Selling membership as a way to raise money

[xfurrier]

Two of us are launching an IT (SaaS) startup, and there is interest from friends and family to support the startup. We'll will work on a prototype over next 6 months and will try to fundraing.

Rather than taking loans and/or giving away shares to f&f (there are reasons why we cannot do that), we were thinking of advance selling lifetime membership for our service as a way of collecting money from f&f. Is that's a good approach? What other alternatives do we have?

 

[Mark T Jones]

Essentially rewards-based crowd-funding

Firstly, run your numbers to be sure it actually makes financial sense - it will need to be heavily discounted

The trade off is that you will be putting loads of effort into 'building your crowd ' rather than building your business. It is a much harder sell (for obvious reasons) than subscription or PAYG

 

[fisicx]

How much money do you need to develop the product?

Multiply this by 10 to cover initial marketing cost.

Then add another chunk to cover ongoing costs and insurance.

Work out the true first year costs and then how many subscriptions you will need. I suspect it’s not going to be a viable method.

Can you get a second job and save every penny to raise the capital?

 

[ethical PR]

Two of us are launching an IT (SaaS) startup, and there is interest from friends and family to support the startup. We'll will work on a prototype over next 6 months and will try to fundraing.

Rather than taking loans and/or giving away shares to f&f (there are reasons why we cannot do that), we were thinking of advance selling lifetime membership for our service as a way of collecting money from f&f. Is that's a good approach? What other alternatives do we have?

What reasons do you have for not giving away equity?

 

[xfurrier]

Initially, we won't need marketing. The whole business cannot succeed without a good and well-placed investor - it's the nature of the business and the environment where we would operate in. At that stage a substantial marketing budget will be required, but that's not a worry now.

There are a few f&f who want to support us and will be happy to buy lifetime subscription, even knowing that things might not work out / they might have to wait for a year / alike. So, there won't be any pressure from them.

I presume the investors will see these advanced memberships/subscriptions as something positive, that there is interest and need for the service.

 

[Mark T Jones]

Initially, we won't need marketing. The whole business cannot succeed without a good and well-placed investor - it's the nature of the business and the environment where we would operate in. At that stage a substantial marketing budget will be required, but that's not a worry now.

There are a few f&f who want to support us and will be happy to buy lifetime subscription, even knowing that things might not work out / they might have to wait for a year / alike. So, there won't be any pressure from them.

I presume the investors will see these advanced memberships/subscriptions as something positive, that there is interest and need for the service.

FF & F - the easiest money you will get. Definitely take it, but don't kid yourself it's a reflection of the market.

 

[fisicx]

Get a second job, borrow money, sell the Xbox. Raise funds by any means possible. The subscription model isn’t really an option.

How much do you need to build the MVP?

Investors will want to see this before parting with any cash. And they will want equity.

 

[xfurrier]

FF & F - the easiest money you will get. Definitely take it, but don't kid yourself it's a reflection of the market.

Of course it's not a reflection of the market - I get that. However, it could be presented (to some extent) like that, although I'm not putting many eggs into that basket.

Some of the friends benefitted from our idea/service already and they encouraged us to take it a step further. They are willing to part with some of their cash as a little thank you.

 

[xfurrier]

Get a second job, borrow money, sell the Xbox. Raise funds by any means possible. The subscription model isn’t really an option.

How much do you need to build the MVP?

Investors will want to see this before parting with any cash. And they will want equity.

Already got 3 jobs and Xbox has never been my thing. The idea is to drop these 3 jobs and have a proper go at this new project. If it work, great. If not - back to 3 jobs.

With an idea, a prototype within 3 months (to prove that we can do things quickly and well) and a (small) number of subscribers, we should be OK-ish, I believe. Then, we'll be finishing and polishing the prototype (months 3-6) and we'll start seeking investors (months 3-6).

We'll find out very quickly if this is going to work or not. The longer runway, the longer we'll have to find the investors. We're aiming for 6 months minimum runway using f&f (no fools).

As for investors / marketing / team / etc - all understood. They'll be getting their equity, marketing will eat a lot of money, ... All that later on.

 

[fisicx]

You still haven't said how much to build the MVP?

Are you doing the dev work yourself or outsourcing?

 

[xfurrier]

MVP will be done by the two of us, both with IT background. 6+ months, 60-80K. That's for the prototype service / app / platform.

We've got a few very grateful ppl happy to get our lifetime subscription (10K).

 

[fisicx]

This is where it gets a little confusing. If you are doing all the work why do you need funds?

Congrats BTW for getting ppl to give you money.

 

[ethical PR]

Initially, we won't need marketing. The whole business cannot succeed without a good and well-placed investor - it's the nature of the business and the environment where we would operate in. At that stage a substantial marketing budget will be required, but that's not a worry now.

There are a few f&f who want to support us and will be happy to buy lifetime subscription, even knowing that things might not work out / they might have to wait for a year / alike. So, there won't be any pressure from them.

I presume the investors will see these advanced memberships/subscriptions as something positive, that there is interest and need for the service.

I think you've missed the point . You will need a marketing budget to promote your business so when you fundraise need to take this into account

 

[Porky]

The whole business cannot succeed without a good and well-placed investor - it's the nature of the business and the environment where we would operate in. At that stage a substantial marketing budget will be required, but that's not a worry now.

Hmmm,,,, if I were you before you start building anything I would at least be estimating costs and route to market for this project. Frankly, the building of the tech will be the easy part, finding your “well-placed investor” and “substantial marketing budget” not so. I fear you are underestimating the challenges on the horizon.

 

[Mark T Jones]

I'm not entirely clear in the order of events in your mind here - have you done a proper, researched business plan, with projections?

By business plan, I mean a concise document that demonstrates how you are able to (verifiably) grow the business to give them the type of return they are looking for?

Will they be impressed that your friends put in money? No. But they might be impressed with what you have achieved with their money.

If investment is fundamental to your business, it will benefit you to set it up from day 1 as an investible proposition, not 'you & your mate having a go'.

 

[xfurrier]

I'm not entirely clear in the order of events in your mind here - have you done a proper, researched business plan, with projections?

By business plan, I mean a concise document that demonstrates how you are able to (verifiably) grow the business to give them the type of return they are looking for?

Will they be impressed that your friends put in money? No. But they might be impressed with what you have achieved with their money.

If investment is fundamental to your business, it will benefit you to set it up from day 1 as an investible proposition, not 'you & your mate having a go'.

Yes, we've done a proper business plan, projections, preparing the pitch deck, etc. And, we believe it will be interesting to the investors. The idea of the first stage it to put ourselves in the best possible position when we talk to the investors.

 

[xfurrier]

Hmmm,,,, if I were you before you start building anything I would at least be estimating costs and route to market for this project. Frankly, the building of the tech will be the easy part, finding your “well-placed investor” and “substantial marketing budget” not so. I fear you are underestimating the challenges on the horizon.

It's the first time we're doing something like this, and there is always "a possibility" (read certainty) that we are underestimating the challenges. However, we believe in this, we are keen to learn and adjust as needed.

 

[FriendsInvest]

Initially, we won't need marketing. The whole business cannot succeed without a good and well-placed investor - it's the nature of the business and the environment where we would operate in. At that stage a substantial marketing budget will be required, but that's not a worry now.

There are a few f&f who want to support us and will be happy to buy lifetime subscription, even knowing that things might not work out / they might have to wait for a year / alike. So, there won't be any pressure from them.

I presume the investors will see these advanced memberships/subscriptions as something positive, that there is interest and need for the service.

that's absolutely right!

Try bootstrapping as much as possible without getting external funding and selling your membership in advance 1) shows people will pay for it and 2) gets buy-in from early customers who pay for it to give proactive feedback whilst you build, which will make the product even better when it actually launches as MVP.

VC/angels/professional investors will always like seeing sales even though nothing exists and validates your first assumption that there is a paying need!