
Ask HN: How to raise 10M for a SaaS product? - qaq
The market structure an obsolete leader (lead time for highly requested features literally 6-10 years)owns close to 50% of the market. There is a large number of competitors literally none offer capabilities that would allow F500 company to switch from market leader to their offering. Building up a competitive offering would take a few years and a 10M round. This does not fit normal VC deal structure. How could one look for capital? (market size is about 6 billion)
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trcollinson
So you already hit the nail on the head. You say "This does not fit normal VC
deal structure." That generally means you are going to have to create a whole
new funding market to get that 10MM you are looking for. The important part is
why.

The reason this doesn't work for VCs is because their model works and works
well. They want enough risk to allow for a substantial level of potential
upside, with a reduced amount of time (and therefore risk) to see results. So
basically they are fine with relatively small amounts of money going into
relatively small SaaS products as long as those products have some users, some
revenue, and a path to higher profitability.

You are asking for a relatively large sum of money, for a very high risk
project. Your project is high risk because it has absolutely zero customers, a
long lead time for any sort of results, and has an absolutely giant competitor
that owns a massive market segment. With zero customers, we have no idea how
long it will take you to get to any sort of profitability. With no product
built and with a long lead time to build any sort of product we don't know if
you'll really build the right thing to get to profitability (and, neither do
you, even if you think you do). Finally, you admit you have a giant competitor
that owns the market. You can get past that but it will be potentially really
costly and risky.

At the VC I work with, there wouldn't be a lot of interest in any of that.
It's not because you don't have a good idea. It's also not because you aren't
right that there is a market there and that you might be able to take it over.
Those are all true and I believe you. The problem is $10MM is a lot of money
and can be used in numerous other potential investments which have less risk
and could do quite well.

So what should you do? If you really want to do it, I would look at how Elon
Musk built SpaceX and Tesla. First, come up with another idea, make that
successful, make quite a bit of money, then fund this project with your own
money and the money of the people you gain new relationships with. This might
sound silly but it's really not. If you can build this company, first build
one that is less lucrative but still successful, then build this one. It
happens more often than you think.

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gt2
Make an MVP that has some of the capabilities you mention, and build a small
loyal audience that pays, either with eyeballs/time spent on the app or actual
dollars. If you have a smidgen of that, and a team of 1 or more capable
people, you can then approach people for funding which would be needed to
scale your product out to more users and more capabilities (iterating). How
you do it is simple, you show your product, user base, yourself, and your
vision to anyone who will listen. And then take the amount needed to make it
happen (could be less than the 10M figure you mentioned, actually wondering
where you go that number from). Good luck!

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qaq
I would 100% agree with you there are literally like 100 offerings that lack
features that you absolutely will not be able to do as MVP as in enterprise
grade workflow engine with visual editor etc. There no lack of competitors on
the low end of things and there is literally 0 competitors on the high end of
things. So there is no business case in trying to compete on the low end there
is very good case for the high end offering but it literally does not fit the
regular VC deal structure.

~~~
gt2
I really don't agree, and think you are misguided by the high end/low end
characterizations, although I can see where you are coming from. You think
that if something was enterprise grade, etc. and had all the features people
would switch. You could be right, but

a) you really need to check out some case studies about things like this
because people absolutely do not shift to a "better" or even "more complete"
product. There is a thing such as lock-in and it's caused by many factors,
some of which the user don't even have control over and

b) Consider that people using the other offerings could use your simple less
complete offering but which has that 1 killer item (and a couple more as time
goes on and you add them slowly). I have seen it many times and I'm sure you
have too -- users keep using Photoshop but use that other editor for something
special. Or use Office but use some other tool for their specialized offering.

I really think this is the way to go to a) have success and b) even get
funding. It's incredibly difficult/rare, even for a team of multiple highly
proven individuals, to get that kind of funding and green light to go do a
waterfall project based on your hunch that everyone will switch if something
just existed.

~~~
qaq
I know not going into specifics is making this sound a bit stupid but again
"high end" is not a marketing term in this case there is a minimal set of
features that would enable a F500 company to switch there is litterly close to
a 100 low end offerings that are useless for the f500 use case and no matter
how cute they are they not going to make a dent. The cool thing this is
targeted at super technical people who absolutely hate the status quo and
truly would love an alternative, but that alternative has to support their use
case.

~~~
hluska
A reasonable founder would have to ask why nobody will compete on 'high end'
features. Maybe they're much more difficult to build, perhaps there is an
incredible amount of vendor lock in, or perhaps nobody really cares about
these 'high end' features...

~~~
qaq
I agree all very reasonable questions but going back to original ASK HN. It's
obvious there are instances where developing MVP takes a significant amount of
resources what are the avenues for financing such a project.

~~~
hluska
I've noticed that you really like this idea. That's good - you'll need
passion. But, I'm concerned that you have so much passion that you've
convinced yourself that if you build a high end product, you'll get customers.

There are a lot of very smart people out there and $10m isn't too much for an
experienced founder to raise. If this market is so big and frothy that you can
name hundreds of low end competitors, someone would be competing at the high
end. Why isn't anyone??

Once you can answer that, you'll know what kinds of avenues are available to
finance it.

Sometimes, high end variants look seductive because there's no competition.
But, there's no competition because margins are too low to support the high
end product. Other times, there is no competition because sales cycles are
measured in years and nobody can stay alive long enough to get to yes. Other
times, there is no competition because you have genuine insight that gives you
a severe competitive advantage.

Those 'choices' point towards three financing options. The first one, if
margins aren't high enough to pay for the damned thing, you're starting a non
profit, so it's time to look for grants, patreon, etc. The second one, where
sales cycles are too long, is a great use case for crowdfunding. And the third
one sounds like a deal that VCs would get in on (if you have the
background/communications skills).

On the other hand, if you can't figure that out, or if you keep coming back to
no financing, you might be looking at a bad idea...

~~~
qaq
1) I like the idea because I am on the receiving end of the pain as a user

2) There are fundamental reasons why you can make a better product and the
leader can not respond (would be too long trying to outline why here)

3) This product is used by eng. daily most startups in this space are by
software eng. and try to address the pain points for eng. and not for
managers.

4) The leader product can not be used by F500 customer (managers) without a
number of 3d party addons (which can and should be part of core functionality)

5) without going into specifics imaging SAP ERP system that was built from
quickbooks e.g. fundamental mismatch between original arch. and what was
bolted on over the years.

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greglindahl
I've been a founder twice at startups that raised a lot of VC and the MVP was
big. The only reason we did it is because we had experience as founders, and
the MVP really was big (a chip once, a web-scale search engine the second
time).

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danieltillett
You can’t really unless you have done it before in which case you would not be
asking here as you would already have the network that would give you the
money.

There are a few ways you could manage this.

1\. Find a single rich individual who will back you. This is not going to be
easy, but it is possible.

2\. Raise less and move the development team to a low cost country. A tight
team of a half a dozen smart people can get a lot done if they have time on
their side.

3\. Work on something else first, sell, and try when you have money and
credibility.

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marktangotango
There tons of examples that fit this description. Financial record keeping
(401k, mutual funds, etc), medical insurance claims processing are some. The
market is large, legacy providers and their legacy systems are complex,
featureful, and entrenched. These can be very very difficult markets to break
into. The sales cycles are years long and conversion cost high. I’ve heard
numbers like 20k to 40k hours to convert on to new providers.

Does you pitch take all this into account as well, not just the tech?

