[AntiTrace]

A recent project I've been working on has passed my tests to the point where I am comfortable going forward with it. But I'm looking to go big so I'm looking secure around 500k-1mil which would give me the required capital for hiring employees and covering overhead for one year at which point I expect to be running a profit. I could get a loan for the 500k range but I would prefer having a mentor with a stake in the biz helping me.

I've done some google searches for research and have come up with some good stuff, but I'm always looking for more advice.

I've got a pretty solid biz plan written up, it just needs some editing and formatting before I make it official. Conservative estimates put the possible profit around 150mil annually (thats for 100% market share) with the ability to expand to other industries which would increase that. Overhead would only require a small office building, small group of employees (starting with 3, scaling up to around 10-15 max), no inventory. Competition is light and not well established. I have high confidence that it will become viral in the targeted market. Overall I think it is something that is interesting enough for me at least get a meeting with investors.

So does anyone have any experience pitching to VC/Angels or have experience investing in startups?

How should I go about even getting the meet? Should I go in person and drop off the biz plan with a secretary and just hope it makes it way up through the channels?

Where should I network to get access to these guys? I don't really roll in the circles of cats who can drop a million on an idea.

What terms can I expect? I'm already willing to give up a share of the company in exchange for the funding, a well connected parner, and a mentor...but how much of a chunk do these guys typically go for?

These guys get approached all the time, its like a blonde 10 sitting in a bar in Jersey, how do I position myself above the noise?

[DaveR]

Is this IT-related? If so, you need to go to Silicon Valley and try it there. If you want to fund it yourself, your expenses would be much lower in an offshoring centre like Tallinn, Bratislava, etc.

Can you give a hint as to what kind of business it would be? Maybe someone here would be interested.

Also, have you patented the idea?

[Sawyer]

Money = Easy
Mentor/Connections = Fucking impossible

Get the loan, start your business, let them come to you. As they say, build it and they will come.

[El_Superbeasto]

Here is a link to a pretty comprehensive, well written set of notes from Peter Thiel's Start Ups class taught at Stanford. He has a lot of good information about pitches, and gives pretty good insight to the VC mindset out here in the valley.

http://blakemasters.com/peter-thiels-cs183-startup

In terms of networking, incubator/Accelerator Mixers (Start-X, Y-Combinator, etc) mixers events are good place to start. In all honesty, you might want to consider moving to Silicon Valley. The VC network and startup centric culture here is really unlike any other place in the world. It's not uncommon here to meet founders or VC associates just by talking to random people when you're out. Also there are numerous start up focused events and mixers that you can just show up to.

[WestCoast]

?

$500K on 4% is $20K a year

You're saying $150M profit. I am going to say you run that at 1% so 1.5 million a year...

If you get a investor you're losing ~33%

33% times 1.5 million = $500K

$500K/$20K... You want to pay a 25x multiple for an investor?

Unless the biz is cash flow negative for a long time I don't know why you would care about funding.

[DaveR]

(11-16-2013 01:37 PM)WestCoast Wrote:  

Unless the biz is cash flow negative for a long time I don't know why you would care about funding.

$500k may not get it off the ground, and that's the OP's credit limit.

He also may not have a lot of experience in business, and therefore is also looking for someone with a financial stake to help with some key decisions.

[WestCoast]

^ yeah that's true.

On a glance I wouldn't even consider investing in that idea as is. That's just my opinion and would try to do it myself.

$150M for 100% share doesn't sound great.

[AntiTrace]

It is a website offering a service that could essentially moves money in between different people and organizations. There is a lot more to it than that, but the very bottom line is that I'm taking money from Person A and moving to Person B while charging a fee. My research has shown only one other company that is trying to do what I am doing, and they are currently in a beta test as well. I have heard nothing but positive responses from customers in the alpha test and random people I have talked to here and there.

I should note that I already have a basic version of this going live here soon. The basic version uses a prepacked software that limits my revenue (fees they require for using their software). My employees would be web developers and software engineers that would customize the entire backend software so I can eliminate the prepacked softwares fees. I would also need a few sales people and a few people working the phones.

I've run an alpha test using a minimum viable product (MVP). Essentially my MVP was a wordpress site I put together in less than an hour and ran a two week test. I am starting a beta test that is more heavily marketed on monday. By the time the basic version is launched (hopefully no more than couple weeks) my beta test will be complete and I will have all statistics I need to accurately to predict the financial growth model.

@WC

This is a very good point that I have thought of. The only drawback I see to getting the loan myself is that the loan would be tied to my personal credit, not the biz. So essentially if the biz does fail I would be stuck with a 500k debt and nothing to show for it.

500k @ 4% for 10 years come to around 5k a month payments, @ 7 years it is around 7k per month. I would say fuck that and leave the states permanently if I was faced with 5-7k for nothing.

Regardless I have some meetings with loan officers in the coming weeks to explore my options.

As far as the market share, that 150m would be the profit not the revenue. That's also using conservative estimates targeting only one industry, I have plans to expand to at least five other industries. Regardless, even at 10% market cap that would be roughly $15M annual profit using conservative estimates. Its no Wal-Mart, but its nothing to shake a stick at. Enough for me retire before I'm 30.

@DaveR

The 500k is the low end of what I would want to get everything I need and run it for 12 months with no income (I expect immediate income, as my tests have already shown demand and I already have customers waiting). I just like to play things on the safe side when it comes to money.

Your spot on that I would like to have a mentor with a financial stake in the company. Silicon Valley sounds like a great idea as I would want someone that is knowledgeable with all the tech and programming requirements, that is not my forte.

Your right that I could keep development costs down by going abroad. Although I am weary of that because I had a bad experience with some developers in India in the past. I would also want my developers to be local so I can be as flexible as possible in updates, responding to bug fixes, and keep everyone on track.

Going abroad is something I am looking into, but I would need a manager to do the hiring process and ensure things stayed on track. I've seen too many people claim proficiency in thirty different tech subjects that simply did not produce any quality results.

I have something like 2 or 3 grand worth of airline points saved up, maybe I'll take a trip to silicon valley and scope things out, see how much it would cost me to hire some quality young developers and get some office space set up.

edit - el superbeasto, good looking out man. I just started looking through that link and it seems like some good info.

[WestCoast]

What's the minimum you need to get it up and running?

[AntiTrace]

Tough question WC.

In theory it will be up and running within a few weeks using prepackaged software for the backend. The fees the prepackaged software charges me damn near drains my profit margin to nothing. I'm using until proof of concept is proved.

The funds would be to redesign the entire back end (front end would stay identical, essentially no customers would even know anything at all had changed). That would run me about 100-150k from a web development firm, official quotes are being worked on but that was the ballpark I was told to expect. I plan on doing that, then hiring some in-house developers to maintain and update the site as needed. I would start with two developers probably.

So 150k for the redesign, salaries for two developers and thats about it (I would have the developers work remotely, but keep them local so they can attend meetings in person).

If I want to go bare bones, I can probably negotiate the redesign for lower end of the 100k (I know a firm that owes me about 20k worth a work anyways) and then contract out the development as problems arise until income can cover salaries.

So to be very comfortable for 12 months = 500k

Bare bones to redesign and eliminate third party fees = 100k

Sounds like the best course of action is to go the 100-150k route through a biz loan, and contract development.

[WestCoast]

I would go bear bones on the loan

Then get 1-2 angel investors which is usually $25-50K once you have proof (much easier to sell and much easier to negotiate down the equity stake)

Then once you have it running do a biz loan for the rest. Not on your name since you will have actual cash flow by 6 months I am assuming

Now you're on the hook for ~$100-150K max on a loan.

(Note this is all based on the limited info on here and zero knowledge of how exactly all the cash flows will work)

I don't see a reason to give away equity already.

If you bring an investor in make sure said investor knows the space (obvious I know but it will at least give you someone to bounce ideas off of)

[DaveR]

You may want to think about starting with the $100k version and then doing a greenfield project after you've turned a profit. My experience with IT projects is that you can *never* anticipate everything before going live. The larger the project, the harder it's going to be to fix the problems once you hit the 'go' button.

[WestCoast]

^ yep.

[Vaun]

think we all agree, mvp with proof(revenue, testimonials, growth) whatever metric. angels are having open hours all the time here, its not hard to get in front of someone or make connections fairly quickly, but they will all be looking at the proof from there.

[AntiTrace]

(11-16-2013 04:28 PM)DaveR Wrote:  

You may want to think about starting with the $100k version and then doing a greenfield project after you've turned a profit. My experience with IT projects is that you can *never* anticipate everything before going live. The larger the project, the harder it's going to be to fix the problems once you hit the 'go' button.

What is a greenfield project? I havent heard that term before.

By the way, thanks everyone. Not to get all , but this it the only place I know where I can talk about travel, getting laid, and get valuable business advice all in the same place.

[DaveR]

(11-16-2013 05:33 PM)AntiTrace Wrote:  

What is a greenfield project? I havent heard that term before.

Greenfield is starting completely from scratch, so the system would be built from the ground up to your specs. http://en.wikipedia.org/wiki/Greenfield_project

[BlurredSevens]

(11-16-2013 11:24 AM)AntiTrace Wrote:  

A recent project I've been working on has passed my tests to the point where I am comfortable going forward with it. But I'm looking to go big so I'm looking secure around 500k-1mil which would give me the required capital for hiring employees and covering overhead for one year at which point I expect to be running a profit. I could get a loan for the 500k range but I would prefer having a mentor with a stake in the biz helping me.

Don't get a loan. Most startups fail very quickly, and then you're stuck with insurmountable debt. The whole point of angels is that they take on that risk themselves, because they can afford to do so. It's part of the game for them...fund 20 startups and hope that 1 will return a profit.

(11-16-2013 03:37 PM)AntiTrace Wrote:  

Conservative estimates put the possible profit around 150mil annually (thats for 100% market share) with the ability to expand to other industries which would increase that. Competition is light and not well established. I have high confidence that it will become viral in the targeted market.

When will your business be profitable? Most startups vastly overestimate how quickly they will start making money. Very likely it will take 3+ years, so expect to show your financial projections through 2017.

100% market share is ridiculous. If you profit $150mil/year, competitors will move in very quickly, and that's a guarantee. How will you defend against competitors who will steal your idea and try to beat you at your own game?

Having high confidence that your business will "go viral" is not a business plan, it's a dream. Everyone thinks their company will go viral and angels aren't going to fund your dream.

(11-16-2013 03:37 PM)AntiTrace Wrote:  

How should I go about even getting the meet? Should I go in person and drop off the biz plan with a secretary and just hope it makes it way up through the channels?

Dear god no. You're asking for a million dollars, not a job at McDonald's.

Here is what you do:

Find Angel groups in your city. Submit your idea. If it passes the screening test, they invite you to present to their membership (20-50 angels) along with a dozen or so other entrepreneurs. You’ll get 10-20 minutes to present your idea and answer questions. This is where most guys crash and burn HARD. They’re so caught up in their own world they aren’t prepared to answer a variety of difficult questions designed to challenge you. Remember: you're asking for these guys money, don't waste their time and they won't waste yours.

If anyone likes it, they take you on for due diligence, where they (at a later date) tear apart your business plan, vet your team, etc. Only then do discussions about funding, biz structure, etc. come into play.

(11-16-2013 03:37 PM)AntiTrace Wrote:  

Where should I network to get access to these guys? I don't really roll in the circles of cats who can drop a million on an idea.

You don’t need to. There is an established process that you can follow. Having connections doesn’t hurt, though.

(11-16-2013 03:37 PM)AntiTrace Wrote:  

What terms can I expect? I'm already willing to give up a share of the company in exchange for the funding, a well connected parner, and a mentor...but how much of a chunk do these guys typically go for?

You shouldn’t be so excited to give up shares before you get going, even though they will want a high %. That discussion comes much later, after they have decided to invest in your idea, so it’s not something to worry about now.

(11-16-2013 02:52 PM)AntiTrace Wrote:  

These guys get approached all the time, its like a blonde 10 sitting in a bar in Jersey, how do I position myself above the noise?

Have a really fucking good idea, and an even better plan for how to execute.

(11-16-2013 02:52 PM)AntiTrace Wrote:  

I have heard nothing but positive responses from customers in the alpha test and random people I have talked to here and there.

There is always high demand for an unavailable supply. Meaning, of course people will tell you they like your idea. But getting them to pay for it is an entirely different story.

(11-16-2013 02:52 PM)AntiTrace Wrote:  

The basic version uses a prepacked software that limits my revenue (fees they require for using their software). My employees would be web developers and software engineers that would customize the entire backend software so I can eliminate the prepacked softwares fees.

This sounds like a disaster. No one is going to invest in prepackaged software. How long will engineers need to develop or redevelop this software? Probably at least a year. Have you factored that in to your business plan and financial projections? What happens if it takes longer?

(11-16-2013 02:52 PM)AntiTrace Wrote:  

I have something like 2 or 3 grand worth of airline points saved up, maybe I'll take a trip to silicon valley and scope things out, see how much it would cost me to hire some quality young developers and get some office space set up.

Thinking you need to go to Silicon Valley to get funded or to run a startup is like thinking you need to be rich to pull hot girls.

Zuckerberg built facebook on a laptop in his dorm room in Massachusetts. Think about it.

Young developers are being aggressively recruited by Facebook/Apple/Google with starting salaries $100k+. How will you convince them to take a chance and work with you when Google is knocking at their door?

(11-16-2013 03:37 PM)AntiTrace Wrote:  

In theory it will be up and running within a few weeks using prepackaged software for the backend. The fees the prepackaged software charges me damn near drains my profit margin to nothing. I'm using until proof of concept is proved.

The funds would be to redesign the entire back end (front end would stay identical, essentially no customers would even know anything at all had changed). That would run me about 100-150k from a web development firm,

In theory, I should be fucking a new girl every night of the week. But that isn't how life works.

This prepackaged thing sounds like a disaster. Why are you going this route?

Overall, not knowing what your idea is (it sounds a whole lot like paypal...), it seems like you need a reality check on the $$ side of things.

Multiply projected costs by 5
Multiply projected development time by 3
Divide projected profits by 10
And then you will have a more realistic view of how things are going to turn out. This is not an exaggeration.

Most startups fail because they run out of money, because they overestimated how quickly they would turn a profit, and underestimated their costs, the market size, competitors, and demand.


Also:

Angels want to know about your team. Why you? Who is your dev team? What have they built in the past? Don’t have a dev team? No one is going to fund your 6-month job search.

What is special or unique about your team that will lead you to success? How will you overcome your weaknesses?

Repeat: DON’T get a fucking loan. That’s suicide. If no one is willing to invest money into your idea, then it isn't a good idea.

And finally…the most important question a smart angel will ask you, the one that leaves most would-be entrepreneurs dead in the water is…

What problem are you trying to solve?

If you can’t convincingly answer that in 1 sentence, it’s game over.

It sounds like you need to do a lot more homework. But don’t give up, starting a company and earning millions isn’t supposed to be easy.

[AntiTrace]

Awesome addition blurred sevens.

On prepackaged software: The prepackaged software was used to keep my initial costs low to get proof of concept. I think of it as MVP phase 2. The first part was my shitty little wordpress site. Once I realized people were interested and willing to pay, I went with a development firm to design the front end and use the prepacked software as backend to keep costs low (20k versus 150k).

On going viral: Agreed that most people dream this is going to happen. I almost rephrased that initially as I am not a fan of believing in it. Viral is such an overused term these days. No part of my marketing plan is relying on it going viral, if it happens thats awesome, if not my marketing plan will continue chugging along.

On angel groups: Im not looking to crash and burn, hence why I posted this. I am trying to get a feel for what type of information these guys want to know and go in there prepared and "loaded for bear" if you will. I am looking at it from their perspective, if some dude came up to me asking for 50-100k, what would I want to know about his idea. That is why I am running my biz plan past two successful businessman I know and a handful of old college business professors, I am sure they will pick apart my plan to the point I want to cry. But i wont cry, because I'm a man and have never cried in my life, even when that bastard doctor removed me from my nice warm comforting womb.

On my team: I have nothing astonishing to present here, which is my biggest weakness. Im a dude with an idea with some basic tests that say my idea isn't another speck of dirt. It may be a small anthill, but thats all I got right now. I have no web development skills, my technology skills are limited to clicking the update icon on my PS3 every once in awhile. The only going for me on that part is I have leadership skills and know how to manage teams.

On what problem im trying to solve: that I actually have a decent answer for. I have a great idea, I'm working on finding the best way to execute it.

But keep that criticism coming. Id rather have someone punch me in the face with reality than clap me on the back with optimism.

[BlurredSevens]

(11-16-2013 10:54 PM)AntiTrace Wrote:  

Awesome addition blurred sevens.

But keep that criticism coming. Id rather have someone punch me in the face with reality than clap me on the back with optimism.

Yeah this is the key right here. Knowing when someone is shitting on your idea, and when they are offering constructive criticism.

Realistically VC's and angels know you aren't going to have everything figured out when you pitch to them, otherwise you wouldn't need them in the first place. The point is to show them you have not only thought of, but addressed and planned for your weaknesses. That is a strong sign of a good leader and a guy worth investing in.

[paninaro]

Are you doing something like TransferWise?

It's hard to comment without more details, but anything involving moving money is usually subject to banking and money laundering regulations. Hopefully you have your bases covered.

If you truly believe in this, then just take a loan. Yes, your personal credit is on the line, but you believe in it, right?

Also, as counterintuitive as it sounds, focus on an exit and then profits. How will the VC get their money back + extra within 5 years? Usually that's via an acquisition (or IPO.. less common).

[John Galt2]

I am an angel investor and Blurred Sevens knows what he is talking about, so please take his advise to heart (and I dont have a whole lot more to add)

[pointbreak]

BlurredSevens is spot on. Great post, great advice. Thread done.