When is the right time to pitch to investors?
We're looking to build a mobile app for photo sharing. We have a fantastic idea, can monetize it in future phases, but are trying to go at this with as low of a budget as possible. We WANT to bring investors in, but need to understand WHEN.
What has been your experience in doing so? When's the appropriate time to do that?
First, do you really need investors? Can you get the funding you need on your own? If so, do that first. Why reduce your equity or control.
Investors should be solicited when you have a complete business and marketing plan. Are your ducks all lined up. Do you know your cost and have a definitive plan detailing how the investor will make money as a shareholder. Do you know the actual value you are offering them.
You must be able to demonstrate how the investors money will be used, the benefit of having investors and what will they get out of investing in your firm.
When you can do this you will be ready to ask people to invest in your business.
As a Business Angel, I will share you one of our secrets. The companies that we are most interested to invest are those that don't really need us.
In tech angeling it seems that lean startup is the trend so please read Steve Blank's and Ash Maurya's blogs to start as lean you can.
Now, start by creating a minimum viable product (using your resources or FFF), go to market, measure everything, learn from the market reactions. Then adapt the MVP or pivot and repeat the process. In 6 months if you have an exponential growth of users, customers, revenue, give me a call.
Appropriate time is when you have a good fix on revenues budgeted best case, worst case, and realistic.... ANd you know your costs.... And you understand how much you are willing to give up to the investor..
Some brilliant answers so far. I'll just add - when you are ready.
At any point and stage you can pitch to a potential investor,it just depends on what kind of investor you are pitching to. Some want to be involved at a development stage all the way to some who will only look at it when it's already been taken to market and selling. My experience and observation with tech start ups in raising funds is more about the right investor rather than the right time.
My take on your query is as below:
Having a good idea is one part of the business and executing is quite another.
Execution throws up valuable insights which leads to course correction and strengthening of value delivery.
I would ask following questions to arrive at a reasonable clarity on next steps:
Before you get investor to know about your idea and business, do you understand your own business well?
Have you established a clear proof of concept through a reasonably strong pipeline of customers/users of your product ?
Have you reached a stage wherein scaling up would result in increase in generation of multiple equal to or excess of 5X? (multiples vary from industry to industry- however, 5X is somewhat base expectation)
Angels and investors are particular to look at proof of concept and delivery on promises. If your own understanding of your business is not strong enough, then it is not a great idea to bring in investors when you are on a learning curve.
Hope this helps.
All the best for your venture!
When you completed your home-work in black and white, complete homework meaning complete business plan with 17 headings,the investor listen your voice,...
Why do you need to bring investors in? If you can sustain the business self funded than why? Bringing in investors bring a whole different set of responsibilities and expectations which now require their consent and approval. However, if there is no way else and you have to do it, do it when you no longer have any option. Do it when you have a compelling business model which will make them convinced that your business is worth investing. Do it when you are ready to be accountable to others for your business decisions. You can still do it without these expectations but you may face less than attractive terms to your benefit. Otherwise continue bootstrapping.
I believe the best time is when you are able to generate interest in your services or products and you have completed the ground work.
The absolute optimal time to consider investors is when you have the financials that prove your app has commercial viability. The best revenue model is a paid subscription. Kick that model off with a low entry trial with a clear statement to end users that they will be charged monthly a specific amount to use your app service.
Until you have a commercialized product/service you are premature seeking angels, PEIs or banks. Your investor wants to see that you can monetize. Then your investor can 'see' their return OF investment, and, ROI. You're time is best spent at this stage in live market testing to create that minimum viable service that your market will spend $1 for a trial, then move into a reasonable monthly investment. Be ready to defend your idea against Instagram, Flickr and Tumblr. Investors are not mindless. They have a clue and will ask you the unexpected. So do your due diligence, generate revenue then define the type of investor that will be best for your company and it's idea. Hope this helps.
When you have something to offer the investor that they want. So, what would an investor be looking for? 1] A perceived level of risk within their comfort zone; 2] A clear way to get their money back; 3] A chance to make a decent/acceptable profit.
If you have those three things, then it is time to pitch an investor.