When To Seek Funding

August 24, 2013 at 12:00 PM

One of the big challenges that tech startups face is putting a product and plan together that is attractive to venture capitalists and knowing when the timing is right to seek investment.

A while back, I posted on twitter about a great list of metrics to hit before you go after funding. This week, Eran Galperin posted a great article on what he looks for in reviewing startup applications at the 500startups accelerator. It is great advice on when the situation and timing is right to go for funding.

  • You need to be growth-oriented
  • You need a product and initial traction
  • You need a revenue plan, not just users
  • If you are attacking a mature market with big players you need to be truly disruptive
  • You can't do it alone
  • Hardware startups need someone who has done hardware before

There is also very practical advice in the article on things you can do if don't meet the above criteria.

Measuring Traction

After you have the product and the team, when do you have enough traction? The Milestones list from AngelList that I mentioned before gives great guidelines on traction metrics that you need to aim for:

  • For an enterprise app: 1000 seats ≈ $10 per seat per month
  • For a big enterprise app: 2 pilot contracts that are starting to pay
  • Social Apps: >100,000 downloads or sign-ups (and a revenue plan)
  • Revenue: $50,000 / month

Combined, these two lists are really good guidance on when the time is right to seek funding. The tone of both articles is to be patient until you get to that point.

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