We need Funding...how to go about it?!

[MsNadi]

I'm sure this question has been asked many times over, but I'm going to start a thread and ask - how to go about funding.

The short history:
A friend and have been mulling over an idea for the past 6-7 months and have finally come up with the concept for phase 1 of our deployment. It is internet based. In developing the concept, we have also sought proposals and quotes from various web designers and developers that have ranged from $19K to $90K (we're thinking an accurate appraisal is somewhere in the $40K range) with a development time of 60-100 days.

In the process of developing this concept, we have realized that partnering with Google and one of their "newly-developed" products would provide an opportunity for us to avoid recreating the wheel, while also providing Google with the opportunity to bring one of their services to mass market and test. We're not sure how to go about this type of strategic relationship (and apparently not many people are).

We've got a 7 page "concept" document that outlines EXACTLY what we are trying to do and what is required of our concept (from website design, layout and content to supporting databases and applications). Hence, why the website development was so pricey.

What it comes down to: we are ready for an infusion of cash ($100K to be exat) to cover website design, development, deployment - 1 year of hosting to include provisions for significant increases in bandwidth and some light marketing (the bulk of our marketing will be viral). But how do you go about getting cash?

I noticed on another board, some posters gave a gentleman advice: find the network of folks that might be interested in what you have to offer and build relationships. How do you go about building these networks?!

Any advice is appreciated. And my apologies if this is a repeat of earlier posts.

[Caliny222]

Are you looking for debt or equity? Or are you indifferent? From my experience with tech startups that I deal with at my job...I would have to say that a business credit card would be the easiest, most fit option. There are really 3 choices, from my point of view: 1) borrow from family and friends - $100k is really nothing to VCs...they wouldn't be looking to fund your $100k of your expenses...they look at the bigger picture, 2) Get a business credit card from a bank - it's easier, and yes, you'd be in debt, but that's the only other way to go.

I would probably need to know more to give you better advice.

[MsNadi]

Yea - I realize I joined the forum and asked one of those "no-no" questions - cuz now being 2 weeks into my membership here, I realize someone ALWAYS comes along with one of these "I need money...give me money" questions.

We're pursuing our options. The $100K would go almost entirely (about $85K of it) to application and website stuff - our idea would work best and be more beneficial to consumers and potential partnerships if a customized application was incorporated (although we are exploring less appealing options). The other $15K would go towards advertising.

I've considered my meager savings - and meager credit availability (good credit, currently not much of it) as an alternative option. My partner however, is not up to that idea, and she's got lots of credit accessibility/bad credit rating. That would get us about halfway there.

We've considered the business line of credit - I'd just hate to completely screw myself by running up mountains of credit card debt because we've done the revenue and break even analysis, and it'd take us at LEAST a year to start generating any significant amount of money (in the thousands) which at that rate, would take us a couple of years to repay $100K of credit card charges. Yikes.

The ideal situation would be to partner with a company who has newly developed the application and is looking for creative outlets - there are two we are considering, one more so than the other. We also have the option to consider partnering with major ISP's (Yahoo!, Google and MSN) who also have similar applications in the progress of being developed - however we both lack the contacts to pursuit this (god bless Tech Crunch and Garage!). Or to partner with a company who has the understanding of custom application development for web communities, and the ability to require the resources (i.e. InterActive Corporation).

So yea - we're looking at our options.

[noname]

How could a website cost $90k? You must be planning some killer application.

[akula]

nadi,

get a job, get some friends, get a credit card, con some web developer into working for "future profits" and you'll have a company on your hands.

private equity is designed as expansion capital.

financiers don't bet on R&D risk

the entrepreneur bets on R&D

the financier bets on whether the damn thing sells or not

if you want respect, show people that you've got some skin in the game and self finance the sucker

to con people into helping you, follow what I've outlined earlier and use evidence from primary market research to pressure suppliers to give trade credit.

likewise, use the surveys to take prepayments from customers.

sum up: add; savings, friend's savings, customer finance, trade credit, consumer debt and sweat equity to get your venture up and running.

lose the bullshit ideas about partnering with google and vc/angel/corporate/bank finance

[MsNadi]

Got a job. Got some meager savings. Have good credit, but little CURRENT credit ($5K at my disposal). My partner's got fucked up credit but a more at her disposal (like $15K).

Are you taking personal credit or small business credit (we are a legal entity)?

As far as credit is concerned - traditional "small business" credit cards is what you're referring to, I'm assuming?!

And do you think we could con a web developer to work for future profits for an application similar to www.30boxes.com

[Caliny222]

Hi..

You can 'con' anyone to do your website as long as you believe in the product and make the other person believe it. I wouldn't say con...because that would mean that you have no belief in what you have to offer and that you have to trick (which means con, in a way) to do it, right? But any way...that's how I did it. I'm working with one other partner...he's awsome...he knows how to build a site from scratch and everything else in between...I told him about my idea one day...and he loved it, believed in it...and now he's a partner (by choice!) If you have something good, people will naturally be attracted to it...of course..you would have to trade with equity or some other sort...but wouldn't it all be worthwhile in the long run? Besides..the web developer will be one that executes the idea that you have, you know? Look on Smallbuzz.net...I know it's new...but I seen a few web developers profiles...I'll try to look around and see what's up too. But DO tell me what exactly your mission is (if you'd like) so I can help you better.

Oh..and about the funding. I completely agree with the akula's comment. My partner and I are using our own funds at the moment...and asking our family for some money in trade of equity. If you can't do that, the best thing would be an Small Business loan/ credit card...seriously. I work with a lot of VCs..let me know if you have a specific question.

[MsNadi]

Thanks for the comments - and in advance, any replies aren't an attempt at saying "I've done that already" but more-so to let you know where we stand.

So we came up with the idea. We started formulating. We created a concept doc detailing exactly what would be required (functionality) by our web application as our company is the integration of a website and a web application. Based on the quotes - which ranged from $13K - $90K, we figured "ok we don't have the money to PAY somebody" so we started mentioning the opportunity for equity and partnership.

Ok.

What we got in response was "I'm interested in a partnership but I'd also like to include up front payment - so I'll make you pay me to cover the development costs and then I'll become a partner". Got this from 3 different web developers/companies (SMALL companies).

Is it worth it to go to freelance developer boards?! I'm concerned about their bandwidth (network) to complete the project under 3 months time frame (deployment is a must by January 1st).

And would we be crazy to pitch something to a potential partner like "fine, we'll pay you, but whatever we pay you will be deducted from your share of the revenues - so if we pay you $19K to do this, you don't start getting paid until your share of revenues exceeds $19K (so $19,001)??

Thanks ya'll - you've really got me thinking.

[Informurself]

Ms Nadi

If you truly trust in your business then the best thing to do is finance it your self. But maybe you down scale (if possible ) to fit your budget. If you have ideas of partner with google or some other well known company this usually is not a good idea for a start. Because usually when this happens the smaller company can taken over while not rgetting any kickback for their services

you can chose an exit stratgey
an idea would be to give yourself a 1-3 year period in developing your company getting all the kinks worked out in that time period and either cashing out or taking it to the next level which putting it in front of VC or angel investor
If your company is what it say it is meaning it should be successful within that 1-3 period you can begin to build your report in the investment tech sector

[MsNadi]

:::Excuse my language for the ladies out there - including myself:::

Sounds like the verdict is to grow some balls, and get out there and do it - with my money. I knew this before I posted on here HAHA. I was just dilluding myself to thinking maybe someone would invest $100K in a company with a great concept, but no WIP (work in progress). Who was I kidding?!

Ok...so now, the question becomes - best way to finance this.

Because while I think half-assing would save me money (by half-assing I mean full-scale DOWN) it would also corrupt the image associated. What my partner and I need to do is determine which functions are necessary for "go-live" and which can wait and be developed in progress - while still allowing our venture to offer value to our target market.

Again - is the idea of offering a sliding-scale revenue/payment option crazy-talk?

[Informurself]

Ms Nadi
if you copy the big dogs you can actually get away with downscaling your operation and do this by going live but make sure your application is in beta.
You also let it be known that the application is in beta to the users and go from there. and the revenue scale is not a bad idea as long as you are not jerking people around.

[MsNadi]

What do you mean by "copy the big guys" (or do you mean it literally - do exactly what it is that they are doing - but Beta it for legal purposes?

[nado]

And would we be crazy to pitch something to a potential partner like "fine, we'll pay you, but whatever we pay you will be deducted from your share of the revenues - so if we pay you $19K to do this, you don't start getting paid until your share of revenues exceeds $19K (so $19,001)??

Re-read that in the shoes of a "potential partner"... even I'm turned off by the idea

What we got in response was "I'm interested in a partnership but I'd also like to include up front payment - so I'll make you pay me to cover the development costs and then I'll become a partner". Got this from 3 different web developers/companies (SMALL companies).

If this were my first company (as I believe it is for you guys, err, girls )... I would be trying to avoid forking out $50k+ of my own money. Since it is highly likely that this business will fail... the stats are against you at this point in time.

Try looking for the individual web developer. Development companies (with more than one person) are likely to want up-front payment to cover their living expenses etc. But you should be able to find an individual with the skills.

Give him/her a nice long time-frame to complete the work and a good % stake in your company, especially if the application will require on-going updates and improvements. Maybe split it equally 3 ways.

cheers
nathan

[MsNadi]

There's those flailing arms again. :lol:

Does it sound bad - the sliding scale equity option? I think it would all depend on the quality of the idea, right?! And I'm not saying anything about the quality of our idea, because I think its great, but so did the guy who designed the Pinto.

How much equity do companies typically offer?! A net start-up, that is?

20%, 10%, 15% and would those interested in equity require a business plan, or at least proposed financials (which we have)?

I don't have a problem with equity, honestly. My partner does, but she also is willing to wait until we have some major corporate partnership before doing anything. But again - the web developers I have sought have all replied with:

My cost to develop your app and site would be $--,000. I"m interested in equity, but because of the breadth of the app, I will negotiate to lower my price to $--,--- and will consider equity options.

Which doesn't alleviate the problem.

:::maybe i'm quibbling over nothing::: I'm just trying to figure out the best way to go about this while not being screwed by a web developer who's telling me what we need is faaaaar more complicated than it actually is.

[nado]

I wonder if my avatar can hypnotise anyone?

Does it sound bad - the sliding scale equity option?

It doesn't sound bad, just complicated. It's like an NDA... just an unecessary complication which can put people off.

How much equity do companies typically offer?! A net start-up, that is?

Depends of course on: 1) how much you're willing to part with, and 2) how much a partner (web developer in this case) will accept.

I'm not sure of what sort of aplication you're wanting to develop, but I would look at how much work it would take to develop it. And then how much work will be required after it's been developed. e.g. if it will just be a once off (unlikely) then I would start with an offer of 10%. If it's likely that it will require a couple of updates then I'd offer 20% and if it will need regular updates then I'd split it equally.

But then it also depends on predicted profits which affect your decision. As I've thought about this before and in the startup phase you think about all these $millions you'll be making () and then think "hmm, if I give this guy 30%, when we're making $Xmillions he'll be pulling $Ymillions for his little bit of programming".

I don't know what it is... probably just natural greed/envy. But another way to think of it is "wow, we're making $Xmillions and who cares if this guy is making $Ymillions... he's helped us get to where we are today, he believed in us, put in his time for unpredictable returns and allowed us to invest more money into marketing etc".

Since this sounds like a large app, you would want to find a local developer. Talk to people and find out who in your area has the skills. Get to know them over a coffee or beer. Let them know of your idea, give them a copy of your business plan and they'll be able to workout whether they see potential in the idea which might then allow you to offer a lower % stake in the company.

cheers
nathan