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I am starting a company with a partner and we need to raise capital for a prototype, as well as later capital for production and marketing. We are at the final draft phase of our patent for a brand new product that is necessary for the new technology world. I have attended Angels Investor meetings and have noticed that most people will not invest in companies that have had no sales and have not made profits, however we still need money to create a first prototype.
That’s the trick! It’s the chicken and egg scenario. Investors wont invest until you have money, but you cant make money until you have an Investor!
Well, almost true. Not all investors require sales or profits – though it REALLY REALLY helps. There are a lot of investors who will invest in pre-revenue companies. But you have to work harder and you have to give up more of the company to the investor. Why? It’s a higher risk! Much higher! The less you have, the more you need – and it goes back to the Golden Rule: He who has the Gold, makes the rules.
The prototype is a very tough thing to get an investor to fund. At FundingPost we see a lot of great, pre-prototype ideas. There are investors who will take that risk, but they are few and far between. You have to figure out a way to get the prototype built – get the ball towards your side of the court.
One thing I hear a lot at our Angel Investor Events is to raise money from friends and family before going out for an Angel Investor round of financing They say, "If you cant get your friends and family you believe in you, why should we?"
Most prototypes are not that expensive to build – except if you are building military aircraft – but if you are designing those, you probably have (or can get) the money.
You can always build a scaled down version of whatever you are doing, less bells and whistles, smaller size, etc. for a few grand. Just get something done yourself before asking for complete help from an outside investor. Show that you have the ability to get the job done and you will get it done with or without an investors help! Now we all know that large scale projects take money, so more often than not, it’s WITH their help. But remember, investors invest in the Management teams ability to successfully execute an idea more than the idea itself.
An investor at our Texas Venture Event once said: “You can see some of the best ideas by looking at the list of failed companies.”
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