In an era where almost anyone can build revolutionary projects with nothing but a computer and determination, everyone wants to create the next Facebook or Google. Unfortunately entrepreneurs are probably more likely to be struck by lightning than they are to secure a venture capital round. In general it’s possible to build out a decent minimal viable product without a large budget, but you’ll often reach a point where you’ll need some investment to grow your business. Let’s look at how you can put yourself in the best position to attract investment for your project.
Keep in mind that if you’re soliciting outside investment, whether through crowdfunding or seeking venture capital, you should be seeking to take your project to the next level. If you’re in a position where your company is going under, that’s a topic for another article.
Learning from Investors
If you’re planning to pitch for investment, learning from investors themselves is a great way to increase the odds of securing capital to improve your business. At a recent Angel Education Day hosted by The Soho Loft, accredited investors from multiple states gathered to learn from seasoned professionals on best practices to improve early stage investment opportunities.
Although the conference was specifically for Angel investors, many of the concepts from the conference are applicable to software development projects.
What Investors Want You to Know
In a presentation titled What Every Angel Investor Wants You to Know, Brian Cohen outlined multiple tips to help ensure that investors make the right decisions when putting money into companies. One of the more notable points from the talk revolved around the ideal team structure of a startup. For a company to successfully attract venture capital, they will need multiple founders with complementary skill sets.
According to Cohen, to be one of the smartest people in the room, you don’t need to know everything. Rather, you need to know what you don’t know, and have the ability to admit it. Aside from this, the next thing that investors consider is the ability of an entrepreneur to think on their feet. When it comes to coding, it can take hours to resolve issues, however if you’re planning to pitch to an investor, you’ll have to be able to think on your feet.
Even if you land the chance to pitch to an investor and they like your idea, you’ll also need to hold up against a stringent background check. While every investor is different in how they approach this stage, one rule always holds true: honesty is always the best policy. Whether your investor asks if you’ve always paid your taxes on time, or if they want to know if you’ve ever done anything in the past which could jeopardize the company down the road — when in doubt, it’s always best to disclose. Venture capitalists typically participate in tight knit communities so damaging your relationship with one can harm you for years to come.
The Rise of the Inventrepreneur
As mentioned at the beginning of this article, software has revolutionized the world by allowing almost anyone to bring his or her ideas to life with little more than a computer. Many developers work on projects without considering a critical question: “How is this product going to make money?” It sounds like a simple question, but if you can’t provide investors with a solid answer that’s backed by data, they’re never going to consider working with you.
Financial projections are never going to be one hundred per cent accurate, and investors know that. When they’re reviewing your company, they want to see that your figures are realistic. As you might expect, investors generally only consider projects with large growth prospects, ideally delivering a 300 – 500% return. They are well aware that without proper execution, their investment will go down the drain.
Intellectual Property Isn’t Everything
Although intellectual property can be a valuable tool for boosting the value of your software project, it’s not the be-all and end-all. If you are developing something complex such as mobile payments or a speech recognition project, you should avoid pursuing a patent just because you feel that it will make or break your pitch. In fact, over relying on intellectual property can backfire because it can give the impression that you don’t fully understand how a business should be valued.
If you’re strapped for cash, you might be tempted to pursue a provisional patent for your venture. If you do head down this route, remember that you can’t raise funds around a provisional patent, and everything within the provisional patent becomes public knowledge upon filing. In the US, a provisional patent simply indicates you intend to file a patent, and provides you with a yearlong runway to file the formal paperwork. In other countries, the terms can differ so be sure to consult with an attorney familiar with your country’s laws before making a decision.
Execution Is the Key
The most important lesson to keep in mind as an entrepreneur is that when it comes to private equity and landing an investment for your company, execution is everything. An investor is more likely to work with a great entrepreneur with a less than stellar idea, as opposed to a sub-par entrepreneur with a great idea.