March 23, 2015 Leave a comment
“We are looking for investors who share our passion / dream” (translation = we haven’t really thought this through; haven’t really got a great deal to show; and hoping that we can find someone as naive as us to not be too bothered about detail).
I haven’t had much time for blogging these past 12 months but for good reason and more about that soon. In moments when I have time to catch my breath, I have realised an increasingly common recurring problem, or perhaps I should say, temptation. Today I am looking at the latest startup deal proposition in my inbox and enough is enough; I need to write a post about this and similar deal scenarios.
The proposition itself looks well put together and feels like it has decent entrepreneurs behind it but the essence and focus of the proposition boils down to two key messages:
- They are at concept stage expecting to start development in the near future.
- They have received “endorsement” from a big name and potential future customer.
Even if the team is really strong and even if they have a really tight business plan and have a couple of strong advisors tagging along, they haven’t actually delivered anything yet. They are in essence saying, “please fund our dream.” Of course, it may well be that the endorsements could indeed be strong validation but it would need to be checked out to see if there was any real intent behind it. If the endorsement was nothing but encouraging words (which is often the case), then the founders are left still with just aspirations.
It is not impossible to get a concept funded and it does happen but unless you are an A-grade founder with multiple successes trailing behind you, the chances are slim. However, there some things you can do to get a concept stage opportunity funded, such as, either apply for competitions or grant funding (matched or pure), or apply to a tech accelerator programme. A good accelerator will be there to get your opportunity ‘validated’ by its audience or a clutch of potential customers. Some of them will take on concept stage propositions but it is more likely that they will accept opportunities with at least some sort of development underway. Some accelerators are focused beyond validation and looking for early ‘traction’ (the opening of the revenue tap).
In closing, we’ve all been tempted to do it but don’t reach out to investors and expect them to offer quick and easy shortcuts to your tech nirvana, just based on a vague sense of a shared dream. Settle for the reality and inevitability that super hard startup validation work is required before you can compete with other startups for the cash on the table. Anything else is just naive, lazy or probably, an opportunity waiting to fail.
“Try to make your deal proposition an investment no-brainer.”