Raising Money for your Software Startup (what you need to know)
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The Kyros Digital team has been building software platforms, mobile apps and SaaS for over a decade now.
As you can imagine, we have been pitched hundreds of startup ideas to help build. Around half of these startup ideas had zero capital and it was just an idea. Also, the founder had no clue how to raise money or the truth behind raising capital.
We would not consider ourselves experts by any means in raising capital, but we do have some experience we can share with you. In 2020 we launched our own SaaS Software and we raised a small seed round, while also talking to VCs around the country.
Just know it is a lot harder than it looks. Sure, it's great to see an article on LinkedIn claiming "So and so company raises $5m seed round or this other company raises $20m series B". But just know it's a lot harder than it looks.
If you don’t know Andrew yet, check him out. He build a SaaS mobile app company, sold it and launched MicroAcquire over a year ago that is literally on FIRE. He knows a thing or two about raising, selling and building SaaS so give him a follow.
What do investors / VCs want to see?
Loaded question and the answer really is that “it depends”. You must first know what kind of investor you’re talking with. Are they a Pre Revenue “idea” investor? Are they post revenue? What is their minimum limit?
These questions might seem pretty standard, but if you’re new to the game you don’t know this and it’s important you learn this before wasting time. We would recommend just asking the investors before hand, telling them where you are at and see if it’s a fit before you spend hours and hours on a pitch deck presentation.
What we have found is that investors want to see some sort of traction and momentum on the upward side. It does not need to be hockey stick numbers, but should show improvement.
Also, we found take what you think is “successful” and probably 2/3x that number and that is probably a good ball park what an investor would “want to see”.
An example is say you have around 1,000 actively monthly users, well times that around 2 or 3. Usually founders get emotionally about their “growth” because they started from nothing, but in investors eyes it looks way too small to invest in or gamble on (just what we’ve noticed).
How long is the process?
Usually it’s not a quick wire transfer overnight (unless maybe you have a large investor circle and network). But, if you’re new to the game just know this is an entire process that will take a long time and become a large time suck.
When we tried to raise capital for Sidekick we were in talks with VCs and investors for almost 6 months before any real traction happened.
Do I need to build anything before raising money?
We would say probably yes. You should probably build a Proof of Concept (POC) or even a Minimal Viable Product (MVP) and get some users before even pitching an investor if you’re new.
We did write an article how to choose between an MVP or POC here.
We actually built a working version of Sidekick AI to prove it worked, started to get users on it before even attempting to talk to investors.
Just think about this logically, would you really invest into a random idea presented by a stranger you know nothing about? Or would you rather invest in an actual working software you see users on? Don't be fooled by these outlier stories you hear someone investing $2m into just an idea. Usually that is not the truth.
Will a software developer or development agency build it for equity?
At Kyros Digital we have a strict “no equity trade” rule when pitched building ideas. One main reason is if we take 10% equity, then there is this assumption we need to give special attention to our equity projects over non equity projects. This just is not fair to anyone and it’s hard to choose who gets what attention.
We just decided no equity and you pay for our hours to develop your software. We have found majority of companies like us have similar policies.
Your best bet is to find a developer who believes in your idea as much as you and wants to build for equity. That is probably your best shot to get your MVP / POC going before talking to a VC or investor.
So, should I raise money at all? Or should I bootstrap it?
We could write about this for hours, but here is what we could recommend.
- Start with a POC or MVP you build with a parter or family / friend investment
- Get users on the software, listen to their needs and find market fit
- Once you’re ready, you’ll know you’re ready to swing for the fences and raises a bunch of capital
Ideas are a dime a dozen, execution is what matters. 99% of the time you won’t be able to raise money for your software based purely on idea.
Build something first, get users, make improvements and when you’re ready you will know.
Just based on our experience from building our first platform, Sidekick Ai.
