If you intend to secure external funding for your startup, you may consider seeking investment from angel investors. Angel investors are affluent individuals who provide capital for business startups in exchange for a share of ownership equity.
Angel investment serves as a first round of financing following initial seed funding from family and friends. Additionally, angels are often successful entrepreneurs, business executives, or attorneys who can offer management, leadership, and guidance to your startup.
This series of posts aims to provide insights into the criteria angels consider when investing in a startup. These posts will assist you in understanding an investor’s perspective and assessing whether they would be willing to invest $100,000 in your business. Utilize these posts as a tool to evaluate your business’s strengths and weaknesses.
Regarding funding options and methods, please refer to my post “Funding Your Start-up The Jugaad Way” for alternative and potentially less costly ways of raising capital. Regardless of your chosen funding path, it is imperative to prepare a well-crafted investment pitch that can significantly impact the success of your startup launch.
#3 Proof of Concept — Your Prototype!
Growing up, I often found myself pondering “What if…?” with a constant stream of ideas. My grandfather’s response, “The proof of the pudding is in the eating,” usually left me hungry and slightly perplexed. However, I eventually grasped its meaning: when it comes to ideas and their potential success, the proof lies in their execution and tangible manifestation.
Investors recognize that while good ideas are abundant, successful execution is rare. To truly capture their attention and secure funding, it’s crucial to develop a prototype or working model of your business’ product or service. Instead of relying solely on words or pictures, create something tangible that investors can touch, see, interact with, or even consume. This tangible element significantly enhances the likelihood of selling your product and securing investors’ capital.
Another effective strategy to garner investor attention is to identify and secure potential customers who are willing to sample your product and purchase it once it becomes commercially available. Use your prototype to wow potential customers and then convince them to buy it in advance of production. This exclusive first-mover advantage can significantly boost your chances of securing funding and transitioning from the prototype phase to the full-scale rollout.
A pivotal step towards achieving success with your business idea is securing funding (a percentage of the product’s value) against its future production. Additionally, draft a contract that releases both parties and guarantees a full refund in case the product fails to materialize. These secured preorders will undoubtedly impress investors and substantially increase your chances of securing the necessary funding to move from the prototype stage to the production phase.
It’s important to note that during the prototype phase, most businesses are financed by the entrepreneur, friends, and family. Consider it akin to a demo CD recording that a band sends to a record company in pursuit of a record contract (the equivalent of an investor). Bands often finance their own demos, and so should you finance your prototype.
By adhering to these steps, you’ll demonstrate your initiative, determination, expertise, and work ethic to investors. These qualities are uncommon and, in some cases, rare in the realm of ideas. Present the proof of your concept and allow investors to experience it firsthand.
– Tyler, Founder and Principal Consultant
Thrive Venture Consulting—connecting people and ideas.