Should I Start By Seed Funding My V1?

vA common mistake made by software startup founders is to pursue seed funding a v1. Investors are both weary and wary of such an approach, which often goes like this:

1. Startup founder has an idea.
2. Startup founder bootstraps (self-funds or obtains funds from friends, family, or associates) enough to do basic R&D.
3. Startup founder finds early investors interested in mobile or software and shares vision and skeleton plan in order to obtain enough funds to build their v1 (first version or version 1) app or software. Rinse and repeat until the startup obtains funding.
4. Startup founder brings together a team to build a v1 app based on the objectives delivered to investors.
5. If, during the build process, it becomes apparent the app cannot succeed (countless potential reasons for this), considerable funding is already lost due to the expensive build process. If not…
6. The app launches, and the market either loves, hates or is indifferent to it.

Seed funding their v1 is why the majority of software startups fail. It’s also why many investors either limit their funding amounts or step back altogether from funding software projects. Building a v1 is expensive, and the risk of failure is great.

What if we could tell you how to mitigate that risk before you outlay considerable funds (and stretch your investors’ trust) with a v1? Below we’ll address flaws of the above process and then suggest a better approach.

Flaw #1: Basic R&D

What do you think of as the minimum amount of research you need to prepare to obtain seed funding from investors? Unfortunately, most startup founders are on opposite ends of the spectrum, either leaning too heavily on the flash of their idea with not enough research to back it or getting stuck in a research hole that drains funding and life from the project before even attracting funding. The perfect balance is difficult to achieve.

Flaw #2: Funding Difficult to Obtain

Funding a v1 is costly, and getting investors to put up enough funding to build the v1 is challenging. It’s much easier to get a smaller amount, but when you start going after larger funding, expect the process to be rigorous.

Flaw #3: Learning While Building

Once funding is obtained, most startup founders lead their team right into development. This means that teams are planning and building simultaneously. Learning “on the fly” or in response to a feature or series of features that has already been built leads to reworks. Too many reworks can bankrupt a software project. Investors do not appreciate when a startup founder has to come back for more money before the project is even launched.

Flaw #4: Launching with Limited Clarity

Getting funding on the premise of building a v1 app doesn’t leave much time for the kind of up front idea validation, market research, understanding the competitive landscape, end user research, testing, and clarity development required to build a minimum lovable product (MLP). If you’re shooting for anything less than a minimum lovable product for the end users, you’re likely to end up in the failed category.

There’s a Better Way (and it’s Less Expensive!)

We aren’t here to rewrite the process – we’re actually suggesting you throw it out. Startup founders are getting ahead of themselves when they go after funding for the v1 before they’ve achieved product clarity. Instead, they should go after a small influx of seed funding 

This is more effective, because:

• Smaller investments are more palatable, which increases the potential funding pool
• Investors are more willing to part with a smaller amount to gain better clarity
• Risk reduces and chance of market acceptance grows as clarity increases
• Build process is smoother and more predictable from a cost perspective

Skip Seed Funding a v1! Fund an Innovation Lab Instead

Instead of seeking far larger investments for building a v1, consider going after just enough funding to pay for an Innovation Lab with ENO8’s experienced team. With the clarity we’ll help you achieve in the Innovation Lab, you will be

• In possession of a clearly outlined path from your idea to execution
• Equipped to obtain funding for the whole project
• Confident in your detailed development and launch plan
• Clear on projected costs instead of guessing
• Better able to enroll investors, a team and ultimately end users in your software vision

After working with numerous successful startups that have gone on to raise millions of dollars, the ENO8 team has the process of gaining clarity down pat. For an example of some of the many questions we’ll help answer in the Innovation Lab, look at the list in this blog, Your Startup Won’t Fail from Technical Issues. This is just some of the full illumination of clarity you’ll take from the Innovation Lab. Learn more about the Innovation lab here. 

Contact us to learn if the Innovation Lab is right for you (it is) and how it will prepare you to go after (and appropriately allocate) the big bucks.