Questions

When to ask for funding for your startup?

Hi guys I wanted to ask a quick question. I'm currently creating a few software apps which are based on rev share and I own IP of them. I wanted to ask 1. Do you know of any rev share marketing experts for apps? If anyone is interested in rev share partnership for our apps please let me know 2. At what point do you think I should look for funding? Do I need atleast 10,000 users for a social app, and for an app with revenue atleast £20k in revenue proof etc. I'm not sure when I should be seeking funding to really accelerate the growth.

3answers

I think if you're going to pursue a studio approach, you should assume that you will not be able to raise much in the way of outside equity funding.

Most investors do not want to invest in a team that is pursuing multiple projects at the same time for a variety of reasons.

To the extent that any of your apps have demonstrated any kind of initial traction, there is a reasonable chance that you can recruit competent growth professionals who could be compelled to take a big portion of upside, but I'd caution that true experts (as defined by people who have done it more than once at 100,000 plus users) would rather do this for their own app or be a cofounder in the overall venture so be careful about professionals who present themselves as experts who are all too willing to venture for a largely performance-driven deal.

With regards to proof points for funding, assuming you want to abandon all others in favor of the one that gets the most traction, I've written several related answers here on Clarity about the benchmarks for angel and seed funding so I encourage you to review my profile and look at previous answers. If you'd like to talk by phone, I'm happy to help.


Answered 6 years ago

John Doerr, principle at Kleiner Perkins, often says "A true entrepreneur delivers more than expected for less cost than expected". You want to raise money when you understand your market/product well enough that the money funds an assured plan for growth. The plan will have risks and challenges, but you want the money to fund things you have validated in the market place, not supposition.

Specific to social networking in early stage, a market of 1,000 active users is more meaningful than 10k inactive users. It is hard to get a good venture firm to invest if you have less than 20k active users. Growth/user acquisition cost is a key factor in gaining smart investor attention.

The conversation you want to have with the VC is:
"Based on the use patterns of our X,XXX users, we see our network doubling every 60 days and revenue per user growing 30% each month. The funds we are raising allow us to expand this model to 100,000 users, to achieve average revenue of $XX/user/Month growing at 10% CAGR in year 2 and 3."


Answered 6 years ago

First of all the answers above are great. I say...give it away and get feed back from 1,000 users. What would they be willing to pay for the app if they had to pay? If you can't give it away, you likely cannot sell it. But, if you can demonstrate a need and more importantly a desire for the app you will probably be able to get funding. Then the more important question becomes do you want funding and how much equity are you willing to lose.

Michael T. Irvin
NoHogWashMarketing.com
"Get To The Top Without The Slop"
michaelirvin.net


Answered 6 years ago

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