Ask HN: How to get initial funding for an idea? | Hacker News Reader

Ask HN: How to get initial funding for an idea?

17 points_8j5017 comments

I have a few ideas I think are really good. My job pays me well but the better ideas I have cost a lot of initial money to develop even a small proof of concept. As I understand, VC's want some proof of concept and market acceptance testing before a seed round. Banks require some proof of business proposal validity as well. I have no rich friends or family, how do I get to the stage where I can even think of applying to YC or other VC firms?

To be clear, The ideas I have in my opinion are not high risk (worst case you break even after a few years).

Apologies for my ignorance if there are better sources out there. Asking here because I have received valuable advice on HN from asking similar "noob" questions.

View on HN

> "To be clear, The ideas I have in my opinion are not high risk (worst case you break even after a few years)."

It's good to be optimistic, but not naive. The worst case is that none of your ideas will ever generate a single dollar of revenue. Actually, I would even say that the most likely case is that you will never reach break even.

With your naive assumption you can get into unnecessary debt and now the worst case is that you lose all your financial reserves.

> "the better ideas I have cost a lot of initial money to develop even a small proof of concept."

I would think very hard to find a way to validate these ideas without that much of initial money. I am honestly don't trust your judgement now that it is impossible to even test without a lot of money. But if that's really true, it means that you want to build something that requires a lot of deep expertise and/or infrastructure (like a new self-driving drone or a new drug). The only people who get money to work on these kind of projects are researchers within a big company or entrepreneurs with an impressive track record of success (think Elon Musk).

So maybe these ideas are not for you.

So, it is nothing on the scale of that. But things like land,real-estate,equipment are cash intensive. For example one of my better ideas will work with an app and a lot if infrastructure. But even at a very small POC it will cost at least $50K which isn't an earth shattering amount but still too much for me.

Rather than build your idea, which you say requires a lot of money, prove that people want to pay for it. You CAN do this without building the idea.

This will force you to get out there, actually talk to potential customers, and sell it. This is one of the hard parts of executing on an idea.

I know one entrepreneur in your boat who recently cold outbounded with a PowerPoint and some design mockups, and managed to get a number of LOIs signed from buyers in his target market. That proved to investors that 1) people wanted it, and 2) he could sell it. He raised a non-trivial sum from a known VC firm.

THIS is the answer --

WHO is this for? What does it do?

Are they amenable to funding/building the prototype?

THAT's the guy you're looking for.

You have a really good advice, I think I need to work on my salesmanship or find a cofounder. Actually collecting stats sounds nice, maybe a video clip of actual in person consumer interview might help too. Answering the market demand question is where I struggle. Many of my idea are not proprietary so anyone can pay someone more experienced to knock me off which worries me. Thank you!

Validate your idea by getting users. Site building tools are ubiquitous now if you want to test out anything ecommerce.

For everything else, you can use a Google Form or just go out walking around town surveying people and seeing if they'll sign up to your list based on telling them your idea.

Ideas are not valuable unless you can show that you can execute on them and you don't need much money to show that, at least to start.

Note that many people who say they would use a product won't actually use it once it's built, especially if the effectiveness of the product relies on network effects.

There is specyal type of questions to ask potential customers. The key take here is not to ask directly about your product because sometime people want to make you feel better.

So, instead of asking would you use my solution, ask about

- do you have such problem?

- how do you solve it now?

- have you searched for solutions?

- have you searched for paid solutions?

- how much this type of solution you expect will cost for you?

- are you ready to pay someone who will solve this for you?

and so one

Yes, I can answer all those, matter of fact some of the problems are well known and people complain about them all the time. I just need to prove that my non-proprietary solution is best and viable

But here is the thing, if I have a site to validate my idea,what stops someone with more resources from knocking me off before I get funding? Execution speed is important, but I can validate by asking potential customers and doing some leg work, I thought that was not enough for funding and loans

Well, true that investors will ask how well you can capture the market you are targeting. However, what that really boils down to is whether or not the investors believe you can execute well. Actually, sometimes investors will throw more money at you if they think it is a competitive market but believe that you can become the market leader first. After that, if you do well at building a good brand, then you'll get customers based on that, regardless of the competition that pops up.

Have you talked to a lot of people who would be the customers/users of said "ideas" in an attempt to validate them? Remember, casually asking family, friends, or co-workers about such things is very unlikely to provide real feedback.

Highly recommend this book on the topic: http://momtestbook.com/

Initial funding will come from yourself, friends or family. If you are trying anywhere else it would be a waste of time.

IMO, you should always sell the product before you have it. Prove that people are willing to throw money at it.

There are a few tricks you can try - you can put up a shopping cart that crashes into an 'out of stock' dummy page and then track the number of people adding to cart. You can put up a few real world banners, track how many calls you get, then tell them that the system is down. You can visit people with a powerpoint presentation.

Don't be a tire kicker though. Just do it as if you're going to do it, then move fast to secure it.

Another easy trick is to look at what people have hacked together. Everyone has a competitor. Yours is likely an excel sheet somewhere. The competitor for the first car was the horse. The competitor for combat planes were balloons and zeppelins.

I think it really depends on the product, selling goods and online services is easy but having a brick and mortar component is what makes the costs skyrocket. Perhaps I should try things with a low barrier to entry at first.

Sorry, that was not very well phrased. What I mean to say is that startups are about minimizing risk.

A business model canvas helps you highlight what hypotheses you have. You go through them and minimize each one. Often the highest risk hypotheses are regarding costs and income model.

Seed funding is originally about just about getting enough funding to prove all the hypotheses. You can validate food by finding a delivery partner. Fashion can be placed in clothing stores. Film can be started with YouTube. Just a minimum viable product for each.

I'm not sure exactly what sector you're doing, but there's another model you can consider for brick and mortar. The product developer designs something, stockists (logistics/management/mentoring) buy in bulk for about 30% of retail price, agents (sales) buy from stockists for about 70% of the retail price. You end up with a 8x markup but it's a really low capital model because the people at the end of the chain give you the money.

VCs only take super high returns; they are experts at reducing risk and tend to not value something moderate risk. There are VCs for non-tech companies as well; you want a VC who's a pro at reducing risk in your sector.

If your idea is not labour intence (e.g. bringing new drug to the market) then you can do mvp within weeks or several months depending on how much corners you can cut.

If you can't code then probably you can save couple of thousands and ask for help from someone else (e.g. hire overseas labour from low cost of living areas to build the mvp for you).

Reply on news.ycombinator.com