A reader asks:
“I’m an entrepreneur looking for seed investment. All I have right now is an idea and a pitch. I’m presently pitching friends and family and it has been very positive. Do you know any other idea investors I should approach?”
Larry and Sergey had a product and traction before they got their first check from an angel. Investors want to see products and preferably traction unless you already have a significant track record. But,
If you only have an idea.
If you have no traction, track record, or product—if you have nothing but an idea for a product in a large market, the only people who will meet you are:
- Family and Relationship Investors: People who already know you and are willing to bet on you, based on your history together. They’re not betting on the company, they’re betting on you. They wouldn’t invest in the company if you were replaced by someone who was equally effective. Todd Vernon calls these people family and relationship investors.
- Idea Investors: People who believe there’s a big opportunity to serve the customer because they understand the customer as well as you do. Perhaps they’ve noticed the same opportunity as you but they haven’t done anything about it.
- Once Removed Investors: These investors trust or regularly co-invest with one of your family, relationship, or idea investors.
These investors sometimes have little to no experience investing in companies, but that is not an insurmountable hurdle. You will need traction, a track record, or a product to get meetings with other traditional seed stage investors.
In general, the more you need money, the less likely you are to get it. But making something out of nothing is what entrepreneurs do.
Another option: Cold call funds.
There are a few funds like Y Combinator, Seedcamp, and TechStars who will look at applications from anybody doing anything. But you will probably need traction, a track record, or a compelling product to capture their interest—ideas need not apply.
Salesmen are an exception.
Salesmen are good at getting people to comply with their wishes. That’s what it means to be a salesman. Great salesmen can get meetings and raise money with just a large market and an idea (and maybe a sprinkling of track record).
Also read the exceptional comments to this post: Ideas need not apply.
# Aaron White · Jun 18, 2008
“We help startups through what is for many the hardest step, from idea to company.” – Y Combinator.
Seems like a fit.
# B. Radmin · Jun 18, 2008
I like how a wise venture hacker put it to me. Investors assess risk through three variables:
1. technology (product)
2. market (traction)
3. people (track-record)
Develop (plan-out & execute) 1 & 2, and 3 self-affirms in tandem -> mitigate risk for investors, increased likelihood of investment, increased leverage in negotiations.
# Philip Mikal · Jun 18, 2008
I invest in ideas by providing product development experience.; normally working with someone who has an idea, but little to no technical experience, and taking it to launch.
Having a functional product or service with some idea on it’s fit with target customers and how to acquire said customer profitably will go a long way to helping you attract investment.
See my website at mikal.org for more information and contact details.
# Michael Staton · Jun 18, 2008
I’d say if you can’t bother to build it yourself, get potential customers lined up, build revenue on an easier offshoot, or convince someone else to build it in their spare time, then you should reevaluate whether you are an entrepreneur.
# Luca · Jun 19, 2008
The idea is the easy part. If you are a first-time entrepreneur, try scaling down your concept to something whose value you can prove with friends & family money, then go to professional investors. If your idea does not lend itself to such an approach, try your hand first with something you can bootstrap.
BTW as far as I know TechStars and Y Combinator don’t take lone entrepreneurs at all – only teams capable to deliver. They don’t offer a lot of money, but rather a stimulating environment with lots of coaches and mentors.
# Paul Graham · Jun 24, 2008
Actually we do sometimes fund single-founder startups.
# Ben · Jun 19, 2008
Your accountant is a good source of finding introductions to once removed investors.
I agree with Michael, if all you have is an idea then you also need a team. An idea has a dollar value of $0. If you dont believe in the idea enough to commit your cash/sweat equity to build it or a version of it to show it can work, why should friends, fools and family ?
# Vijay Goel, M.D. · Jun 20, 2008
It’s really interesting to me that much of the VC space of today is so focused on technical founders. While the returns can be good, at some point, the broadening out of technology into realms where engineers have little context/experience is going to drive mass adoption of hybrid online/offline businesses driven by domain, not tech, expertise.
One observation is that engineers more broadly haven’t been in the executive ranks as you look at companies, but that early stage tech companies have primarily engineers in the founding team. As we’re seeing with Web 2.0 chaos, engineers making products using technology and based on their own instincts will be limited to areas where their experiences of market opportunities mirror stakeholder gaps. Where engineers aren’t the folks with the greatest pain points, internet innovation appears to lag.
Where markets are more convoluted, I think we’ll increasingly see different, made-to-order solutions driven by a non-engineer founding team building off of increasingly effective open source and other “pre-fabricated” constructs able to be tweaked/customized by a less engineering dominated executive team.
How VCs bridge back into this space after the landgrab of consumer internet will be interesting…we may see a new wave of VCs as the old are unable to move back into seed rounds requiring more substantial investments in building initial value chains.
# Anthony · Jun 20, 2008
After reading a few of the comments, especially the ones that actually made the “Venture Hacks” cut on the home page, I gained a new perspective on the entrepreneurial landscape.
Many of the entrepreneurs, it seems more evident in Silicon Valley, seem to think that a good idea has no real value. Sometimes ideas come to entrepreneurs in fields that they are not familiar with, or in areas they are not able to even bootstrap in.
The negative comments really gave me new perspective on how arrogant entrepreneurs can be. Almost like seniors treating freshmen like dog crap in order to give their accomplishments more meaning.
To the original post, an idea is a great place to start. Even if you don’t have the skills, the ability, or the money to get it off the ground. So where do you go when your friends and family aren’t a potential investment opportunity?
Network, and not with entrepreneurs. Get out and meet with companies that could possibly benefit from your product or service. Meet with companies that could be future advertising clients.
Meet with anyone who will listen. The one thing that I have learned is that an idea, if it is a passion and not just a means of making money, is like a living being. It is born, it crawls, it walks, and if you work hard enough, eventually it runs. Nurture it.
I point back to a hack by John Doerr about mercenary versus missionary entrepreneurs…..
First off, many of you who made the rather bleak comments about ideas being worthless without traction or a beta version sound like the leaders of wolf packs versus mentors and coaches. Maybe you never heard the stories of entrepreneur Billionaires who started with an idea and passion before working to build empires few can argue had meaning.
Second, to the original poster, this is why advice not ideas are worthless. Do what is in your heart, follow your path, and build your meaning. If it means something to you then you will be able to show its meaning to others through your thoughts, conversation, and pitches.
Good Luck.
# Michael Christensen · Jun 20, 2008
We are actually here to help entrepreneurs making their idea come alive for free….. crazy – I know ;-)
# Rick · Jun 20, 2008
Pitching to customers will help you shape your idea into a marketable form, and to talk about it so that people will buy.
It won’t work with everything, but having waiting customers is a nice place to start when looking for people and funding to get your business going. Good luck!
# Jon · Jun 20, 2008
This past summer, I started with an idea. I didn’t know exactly what to do and how to begin. I believe that this idea is simply revolutionary (like everyone’s ideas). Like Anthony said, I spoke with everyone that would listen. I mean everyone! I spent a lot of time looking for the “no” and got more the “go for it.” Eventually I was able to find two partners to share my vision. We then collaborated to build a working business plan for execution and endless market research. With the group we were able to increase the energy levels and make a great and fun collaborative team. In fact, the team is what makes it the most fun. I then hit the road and practiced my pitch on friends and family. I put as much money is as I could and we began to build out the demos and proof of concept. With something to show, we were able to bring more people onto the team and build out some marketing strategy and hire on a great engineering partner to build the prototype. We began a series A round of angel funding and are trying to raise 2 million dollars and are almost half way there.
One of the prototype was actually delivered today. What a scary day. A little buggy, but the vision is there and the feeling that we have actually created something we can touch and feel out of just an idea is overwhelming.
Now we are planning a team kickoff meeting and beginning our beta testing on July 1.
I don’t know what is going to happen and I went all in with everything. I don’t think there is any other way. It has been the best thing I have ever done. That being said, man I am broke.
I am also a big fan of John Doerr.
Good luck and go for it!