I talked to a savvy software startup founder this week who reached out to me for a mentor call to get my thoughts.
He has a big newfangled idea, a first product that mostly works, and a few early pilots with large companies.
He has an offer for seed funding on the table with an accelerator that would also run them through their 13-week startup program.
Should he take the funding now and start the big funding habit?
Here’s what we discussed:
He didn’t need the startup learning or the network from the accelerator, so I told him should look at this funding offer as “seed funding with homework.”
Should he get any kind of big funding yet?
His product solution is not automating something that his customers already do. It requires a new business process and new ways of thinking about old problems. He’s targeting very big companies.
I asked him if any of their big pilot customers were ecstatic and already changing their behavior. Raving fans yet?
“We’re still working on it, but we’re excited about the potential!”
I told him to be careful about starting the institutional funding game before they have proved early product-market fit and have some confidence there. It will probably be a while with more experiments and some pivots.
Getting to some product-market fit is harder than it looks.
And it’s usually harder to run PMF experiments with a big investor in the room who wants to hurry up and scale.
“We can raise more angel funding who will be totally patient with us.”
I recommended that they raise a little more angel funding and focus on creating something amazing for specific early customers. Something so useful it makes them change their behavior.
Serious institutional funding later (if that makes sense) will be easy with happy customers and growing revenues. It will be hard before they prove that big companies will change their behavior to get the value from their solution.
He talked to his cofounders. He sent me a note yesterday. “We’re going to double down on product-market fit and stay lean with a little angel funding for now.”
Procrastinating funding to develop proven traction is always a good bet for founders.
