3 Must-Haves to Raising Money Without a Product
Sand Hill Road is the birth place of Silicon Valley, and arguably the most powerful road on the planet. Even though the world of venture capital has slowly started to decentralize, it is still home to some of the largest venture funds on the planet. And there I was, pitching to a team of high profile investors, without a product, yet again.
I'm always on Quora and the question, “Is it possible to raise funding before building the product/app?” was asked. My short answer is “yes, it's possible.” I know it's possible because I have first hand experience of successful raises without a product.
Some of my firsthand experience is as follows: I was previously involved in a $2.2 million raise that did not have a product upon funding (mind you, it was an actual consumer product, not a digital product, which is what I am actually referring to now). I've personally done it a handful of times, with my largest raise being a six-figure investment with no product. Plus, I am confident we will raise $650,000 for this business, without a product, based solely on our demo.
From my successful experiences, here are the three must haves:
You ever hear the saying, “we don't bet on the horse, we bet on the jockey”? It's a mantra for most sophisticated investors around the world. When working for an angel investment team in my younger years, we lived by it. In fact, besides our industry focus and size of deal, that was our main investment criteria.
For some investors, team is the single most important factor they consider when placing their capital. Do not confuse that with previous success as there are plenty of inexperienced entrepreneurs that get funded. However, you need to be able to articulate why you are the right team for this opportunity to accomplish your vision.
Assembling the right team for your mission will be a testament of your ability to lead, influence and enroll people into your vision. Don't underestimate the power of the right team.
If you don't yet have a product, as in our case (we are still in development), you best have some sort of demo. Long gone are the days where you could roll up to an investor meeting with a pitch deck and a dream (well, anything is possible, but being an entrepreneur is hard enough).
Figure out what that means for your business. For us, we mocked up some key pages of our platform that helps portray the vision, and inputted them into the Invision app, which takes Photoshop files and makes them clickable via hot buttons that makes it almost feel like you're clicking through the pages of a website.
Without a product, some sort of demo is mandatory because it helps portray your vision, and shows anyone thinking about investing that you're serious enough to get started.
You need to be able to validate the market opportunity. If you're developing a mobile app, create a landing page and run Facebook ads to build an interested list of people who would sign up for your app. This shows a demand in the marketplace.
Referring back to the importance of team, sometimes an effective validation technique is to get someone of industry importance to join your team in some role. This can create the subtle notion that, “if this industry expert is going to be involved (and they obviously know much more about this space than I do), then this is probably worth pursuing." Plus, more often than not, that industry expert can navigate some of the nuisances and pitfalls of the space.
In our case, we have a number of validation techniques, with one point being twofold. We've struck a big deal with a major media company that is going to be our first customer. There's double validation because it's a well-known company and they're going to be a customer. Validation at this point, for those without a product, is another critical factor that will contribute to your funding success.
Boom. This should be easy enough, right? Don't be discouraged if it takes longer than you expect. Capital raises are tough and always more time consuming than anyone ever hopes.
In summary, yes, it's possible to raise funds without a product, but it's also possible to swim the Atlantic, paint an exact replica of the Mona Lisa and win the Crossfit Games four years in a row. Good luck, and happy funding.