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In our work, we often observe a recurring pattern of behaviour: the founder of a startup that is still at the idea stage is intensely focused on finding an investor instead of focusing on the actual development of the project. This approach carries significant risks and often ends in failure.
Finding an investor vs. building a product
Idea-stage startups usually try to approach investors with a vision but without any tangible output. This strategy has several fundamental problems:
Finding an investor vs. building a product
Idea-stage startups usually try to approach investors with a vision but without any tangible output. This strategy has several fundamental problems:
- Focusing on the investment instead of the product - The time and energy spent on convincing investors is missing from the actual product building process. Without a working prototype or MVP, the startup is only on a theoretical plane.
- Uninteresting investment - Investors logically ask the question: "Does the founder believe in his project if he is not even willing to invest in building a prototype?" Investing in just an idea is too risky for most investors and they usually reject it.
- Low bargaining power - A founder who offers a stake at the idea stage is in a much weaker position than one who already has a working product. Negotiating with an investor in this situation is difficult and the founder often ends up with unfavorable terms or no investment at all.
The key to success: MVP as a proof of concept
A much more effective strategy is to focus on creating a minimum viable product - an MVP. This doesn't have to mean a fully fleshed-out application, but at least a working prototype that demonstrates the core value of the product.
With an MVP, the founder not only has proof in hand that he or she is capable of building something real, but also data and feedback from early users. Investors are then more willing to act and the founder is in a better negotiating position.
The right time to look for an investor
Instead of trying to sell a stake to investors immediately after the idea is conceived, the founder should focus on creating something tangible. An MVP is not just a product, but also a powerful argument for investors. It not only increases the likelihood of getting an investment, but also better terms.
At Pixelmate, we encourage startups to focus their energy on the right priorities to have a better chance of success. If you're wondering how to create a quality MVP, we'd love to help you on your path to success.
Drop us a line and let's discuss it together. :)
