It’s Not Common to Get Outside Funding for a Pre-Revenue Startup Idea

Sometimes I hear from people who have an idea for a software product but no money to fund any initial product development.

They don’t have savings to invest, profits from a business they own, or friends and family with money to donate. Some have even quit their day jobs.

How can I build a software business unless someone else funds it?

I appreciate this challenge and I understand why they are frustrated.

But here’s what I tell them, whether they want to hear it or not.

  1. Most software companies actually got started with the founder’s own money, their time, or their profits from another business.

    Very few software companies actually get started from scratch with a pile of cash from an outside investor, including friendly angel investors that are betting on you and your vision.

  2. Serious software startup investors almost always wait for proof of a product that works and some paying customers before they will invest, for two reasons:

    a. Maybe 1 in 10 people with an idea for a software product actually gets to a product that works and customers who pay. It’s a totally different risk profile than “another person with a startup idea.”

    b.  Investors can’t help you in your “get your first customers” game. What do they know about your customers, your specific product, and your ability to sell and market it? They don’t know much and they know it.

  3. Most startup founders don’t pay themselves any salary for several years even when they have some customers and revenue.

    If you don’t have any savings to hold you over (or a day job you haven’t quit) for a long enough time, then your odds of survival are low, let alone your odds of investor success.

    VC investors usually stay away from startups that have run out of money because the odds of success are so low.

Some, not all, of these founders have a sense of entitlement about getting funding. “I have an idea and I should get funding” because they see the exceptions where it happened somewhere.

Universities, incubators, accelerators, and ecosystems are partly to blame because they preach “everyone’s raising funding when you start,” which isn’t true and isn’t useful.

If you can’t work two jobs or create a company that spits out profits to invest or get customers to pay you first or create personal savings, you probably won’t do the much harder work of raising money and building a real business.

There are ways to get into the market with paying customers with no-code solutions, and services-led solutions that can get the ball rolling.

There are exceptions for sure. There are a few founders who had a really good idea and started with outside funding and actually built valuable software companies. It happens, but not often.

Pre-revenue funding from serious investors sounds like an easy shortcut. It isn’t easy, and it isn’t a shortcut.

What do you think? How can you scrap a software idea into revenue?

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