How to Get Funding for a Tech Start-up?

The cold hard truth about technology start-ups is that no product – no matter how original, useful and well-executed it is – can really take off without proper funding. And that’s where most start-ups fall short.

There are several reasons for that.

First, the technology landscape has changed, and there are too many great business ideasthat are worth investors’ cash nowadays.

Second, start-up failure rate is currently estimated at 75%. No business angel will put his money into a deliberately doomed project.

Finally, too many aspiring businessmen demand huge money upfront and fail to produce visible results soon enough (Magic Leap says hi).

How to find a tech start-up in this competitive skeptical world? The team comes to help.

3 tips for finding investors for a tech start-up

Start with a solid business plan

Obviously, you need to find a profitable and relatively vacant niche. According to Gartner’s 2018 technology trends, this year will be all about AI-powered apps and analytics solutions, the omnipresent Internet of Things, cloud computing and immersive technologies – namely, Virtual and Augmented Reality. E-commerce – and mobile commerce in particular – is booming, too.

Investors need a product that makes life or at least some of its aspects easier. The product might not necessarily be 100% original, of course; however, it should be really good at what it is meant to do.

Although some venture capitalists including Dave McClure of 500 Start-ups believe you should focus on building prototypes rather than waste time on writing a business plan, having a well-thought-out business strategy will save you a lot of trouble and money in the long run. Here’s an example.

You want to create a price comparison website for delivery services companies which operate in your country. You choose Drupal as your website CMS, make use of standard extensions like Drupal commerce and AdSense and develop price comparison and product recommendation engines from scratch.You charge commission on transactions made via your website and sell banner ads. All goes well until you decide to expand brand presence and start comparing prices worldwide. Drupal extensions do impose restrictions on website scalability; also, you’ll probably regret you didn’t take the microservices approach and will end up with a complete overhaul of the existing website and its architecture (which will cost you a lot of time and money).

If you don’t see where your business will be in five years, why start it in the first place?

Thus, the essential elements of a start-up business plan include your objectives, monetization model, growth strategy, marketing strategy (including target audience and competitor analysis and KPIs) and financial assumptions (ROI, risks and funding required to take your idea off the ground).

Invest in Minimum Viable Product (MVP) development

Whether we’re talking about Silicon Valley seed investors or folks who back projects on Kickstarter, everyone wants to invest in a product that people are actually using. You can’t just come up with a brilliant idea and drown in cash; what you need is a sleek prototype or MVP built with scalability in mind.

That’s right, MVP is a stripped-down version of a website, web app, mobile application or gadget that contains the essential features of the end product (which is enough to satisfy early adopters). Depending on a project’s complexity, however, the cost of building an MVP might range from $ 10 thousand[1] (mobile app) to several hundred thousand dollars (knowledge intensive projects which involve the Proof of Concept and Discovery phases).

It might be too much for a start-up – but there is a way out!

One of our customers, for example, created a custom lightweight IoT cryotherapy chamber for spa salons, gyms and healthcare providers and was looking for a vendor to write embedded software for it. Also, he needed a web-based admin management panel which would enable stakeholders to collect and analyze sensor data, adjust chamber settings and process payments. As a start-up, he only had hardware and a brilliant idea up his sleeve.

No money, no in-house team to handle the dev part, no software requirements; how would you estimate the start-up’s chances of success?

The R-Style Lab team – which was made up of an experienced software architect, Business Analyst (BA), Project Manager (PM) and user experience (UX)/user interface (UI) designers – took the time to analyze the start-up’s business idea, target market and monetization model and prepared a technical vision for the project based on those assumptions. Together with the customer, the team defined the scope of work using the MoSCoW prioritization method. They paid special attention to the software architecture and its scalability requirements.

At the end of the Discovery Phase, the start-up had a detailed Software Requirements Specification listing all the must-have, should-have and could-have features of the software solution, as well as an interactive prototype resembling the final product. What’s more, our customer gained a high-level understanding of the software system and therefore could effectively pitch it to investors. In the end, the start-up was able to raise funding, and we successfully developed the solution in question.

Seeing is believing, right?

Consider multiple sources of funding

VC funding is the first thing that comes to our mind when we talk about finding investors for a promising tech startup. However, there are other funding sources you need to consider:

  • Obviously, you need to show confidence in your product and fund it yourself up to a certain point (MVP/prototypes);
  • If you are into biotech, digital health, renewable energy, Smart Cities or some other “best new thing”, you start-up may be eligible for a government grant (the government, however, might require you to collaborate with a state-run research institute). Entrepreneurs with disabilities can count on state support, too;
  • Try crowdfunding (let’s elaborate on it a bit further, shall we?)

Although there are loads of crowdfunding platforms out there, there’s only a handful of websites that have dedicated communities and a string of successful crowdfunding projects up their sleeve. These include:

  • Kickstarter (the world’s #1 crowdfunding website with over $ 3.4 billion pledged to start-up projects; on Kickstarter, you won’t be able to raise money unless you reach the goal you’ve set for yourself, so you’d better align expectations with reality);
  • Indiegogo (although the platform helped businessmen raise a little over $ 1 billion, Indiegogo is a lot more flexible in terms of project review than Kickstarter and operates worldwide);
  • AngelList (in case you’re a mature entrepreneur and have a shiny MVP under your belt, you can try your luck on AngelList – a private platform where great ideas meet Silicon Valley money).

The choice of a platform depends on the amount of funding you’re hoping to secure, as well as the type of your product, your target audience and…your confidence in the project (remember: “all or nothing” platforms like Kickstarter won’t let you have the money unless you complete your goal).

Once again, no one will fund your project unless you have clear business objectives and an MVP, which brings us back to the matters discussed in the previous section. Also, you should develop a thorough marketing plan covering daily social media activities to keep your audience engaged, create a personal explainer video and reward backers.

Finally, you shouldn’t underestimate the power of networking. Experience shows many start-up companies find potential investors on LinkedIn by joining relevant groups and reaching out to important people who can put in a word for them. Besides LI, there are dedicated angel networks like Angel Capital Association and Angel Investment Network; even if you don’t raise funding there, there’s a good chance you’ll find a mentor to stir your project in the right direction or make connections that’ll definitely pay off.

In the end, the business side of your project will probably take the lion’s share of your time and resources. What about technology and product development – the things that lie at the heart of your project?

Do not be afraid to trust software and hardware development (or at least some parts of it) to a third-party company to free up your schedule a bit: you’ve got plenty of business-related tasks to take care of. That’s the way Skype, Basecamp, Slack and many other companies were built – and they’re thriving now. Want to join the lucky club?

The rates given in this article are based on the median Eastern European developer hourly rates which range from $ 30 to $ 35