Funding is the Means, not the End

I had a conversation with a colleague recently who is considering running after a couple of ideas that they have in the Web 2.0 space. It brought us to the question about business/product direction in light of getting funding. I thought it would be good to share here - specifically concerning funding as the means to an end, and not the end itself. Here's the dialogue:

Having put some more thoughts, I am also inclined to think if I really need full fledged product development (even prototype) or just have content with mock-ups for investor presentations. Mock-ups will be much cheaper and UI-wise a better presentation (for the graphical impact). Having a prototype where it's half-working functionality might have a negative result.

Thoughts?

A standard dilemma in the startup world. What do I do first? How do I get what I need to move the business/product forward? My reply:

Hi there,

It really depends on the answers to a few simple questions:

1) What type of investors are you going after? Angel, VC, friends, or family? You should know specifically who you will contact and why. How much money are you asking for in each case? This also will let you know what other types of business artifacts you will need - executive summary, business plan, financials, etc.

2) What are the key requirements for that particular investor? If it's angel or early stage VC, you may get by with mockups. However, as short as today's Web 2.0 product development cycles are, many VCs (depending on where you live) want to see more - users, paying customers, management team, etc.

3) Is there are paths that exists for your company(s) without outside investment? If you are set on implementing your vision irrespective of what your funding options are, then you are faced with an entirely different business decision. If there is a remote possibility this path exists, then my opinion you need to manage like you're not getting any funding; that is, take the shortest path to revenue/customers.

Lastly, if you are not convinced of #3, I would question whether your efforts will be successful. What I mean by that is that if you are building your businesses just to receive funding, it doesn't seem likely (at least in my experience) that you are preparing to build successful businesses. In other words, funding is a means to an end, not the end itself.

HTH,
CP

Thankfully, my colleague has some good ideas about how to move forward. But this level of introspection is critical to the startup process. It's also a good way to vet out of your idea has merit beyond funding. Create something that prospects and customers can associate with and pull on... not just something that you'll shop around, but something that will change the world.

As cheap as it is to get started these days - get going, get users, get revenue!