In my last post I talked about the influence of external financing on time to market, control and stress. It wasn't exactly a glowing endorsement of venture capital. This week I'd like to focus on some of the beneficial aspects of venture capital and round off the discussion with a look at ramping-up, risk, and market access.
Ramping-up
By ramping-up, I mean either grabbing market share and/or generating profits sufficient to achieving the aims you had when starting the company.
I see two clear paths for a start-up consumer software company trying to get noticed in today's market. The first is to have a social media strategy that takes your product viral. It's a nice thought and I think that big data analytics can definitely help this process. How? By delivering insights into customer behaviour and identifying segments of the market most likely to want to purchase/use your product.
It's a nice theory.
Viral is easy to see when is happens but is fiendishly difficult to intentionally start. Does anyone know of an example of a product engineered to go viral? Not just an ad campaign. I know plenty of products that have gone viral but only as a result of having a brilliant product launched at the right time. Maybe they were just lucky?
In any event I'm pretty sure the people that have had this happen to them are either a lot luckier or smarter than myself.
So the second path is to ramp-up every aspect of the company as fast as you can. Product development, marketing, sales, operations, support. Everything. The first step in ramping-up is to get more people on board and nine times out of ten, the only way to do this fast is to spend money.
It may be that you know people in every area of expertise, and you can offer then enough equity to leave what they are currently doing to join your venture. I don't. I tapped-out my own network attracting the current team of 5 and 2 further advisers.
I do know other people I would like to be involved but that would take more money than I am willing to invest at this stage.
The right external financing not only gives you the money you need but (if you do it right) also gives you access to a network of people with the expertise you need to bring into the company.
De-risking
External financing de-risks a venture when the financing is done on reasonable terms and at the right time.
Reasonable terms are ones where everyone is rewarded fairly for what they bring to the venture and where the potential rewards of future efforts will be fairly shared.
The right time for software companies to take external financing is that point where two or more of the following exists:
- The product is working
- Traction has been won in the market
- The right team is in place
Market Access
As I mention above, good external financing delivers a network of new contacts. They can also bring you customers. This is not guaranteed but it can working the B2B market or a specialist VC with contacts in exactly your market niche. In my case our B2C product is going to need widespread market distribution. I believe that only the likes of Google, Yahoo!, etc. can do this in our case.
So my advice is to look at the contacts that come with a potential investor. They could be worth a lot more than the money they invest. I have heard enough stories from successful founders who have taken lower valuations because the investors brought more to the party than cash.
A Final Judgement Call
Today, Six degrees of Data is on the cusp of launching our first product. I know Bridger works because it does what I designed it to do - and that's a pretty amazing feeling to have!
The challenge now is to test it in the market. That's what we will do in October and November 2013.
So these most recent posts about financing need to be seen from my perspective.
I believe that Bridger is a new category of software. One that lets our documents link intricately into the world wide web - very much like a road map shows you how to get around a city.
Bridger's semantic links create the maps of meaning that you need to reach the full potential of the web.
Well, if you're going to dream, you might as well dream big.
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