What you are about to read is a part of my book. You are going to be able to preorder it soon, and help me write new better content to help other startups.
Although I wasn’t really asked this question by an investor it needs to be here as the first question. If you are looking for an investment you need to have a very good reason for it. You need to prepare all the facts and figures about where the money will go, and how much time will this buy you until launch. There are a lot of details that I will cover later, the point of this question is that you have your details about „Why you need the money“, covered.
In case you where wondering who asked us this question if it wasn’t an investor, here’s a bonus advice. The question was asked by Berislav Lopac. Berislav later became HackFwd referrer, and at the time he was a member of Croatian Angel Network (although he wasn’t an investor). So if you can get anyone to talk with you that has a serious knowledge about startups, without the conversation hurting your reputation and chances of getting an investment, do it! Do it yesterday! Now I am returning the help to students, young wanna be startupers and entrepreneurs.
What’s the right answer to this question? Well usually it’s infrastructure costs (but that’s now dropped since the cloud is getting cheaper and cheaper). Also many big companies like Microsoft, Amazon and Softlayer have startup programs where they give infrastructure for free, and after you grow, you become their valuable customer. If you are dealing with some sort of production, it’s probably production cost. Usually there’s some marketing in there, lawyer fees and office rent.
Office again is one of the things you can bring the cost down. There are a lot of accelerators, technology parks, open-office space, etc that are glad to take innovative companies on a subsidized price. What’s left that takes a big chunk of the investment are employee paychecks. Employee paychecks means, you are actually asking money for you, this is dangerous territory! If you ask for a too big pay, your investor might bail out really quickly! Than again perhaps you can bootstrap to a point if your expenses are low (live with your parents, low life style), product development and time to market are short so you are quick to break even. Than those credit cards might come in handy. Other than that, stay away from the! Interest rates on those are awfull!
Investors don’t like or invest in people that live of paychecks. They invest in entrepreneurs. They invest in game changers. They invest in thunder lizards. (Google Mike Maples – thunder lizard, or ask Mike on Twitter). You should definitely check out his keynote (I still remember the day I first watched it, had goose bumps a few times during the video).
To give you a hint, Mike Maples says that Thunder Lizard is a startup with the right DNA and with a right attitude. The DNA consists of a:
- Visionary Entrepreneur
- Huge Potential Market
- Fundamental Advantage
- Low Capital Requirements
Attitude on the other hand consists of:
- Customer Development
- Complete team
- Experimental Mindset
- Different, not Better
Have you recognized yourself among these lines?