow it; there's a sales component to it and I need to hire some sales reps to scale. The app also requires a sizable upfront expense per major city (population &#62; 100k) that is recouped about 10 days later.<p>The startup is a b2b play that has a b2c component that I'm working on too.<p>Are investors likely to invest assuming they like the idea, the initial execution (the building of the app), and the size of the market, with no traction (not yet launched).<p>Should I start looking for funding now?
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patio11
A partial answer to your question: there is an inverse Goldilocks zone for
seeking funding. An idea/market/team can potentially be fundable pre-launch
no-traction, and be potentially fundable post-launch post-traction, but absent
extraordinary circumstances post-launch pre-traction is the kiss of death.

 _The app also requires a sizable upfront expense per major city (population >
100k) that is recouped about 10 days later._

For what it is worth: Many investors will assign fairly low confidence to this
prediction prior to you having successfully demonstrated it 1+ times.

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optimus
The problem I'm worried about is precisely what you're warning against: I'm
confident that I can successfully launch in one city (with my own funds) but
I'm afraid that this will be considered post-launch and pre-traction when I
solicit investors.

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rguzman
if you can recoup your funds 10 days after launching in one such city, why are
you worried about the investors?

launch in 1 city -> recoup -> launch in another city -> recoup -> ... do that
enough times and you either have traction and/or you don't really need
investors.

i suspect that your prediction of the recoup-ability is what's off.

~~~
optimus
I should be more clear.

The startup's customers are from among many verticals. Acquiring those
customers is why I need the sales team. I can work to acquire a few myself
within a specific vertical. To service the acquired customers is where the
monetary expense is required (think PPC ads that are later billed to the
customers, for example).

Of course, I can do one at a time, but why? That's the point of me wanting to
seek funding - to scale quickly...to go after multiple companies in multiple
cities within multiple industries.

~~~
tptacek
The dynamic you are describing captures probably the majority of all the
pitches investors hear. Everyone thinks they can "recoup" within X days of
spending on sales, marketing, and support. The reason to do it one city at a
time is that it allows you to demonstrate two things: (a) that your model
actually does work, unlike the 1000 competing pitches that claim the same
thing but don't work at all, and (b) that you don't actually need their
investment, which gives you leverage in your negotiation and,
counterintuitively, makes you a more attractive investment.

~~~
optimus
I see.

(b) is golden. In a way, it's like ignoring a girl that I like, while making
myself discernibly more desirable.

Thanks.

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csense
My thought is that it doesn't hurt to start the conversation, especially given
that you already have a business plan and a product.

But whether you take investment depends on the valuation you can get and the
amount of equity you'll be asked to give up.

You need to determine three things:

(1) How much is your company worth?

Basically, the assets you have in the present, plus present value of expected
future profit.

(2) How much you're willing to give up?

Figure out whether you want to maintain a majority of the business, and how
much margin you want to leave for future equity grants (later funding or
stock-based compensation incentives)

(3) What's your exit strategy?

If you're planning on staying with this business for a long time, then you can
probably get better returns, and have a freer hand with strategy, if you avoid
taking lots of investment. Staying in a niche and generating $100k a year in
profit to live a reasonable lifestyle and support a family with minimal work
(once you're past the startup stage) can be considered success if you're 100%
owner, but an investor might not be happy unless you get acquired for $1M -
$10M, and might try to pressure or even force you to pursue that outcome.

OTOH, if you're looking to eventually hand the reins over to someone else and
cash out a nice golden parachute down the road, I'd start the ball rolling
with investors early on.

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sharemywin
My understanding is unless you have a couple succesful businesses under your
belt it's hard to get investor interest pre-traction. The other thing
investors are going to look at is barriers to entry. if your up and running
proving your business model works and making good profits how hard is it for
someone to come along charge less and take your business from you.

