My app has 5 to 10K sign ups. When do I start looking for investors? How do I know when I need investor money? I'm waiting (what feels like forever) for the first company to finish test-running it before deploying to 19 grocery stores and more. |
My app has 5 to 10K sign ups. When do I start looking for investors? How do I know when I need investor money? I'm waiting (what feels like forever) for the first company to finish test-running it before deploying to 19 grocery stores and more. |
Investment makes sense (and you'll get a much better deal from investors) when you have recurring revenue AND you have to grow fast to the next stage (e.g. from a small team of 2 to a team of 5-10, from a few servers to many, from a local office to globally, from self-serve online sales to face-to-face B2B/Enterprise sales for which you need sales people etc.)
In short, evolve organically and delay outside investment until absolutely necessary for rapid growth.
Maybe you don't need investor money. If you don't need it, you probably don't really want it. The purpose of a business is not to raise money from investors...well maybe if you're running a con, but that's another story.
I suggest you create a simple financial plan. In Excel or Google Sheets, put months along the top, and each line item of expense along the left. Do it on a cash flow basis (i.e. book revenue in the month when you will receive the payment, not when you make the sale).
You can then total up each column to see your net cash in or out in the given month.
Then think about what could make you need more cash. Need to hire some sales people? Possible delays getting paid by customers? Need to scale up infrastructure before the related revenue will come in?
If you want to do this 'properly', all of the numbers in the main body of the table will be formulae, driven by a small set of assumptions (start dates and salaries of key employees, starting # customers, customer acquisition rate, monthly churn %). Then you can play with these assumptions to find your pessimistic and optimistic cash flow scenarios. This will tell you how much cash you need and when, for the most-cash-hungry scenario.
Then work backwards based on how much time you think it will take you to raise money, and when you can afford to spend the effort to do that.
If it's the first time you're putting together a monthly budget or financial model, then start simple. Don't worry about highlighting every input cell in yellow. Just make sure the big numbers make sense. Make 2-3 copies of the sheet (one for each scenario) and adjust manually to something that looks reasonable to you.
I would recommend bootstrapping as long as you can. Then take investment in the future only when you really need it to scale things up, bring on employees, roll out version 2 of your app.
The longer you wait the more likely you are to maintain a larger percentage of the business when you do take funding.
Good luck in 2015, sounds like things are going well.