Great Idea… What Now?
Words of experience for technical founders
You’ve got a terrific product idea. You’re sure everyone will want
your cool new technology, but you’re not quite sure how to get started.
Most technology companies these days seek outside investment, to
fund research and development to get their product to market. Seeking
investment takes time, but several things can make your company
more attractive. Investors typically look for big markets, strong
products, and strong management teams. You need to convincingly
demonstrate at least two of these attributes before your idea can
be seriously considered for funding.
Begin by evaluating the marketplace. You need to make sure that
people will actually want to buy the technology you are developing.
Use your network of friends and colleagues to talk to potential
customers and verify that the demand is (or will be) there. Ensure
that the people you talk to will be willing to serve as customer
references to investors. Read analyst reports for market size estimates,
or if your market is new enough, perform both top-down and bottom-up
analysis. Investors will want to see a large market, and hear from
some typical customers about the viability of your product.
Think about your management team. You will need experience in management,
marketing, product management, and product development to begin
with. Further down the road, you will need sales and financial executives.
Think about what role you want to play – many technical people do
not want to be (and are not suitable as) executive managers in the
medium to long term. Investors will look for experienced technical
and business people. When investors don’t see an executive team
in place, they frequently add value in recruiting the right players
to deliver the product to market.
Make sure the technology is yours. For example, if you are currently
working full-time for a company that is in substantially the same
business, everything you work on may technically belong to them,
even if you are working on your own time. Be especially careful
if you have used company equipment to develop the idea, such as
the company lab or even their laptop at your home. Think about what
aspects of your technology may be patentable, and begin filing disclosures.
Investors like to see protected intellectual property, as a differentiator
and as a competitive barrier to entry.
Until you have a presentation that can convincingly address these
issues – large market size and validation, differentiable product
with a barrier to entry, and a team that can build it – you are
not ready to present to institutional investors. If you cannot get
this far without funding, you are probably better off looking for
angel investors. Go through your address book and talk to everyone
– you might be surprised at who is willing to invest $10k or $100k
in your idea, and every little bit helps.
Try your presentation out on anyone who will sit still long enough
to listen. Pay close attention to their questions – this indicates
areas where your presentation is weak. Don’t assume investors have
a lot of experience in your field, although the right ones probably
will. If you have some friends who are VCs or executives, ask for
specific feedback on the content and format of the presentation.
Work your network hard to get introductions to venture capitalists
that you are pursuing – emailing your business plan unsolicited
rarely gets attention. Follow-up, to get a meeting, but try not
to cross the line into becoming a pest. When you get a meeting,
be well prepared, try to relax, and just be yourself. You are the
expert in your idea, so don’t let the hard questions rattle you.
At the end of the meeting, ask for advice about how and when to
follow-up. Listen carefully to the feedback, and try not to argue
with it. Take good notes, especially on the questions that were
asked. If certain areas clearly didn’t come through in the meeting,
send supporting information by email. Don’t drop the ball.
Keep the Faith!
Be persistent! You may get a lot of rejections before someone is
enlightened enough to see the brilliance in your idea. Continue
to modify the presentation based on the feedback from each meeting.
Some companies present to dozens of VCs before getting funded, and
still succeed in the market.
It Worked for Us
When we started NetGravity in 1995, we were just two technical
guys with an idea. We spent the first two months talking to prospects,
to validate the demand for the product. Then we raised money from
family and friends to get started, and began building the prototype.
We soon added a seasoned marketing guy, who landed our first few
pilot customers. With a prototype product, pilot customers, a growing
market, and a reasonably solid team, we were ready to pitch to VCs.
Through family friends, our lawyers, and industry contacts, we
secured introductions to several VC firms, and made our pitch. After
each one we refined our presentation, and made it better for the
next one. After approximately four months of persistence, we successfully
closed our Series A. More than three years and two more rounds of
financing later, we completed our IPO, and made all of our investors
Venture capitalists want to invest in companies that demonstrate
the success factors they have learned to look for. Build your company
for success, and you will be able to find the funding you need.
Tom Shields, Woodside Fund