A common question asked by start-ups, entrepreneurs, early stage engineering teams, inventors, and innovators early in the product development life cycle typically revolves around how to get early investment to develop their product idea and take it to market. This question is usually asked when the product idea is in the pure concept phase without intellectual property, prototypes, or business plans. In this stage, the product idea isn’t very valuable to an investor so it is necessary to take the idea to the next level to draw in potential investors or individuals on crowdfunding sites. To best prepare for finding money to take the product idea to the next level, it is necessary to pull together a Proof-of-Concept Prototype of the product idea and provide the Proof of Demand for their product idea. With these in hand, the team seeking money will be way ahead of others and will stand out to angel investors, early stage investors, and crowdfunding sites.
A business plan is important if an entrepreneur or start-up company is setting out to find funding for their idea. The work done to pull together the business plan will be summarized in the executive summary which will be handed to the potential investors or shown on the crowdfunding sites. Three absolutely important parts of the executive summary in this early stage are The Problem, The Solution, and The Opportunity. These parts of the executive summary will prove that the team seeking funding has identified the problem that the product is trying to solve, has shown how the product solves the problem, and has proven that customers want to buy the product.
A Proof-of-Concept Prototype is necessary to show that the product solves the identified problem as described and also to help demonstrate the Proof of Demand in the Market. People handing out money are looking to see that the team seeking the money has proven that the product concept functions as expected and that this Proof-of-Concept Prototype has been used by potential customers that would buy the product if it existed. The more data that can be gathered from real people showing that the product is useful to solve their problems, the more convincing the pitch to the investors or crowdfunding sites. Proof-of-Concept Prototype and Proof of Demand are the two key areas that investors are evaluating so that they make a successful investment.
No matter if you are trying to get investment from crowdfunding sites such as Kickstarter, angel investors, accredited investors, SBA loans, small business innovation research grants (SBIR), or innovation vouchers in some E.U. countries, here are some tips on preparing for finding investment.
- Be sure to know how much money is required to take the product to the next level. If a crowdfunding site such as Kickstarter is being used, make sure that the expected project costs match the crowdfunding “ask”. The money received must be enough to deliver.
- If you are using angel investors for early stage or seed funding, be sure that you communicate the sustainable competitive advantage of your product through the demonstration of the Proof-of-Concept Prototype.
- In order to find investors for your company, put your network to use. You will probably find that within the list of people you know, somebody will be able to refer you to somebody who funds start-up or early stage companies.
- If you truly believe in the product idea, you will inevitably put “skin in the game”, meaning that you will invest your own money to get as far as possible until you receive outside investment. Investors need to know you are committed and spending your own money will help convince them of that.