How important is a VC/investor in starting a business?
September 18, 2022 11:06 AM   Subscribe

I have a software/hardware product that doesn't really need capital but needs support from other large vendors, for the sake of the question we will say Salesforce. I'm having a very hard time getting conversations going or being taken seriously. My question is twofold, how important is having a serious investor and how do you go about finding these investors if not through close friends?

The product is not vaporware, but most conversations I have with vendors or other companies kind of die when they see I do not have a serious investor. No one even asks to see if the product works. I did some serious comparative analysis of competitors and they all had high finance types heavily involved: hedge fund, independently wealthy, venture capitalist. Reading pitch decks from other startups and they all seemed to have run rates of frankly millions before they even sought out early investment.

Money is not the issue directly but I get the feeling having a serious investor gives credence, is this true and are there ways around this? Second how do you find investors if you're not already good friends with one? I went to corny investor meetings and they seemed focused on opening things like coffeeshops and not highly speculative technical startups.

i've been looking for a roadmap of either "keep working on the product" or "focus on getting an advisory team or investors to get companies to take you seriously" and oddly nothing exists.

posted by geoff. to Work & Money (8 answers total) 1 user marked this as a favorite
There is a middle ground of angel investors, but you still have to pitch them. Unfortunately as a solo inventor you don't have a ton of credibility.
posted by pyro979 at 12:01 PM on September 18

Large tech companies only want to talk to people who are experienced with working with large tech companies. The business people you are talking to care way more about business relationships than they do the quality of the product. Having a serious investor is proof that you know how to talk "big business". I haven't actually done this yet, but my feeling is there are two paths forward for a product that doesn't need massive funding:

First, you do not want to talk to Venture Capital, they only care about massive growth potential. The group you actually want to talk to is normally called something like Angel Investors, and this group differs depending on the specific industry. These groups are much more used to talking to tech people with ideas. My understanding is that you find these people by going to tech conferences and networking, or getting referrals from other companies. If you can find smaller companies that are in your industry but not competitors for your product, you could try to contact them and ask how they got started.

The other way to do this is to start from the individual engineer or customer level and work your way up to a business relationship. I've seen this work well with things like programmer tools. Maybe you could make a "personal" or open source version that gets engineers excited, and then you can use those contacts to help build a business relationship with their company.

You're going to have to make business networking contacts with SOMEONE important to get on the radar of a big tech company, but it's probably not venture capitalists. The better your early product version is the easier this will be. So, I would probably keep working on it and use related conventions or internet groups to start networking with the people who might benefit from your product.
posted by JZig at 12:04 PM on September 18 [1 favorite]

Is there a related startup accelerator you could apply for?
posted by pinochiette at 12:05 PM on September 18 [2 favorites]

Response by poster: Great, I should add I've worked with very, very large companies so getting a call with basically any company like Salesforce even for silly things was easy and having a startup I find this very odd which kind of spurred this question.

My product is for the sake of this discussion is equivalent to an Alexa, not something I can just give a URL out, but i can ship it out. Changing the discussion to an angel investor is great, what I'm looking for is basically a network or experience of someone taking 15 minutes and saying "This is not ready" because using friends and family will inevitably give good responses. I would even be willing to pay to see next steps, this is not technical at this point but more of what does it look like to launch a product, how patient should I be, what are the business side of things.

Is this something an angel investor would help me with or should I be seeking out perhaps another employee with experience in startups? I've only been a part of very large product launches with very sophisticated teams at large organizations.
posted by geoff. at 12:34 PM on September 18 [1 favorite]

Having a recognized financial backer is an easy, and not unreasonable, gatekeeping tool for serious collaboration with large tech companies on a new piece of hardware.

Bootstrapping to the kind of growth that would make a collaboration remotely interesting is basically impossible given that you have to be spending big money 18-24 ahead of getting paid on sales, and need pretty much 100% of your COGS to be in hand 6+ months of getting paid on sales.

Don't have a preconceived notion about the kind of business card your backer should carry. In particular, the "angel vs. VC" thing is less important than it once was. The well-established Bay Area angels that will give you credibility pretty much are early stage VCs these days, albeit a little more seat of their pants than Sand Hill Road types. Unsurprisingly, VCs have become much more aggressive in finding the kind of seeding opportunities that the blue-chip angels once had for themselves.

If you're not ready to raise capital or lack introductions, you can try to bring on board someone with senior executive experience in a large firm, or (as you say) someone who has been a lead member of a team that has raised significant early stage venture capital at least once before.
posted by MattD at 12:55 PM on September 18 [2 favorites]

It sounds like what you need is mentor/consultant/board member who has experience taking things from the prototype phase into a full company with a robust product with a full set of services backing it up (quality control, customer support, sales & marketing to name a few). At some point, not sure if it will be before or after you find your advisor, you will want to bring a business person on board who knows all these parts that you have never had to deal with before. This new person will be able to use their own network to help you find the connections needed to get to the next level.

Also, when you think about networking, it's not really about who you know, it's about about the second order network - who do the people that you know know that could help. Do you have a cousin who went to a prestigious business school? The ex-roommate of a friend who was early in with a successful start-up?
posted by metahawk at 2:32 PM on September 18

You might want to take a look at a little book called "Fundraising" by Ryan Brewslow, a young founder of a number of companies.

Also, I'd be happy to see if I can give you any useful more specific feedback if you PM me. I have a good amount of experience in hardware and software product and business development.
posted by Dansaman at 10:16 PM on September 18 [1 favorite]

So working with people in your position is my profession.

The thing about taking someone's money, is that you now have an obligation to them and their returns. So it's worth considering under what circumstances you are willingto take on that responsibility. If at all.

I think you are trying to solve the problem of being taking seriously by potential clients of a large size, and you are feeling that having a known investor would help. Is that right?

Sizable clients are concerned with these things
+ Are you on systems that are scalable with very little downtime
+ Are you going to stand the test of time
+ Are the defenders of this deal going to be embarrased that they signed up with you and hear "why didn't you go with a known name?"

If I bring you into a large organization I'm taking a career risk. You gotta help me with that.

You having an investor doesn't change my feelings on that.

One thing you can make sure to do is have your systems running on known good servers and data centers, and be able co-opt their uptime policies, privacy policies, data redundancy guarantee, etc.

The other is to have someone in your corner who has the experience getting into big corporations, and it helps to have someone who is or has affiliation with a big name.

As the comments above say, it sounds like you could use some help interacting with the larger companies.
+ An experienced investor or investment firm might bring that to the table.
+ So might an experienced Enterprise Sales professional.
+ So might a paid board member with an impressive background.

All that to say, getting an investor (with the right resources) is one of many ways to succeed in your goal here.

Oh, and how to find investors... lookup known VC firms and identify the folks responsible for your type of tech in the firm, find their Email or LinkedIn, pitch 'em

If you want to chat, shoot me a message

Good luck!
posted by jander03 at 2:23 PM on September 19 [1 favorite]

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