One of the statements I most frequently hear when someone finds out I’m in the startup community begins with “I have this idea, but…” —and while the conversation almost always progresses to the perceived money hurdle, the idea usually dies right there. So many people approach an idea as if money is required before the idea can become a startup.
Yes—money is required to turn an idea into a startup. However, far too often, would-be entrepreneurs stifle great business opportunities by overestimating the amount of capital needed to develop an idea into a business. For some reason, it seems like most potential entrepreneurs I speak to think that they need a few hundred thousand dollars to even get started.
The “money mindset” creates two big problems. First, it leads would-be entrepreneurs to believe that they could never launch a business because they could not possibly come up with hundreds of thousands of dollars. Second, and most importantly, it creates a circular logic problem: the would-be entrepreneur needs money to get started, but unless that person is Mark Zuckerberg or Jack Dorsey kind of special (in which case you probably do not need help finding money), why would someone invest in a person and idea when failure is the most likely outcome?
The reality is that you can test any idea without spending hundreds of thousands of dollars. In fact, a few thousand dollars can go a really long way towards telling you whether or not your idea actually is any good. I have seen with my own two eyes entrepreneurs put up ads for products and services that did not even exist just to test the idea for a few hundred dollars before going all in. If the ads had a positive return, the entrepreneur would begin further discovery; if the ads had little response, the entrepreneur moved on.
What is more important than money in an entrepreneur's pocket is market validation that demonstrates people actually want what is being offered. Instead of waiting for the money to roll on in, find a way to demonstrate that the market wants your idea. Initial traction directly correlates with increased access to investors. Regardless of whether or not you have traction, these three tips will help you be more successful on the fundraising front:
1. Find Those Who Believe In YOU. If you don’t have traction or revenue, why would anyone invest? Emailing investors blindly without an intro is a bad idea, and mostly a waste of time. Instead, look for those people who know and believe in you. If you do not already know someone who believes in you other than your mom, then you’re going to have an uphill battle in finding any support—from customers or investors. In fact, this phase starts months, if not years, before actually thinking about raising money.
2. The First Check Is The Most Important. After you get one person crazy enough to say “Sure, I’ll hand you a check even though there is a 99% chance I won’t ever see that money again,” you’re much more likely to get a second person to write you a check. I highly recommend listening to Derek Sivers explain “How to start a movement.”
3. Take Care Of Legal Formalities. At a minimum, you shouldn’t neglect foundational legal work. Having standard, well drafted corporate or LLC documents in place puts an investor at ease and demonstrates that you are organized and on top of your game. On the other hand, if your legal housekeeping isn’t up to par, an investor might walk away. If you can’t even handle basic legal tasks, how can an investor trust that you’ll be able to return an investment? Pro tip: We can help with this, and we have a package to review existing documents to ensure a company is ready for investment.
So... if you have great idea, don't be afraid to test it on a small scale at the very least.
*This blog provides general information for educational purposes only. It is not intended to constitute specific legal advice and does not create an attorney-client relationship.*