One of the key attributes of many startups focused on an online offering is that you really can make it a long, long way towards your actual customer offering on very little money. This presumes you can either do the technical work yourself or have a close, understanding friend to help out. The other alternative is to get outside help (an individual contractor or firm) but this costs real $$ unless you can craft a way to do it in exchange for equity, presuming you have your company, cap tables thinking and documents far enough along to be able to do this formally. But that's for a different post! My post today deals with the timing of seeking investment when you are developing this kind of startup.
So, you've been able to get your idea down on paper and have at least an outline of a project plan to work against. And, you've found that very understanding friend to help at night and during the weekend. Next stop -- quit your job? Write a business plan? Fundraising? You're excited enough about the idea, as are your friends and family -- at least enough to convince you to "go for it". Can that excitement and some mock-ups in PowerPoint get you in front of investors?
Maybe. But that would be a mistake, in my opinion. Given the stage the business is in (really still at the concept stage), most savvy investors outside of friends and family will see a lot of risk still inherent in your deal. My advice would be to keep your day job and get the product underway -- as far along as you can while still garnering an income. By this I mean get your web offering developed and in front of real customers so you can both test its appeal as well as test your business model. Google analytics provides a great facility to better understand what visitors are doing as they come to your site. As you gain knowledge from this data and elsewhere (through things like focus groups), you will need to make iterations to your code and site and do it quickly. If you have the bandwidth from a development standpoint, you should be updating your site at least weekly.
These iterations should allow you to connect with your audience in such a way that you can either charge them, charge advertisers, or both in order to begin to see some revenue. If you've gained enough traffic to do either, then you may be at a point to be able to secure funding. As I stated earlier, since investors will want as little risk as possible, showing an increase in traffic and your vital metrics will give them hope. One thing that has drastically changed recently, for the negative, are advertising based models. Since the economics of these are such that HUGE traffic is needed to show viability, sites that count on advertising as their only source of revenue will take longer to gestate. I don't say this to discourage anyone -- just to get the point across that it may take more time for these kinds of sites to be ready for an investor to see the growth curve they want in order to be comfortable.
If you can stay lean while you iterate and find that growth curve (it took YouTube a while, after all, before they found their "hockey stick" of growth trajectory), you can make it in the long run. Any time you have an audience that is large, growing and enthusiastic about your idea, advertisers will come around eventually, as will revenue. Twitter is another great example of this, i.e. no real revenue yet but they still manage to garner great support from investors as they work out their revenue model.
It's all about the product offering -- make it compelling, prove it with metrics and with even a small amount of revenue that proves the model, you should be able to find an investor attracted to your "near-proven" idea. These basic statistics will help take a lot of risk out of the deal for them.
John Dearborn is the Chief Development Officer of JumpStart and brings experience as an entrepreneur, founder and CEO at companies across the US and Europe over the last 25 years to the pursuit of economic transformation in Northeast Ohio.