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I have a business/app idea that would require capital to get it off the ground - what are the first steps go about funding and what would be needed on my end to ensure a positive outcome?
The app would require facial recognition technology and is in the beauty/lifestyle category.
Responses
Hi Nicola
The first step is always to do your market research and get a business plan together on how you are going to turn a good idea into a business that will make profit.
One thing to note is that the earlier you go asking for funding, the more it will cost you as the risk is higher for the investors.
Regards
Suresh Rajani
Hi Nicola, you'll need a really good & well researched business plan, that is supported by plenty of research that is really easy for any potential financier to understand, double check & quantify (ie, expect revenue of $x based upon a, b & c, same with costs, etc). Keep in mind that this won't be a request that a financier would see often & they will not have expertise in the industry, so it wouldn't hurt to have an external/independent party that a financier would find acceptable (ie, a high profile Accounting or Advisory firm) review your plan/forecasts & provide a report, which the financier could then rely upon. Be sure to highlight any potential risks & threats - too often people just tend to avoid this, but financier want to know - how you will manage/minimise them and what would happen in a worse case scenario. Good luck......
My pleasure Nicola. There is nothing stopping you from starting to talk to your financiers upfront/before you engage your external advisor, as they may have other ideas/requirements as well that I haven't thought of. I'd start with the branch where you Bank at the moment and/or engage the services of one of the Brokers here if you prefer & dependant upon the size of your proposal, they will likely introduce you to some form of Business Banker who you can start talking to. I'd be very upfront & acknowledge that this is a start-up proposal, with no history & you understand that they will want a lot of information/understanding to get comfortable with the risk, so you have/will (if you decide to) be using an independent consultant which will give the financier comfort. Don't take this the wrong way, but be prepared for this not to be easy given start-up/no history/you are asking for finance against what you think will happen, but with the right information & advise you never know..........
No problems Nicola. The only thing I would add is that it wouldn't hurt to have clearly defined & measurable targets that you can share with the financier, as well as a plan around what happens if they aren't achieved, that way everyone can measure progress & knows upfront what will happen if things don't turn out. Cheers
Hi Nicola,
If you have a business/app idea and are looking at capital to start the business the steps you would need to consider are as follows:
- a business plan will always go a long way however I firmly believe that there's a step before this that is more valuable to you and your business idea and that would be a lean canvas, this is where you can break down in one page the problem you are solving, why you are solving it, who are your target market (who out of this are your early adopters - the first people that will try your product before the early majority), how will you make money ie subscription model, referral agreements, selling your 'big data'. How will you market your app/brand? What are the estimated costs?
- The next step is looking at market validation, this can be done by interviewing a range of people inside and outside of your target market and early adopters and gauging their thoughts on your product.
- The next step is to work out how the market relates to your lean canvas and tweaking this if possible - this is best done by white boarding the user experience of your app ie your customer/user journey
- The next step is to build an MVP (minimum viable product) if you have the funds to do this, depending on the scope you can get a basic MVP put together from $500-$6,000 or at the very least you will want to get some design screens put together based off your user journey.
- The next step would be to get people to test your MVP and give you feedback
- Then make any changes if required.
- Then put together a pitch deck/Information Memorandum which will provide an in depth overview of the company/financials.
- Then approach VC firms or reach out to friends and family looking for small sums of money for an equity share in the company - this is your seed round of funding. You can look into sites like kickstarter as well.
Most investors in your IM will want to understand what the business does, why you started the business, some information on your background and experience, information on the industry you app/idea is in, where is the gap in the market, how does your app solve it, what traction/market research have you done, what are the costs involved for the next 12 months of your business (do not include a wage for yourself), what funding are you seeking or have you received, what is the equity stake for the investor, what is the company valued at, when will the investor see a return on their investment, what is the timeline for the business to make money and for the investor to see their return. What is the exit strategy for the investor ie IPO, sale, dividend structure, buy backs. You will also want to look into which grants apply to you and one which will be attractive to investors is the ESIC Grant, you can seek a private ruling for this from the ATO, you don't need an accountant to do this, it's basically submitting your IM to the ATO.
If you would like to chat further, let me know, I am an advisor and investor to some startups so happy to have an initial chat and see if I can guide you in the right direction for where you are at.
-Steph
Wow Steph - your advice is so valuable and thank-you so much for taking the time. Really important steps to consider, particularly making it clear what 'problem' is being solved and hence, making the value clear.
Thank-you again,
Nicola
Hi Nicola,
Congratulations! It's very exciting to start a new idea and turn it into a company.
I do understand that you've formalised your idea and are looking at raising capital for it. I just want to point out a couple of things I feel you should do before raising any external capital.
Here we go:
1. Buy the book Running Lean by Ash Maurya and read it back to back (Here's a link: https://www.bookdepository.com/Running-Lean-Ash-Maurya/9781449305178)
2. Build your own Lean Canvas - this a business model on one canvas. With all due respect to other comments on this question, preparing a detailed business plan for a startup is an absolute waste of time.
What's a definition of a startup? A startup is a human institution operating under extreme uncertainty (this is paraphrased from Eric Ries - check out his book Lean Startup if you have time). It is this uncertainty that makes the 60-page business plans irrelevant. You spend a lot of time writing them and then when you dive into business, within a month everything is different and the cycle repeats itself. Should you embark on writing another 60-page then? Definitely not.
So look into preparing your lean canvas. The two most important areas you should look at when it comes to your lean canvas (in the early days of your startup) are Problem and Customer Segment. Clearly and succinctly define the problem that you're trying to solve and then indicate who has this particular problem (please don't say everyone has this problem - the more niche your customer segment the better).
3. Figure out who could be potentially your first 100 customers then go out there and interview your customer segment about the problem that they have. Design a set of questions, find your potential customers and talk to them. Look them up on LinkedIn, rock up to their stores, anywhere you can find them. Just do it.
4. Based on all your interviews, you either find that you need to modify your problem/customer segment or if that's not the case, great, define your value proposition.
5. Build your minimum viable product (MVP). Now that you know exactly what the problem is and who's your customer, look into a way that you can solve their problem. The method that you're going to pick shouldn't be scalable. It could be as simple as setting up a landing page for $60 (look how AirBnB or Dropbox did it) or it might be completely manual (like Food on the Table (FotT) - check this out: https://www.youtube.com/watch?v=ABKlXFR3lts).
I should mention, there are some industries that this might be difficult to implement this like financial or health industry due to licensing fees. But if you're not operating in those spaces, you probably can build a really cheap MVP.
Once you realise that you can't grow anymore with your current solution, that's the time to look into automation and maybe building an app. At this stage, you can approach external investors with the goal to raise some capital. You should look into angel investors and venture capital scenes and be open to give up 15% to 25% of your company (forget about banks - the interest rates are too high for a company that might have a hard time making much money in the early stages of its development and can cripple your business).
My main advice is to make sure you don't look at raising capital as a goal and not to do it too early. There's nothing worse than having investors looking over your shoulder when you're trying to figure out your business model.
Hope this helps.
Shahin
Hi Nicola
Firstly, I commend you on pursuing your business idea - so I'm glad to see you post your question.
You've already received some sound advice. It seems you're at any early stage so, yes, boot strapping is wise. Tap into friends, family and fans for seed funding. Consider reaching out to others in your industry or related sectors. Obviously, you need to guard your IP but you might be surprised by people's willingness to help prove/ refine your idea.
The key message is independent advice - for your sake as well as your funders (ie any investors and/ or financiers) - that helps you structure and co-ordinate all elements into an overall campaign. Even the best ideas and the most passionate/ persistent business builders experience a bumpy path (in fact, it's where a lot of the real value lies), so we all need support and direction on our journey.
I also confirm Suresh's advice that there's a broad spectrum of equity investors, each with differing investment/ risk appetites so you'll need determine early on which investor (or financier) segment you best suit, and prepare accordingly. As always, begin with the end in mind.
As it happens, I'm part of a business accelerator which has been purpose-built around the needs of high growth businesses and entrepreneurs. The need for funding is quite common so you're not alone. The program helps business owners prove/ improve your commerciality; build a series of financial models (at a granular level, so they're not pie in the sky numbers); expand the number of likely revenue streams; build your internal team; build the necessary business systems, processes and policies to support you now and grow at scale; find the right set of professionals advisers (so we all work as a team); source/ appoint an advisory board/ NED's (don't panic, not immediately); prepare your business plan, forecasts, IM, pitch deck, etc (as necessary) to then attract the most appropriate source of funding. By all means, talk to lots of people but avoid jumping to the capital raising stage without being fully prepared. Not surprisingly, the equity community is still a small town so you'll want to do most of your preparation behind the scenes so you put your best foot forward when it comes time to reach out publicly.
Like others here, I'm also willing to be a sounding board for you to give you some early guidance.
I wish you well. Cheers, Wayne
Thank-you Suresh, that's really helpful. I do have a solid plan in place that could always use some more tweaking, yet once that process is done, where is the next step to present the plan to potential investors?
After getting the business plan ready your question really would be where do I get the capital for this business.
Depending on the $ amount of capital required, I would recommend always raising it from family and friends if possible as they come with less strings attached and formality.
Loans from banks are almost ruled out as they are almost not willing to loan you the funds to start up a business.
If you decide to still source funds from other investors then you would need to decide what way do you want to go:
1. Crowdfunding
2. Angel Investors
3. Venture Capitalists
For each one of them, steps and preparations would be different.
Suresh Rajani