Tech Startup Funding Advice

[Davlaa]

Good Evening,

Firstly, thanks for taking the time to read my post, and for those that do, thanks for providing your advice...

I have a business idea that I've given a considerable amount of thought, and having spent the last 6 weeks researching, I'm certain it's a goer. The issue is it's a tech business, and I require significant funding to get it off the ground. I appreciate tech startups are high risk, so understand the difficulties here.

I'm certain that most people will agree it's a great idea and will really take off, once I've disclosed the full details to them. The issue I have, and my need for advice, is how to attract funding without giving the idea away? Currently I'm unable to find anyone currently doing this so I don't want to give my idea away to joe public. I'm confident in the idea as I was approached by someone else to develop it for them (they currently spend in the region of £225,000 on the service they want to turn "tech" and by doing it through tech this spend would reduce slightly to around £150K - £175k).

So the nuts and bolts of it are, I have an idea, I have a need for my idea from two different businesses (there are many other businesses that would probably follow very quickly) and am confident in achieving sales of around £200k in year 1 from these two customers alone, at a margin of 46%. I am very confident this would be a very fast growing business.

Where/how would you advise I attract investors without having to publicly give away the details? Obviously I'm happy to fully disclose to serious potential investors, but crowd funding type sites require you to provide more information than I'm happy with as part of your initial pitch.

I look forward to hearing your ideas, and thanks in advance.

 

[Clinton]

I'm certain that most people will agree it's a great idea and will really take off, once I've disclosed the full details to them.

Don't count on it. I've heard hundreds of pitches for tech startups and I have never agreed on the idea being great.

Ideas are worthless, the money is in the implementation.

The issue I have, and my need for advice, is how to attract funding without giving the idea away?

Rule 1: Be less precious about your idea; it ain't that hot.
Rule 2: The investors make the rules and they'll want to see details (and they won't sign NDAs)
Rule 3: 1% of convincing the investors is convincing them the idea will work. 99% is convincing them you're the person who can deliver it.

I'm confident in the idea as I was approached by someone else to develop it for them...

Please see my earlier comments about the idea.

Where/how would you advise I attract investors without having to publicly give away the details?

You need the FFF route - friends, family and fools.

 

[obscure]

+1 to what Clinton said.
People won't steal your idea because...
1. It isn't as good as you think.
2. It is as good as you think but other people won't think it is.
3. They do think it's a good idea but don't have the skills to make it happen.
4. They do think it is but they don't have the money to make it happen.
5. They have an idea of their own and think that is better than your idea.
6. If the idea is that easy to steal then someone will do so as soon as you launch anyway, so at best you will have a small head start.

Conclusion
You are going to face competition one way or another. If you don't already have a plan to beat that competition then you really shouldn't be bothering at all. If you do have a plan to beat the competition then excluding sources of financing makes no sense as it just reduces your chances of getting the idea off the ground at all.

 

[Clinton]

If the idea is that easy to steal then someone will do so as soon as you launch anyway, so at best you will have a small head start.

If the idea is that easy to steal then someone will do so as soon as you launch anyway, so at best you will have a small head start.

Just thought I'd say that again because entrepreneurs who think highly of their idea hardly ever consider this or appreciate how investors think. Many pitches make absolutely no mention of what the barrier to entry is and/or how they'll establish early market dominance to prevent or frustrate competitors from getting off the ground.

 

[Tim Grindley]

As somebody in an even more extreme position, that of having the idea but no way to get it off the ground, is it possible to get an investor to sign a contract that says that if they do the idea then I will get 50% of the results before we discuss the idea.

That is it would be, as I see it, a no risk position for them to take, which would then allow me to disclose the idea to them. As an ideas man I don't see a down side from their point of view.

What am I missing other than just the standard hard nosed negotiating position stuff?

 

[Clinton]

is it possible to get an investor to sign a contract that says that if they do the idea then I will get 50% of the results before we discuss the idea.

No.

I don't know why wannabe entrepreneurs struggle to understand this. The idea is worth diddly squat. If ideas are worth even a quid each, come on over one day and bring a million quid with you because that's how many ideas I have. Don't kid yourself that your idea is superior or clever / unique enough to be worth more.

The idea is less than 1% of the deal. 99+% is skill, knowledge, capital, contacts, time, blood, sweat and tears.

 

[The Byre]

People come to this forum on an almost daily basis, asking the same question. "I have an idea, but no money - now what?"

Imagine you are a movie producer. People pester movie producers all the time with ideas, treatments and scripts. All they want is to see pitches. They don't want to be bothered with any of the other crap.

A pitch is the full nine yards. It is the idea, the tag-line, the script, with shooting schedule, fully budgeted and with (and this is the IMPORTANT bit!!!) with a letter of intent from a star and a director. In fact, those letters will swing a deal without even so much as a script!

Then and only then, can the producer go to a distributor and a studio and start talking about money, timings and dates.

So you've got the tag-line (aka idea) - whoopee! Imagine how many tag-lines are circulating Hollywood! One million? Two million? Ten million? More?

Now comes the sobering part - so you've got a script, a $20m star and a $10m director and you recon you could make this movie for $100m. The studio is happy at one hundred. The distributor pulls a face - "So two hundred, all-in!" he says.

Wow! The price has doubled! What the F happened? What made the cost double, just like that and without warning?

Answer - Marketing.

And movies are tame, compared to software. Software thinks in terms of multiplying by ten and not just two!

 

[Tim Grindley]

No.

I don't know why wannabe entrepreneurs struggle to understand this. The idea is worth diddly squat. If ideas are worth even a quid each, come on over one day and bring a million quid with you because that's how many ideas I have. Don't kid yourself that your idea is superior or clever / unique enough to be worth more.

The idea is less than 1% of the deal. 99+% is skill, knowledge, capital, contacts, time, blood, sweat and tears.

I understand that there must be a blizard of crap coming their way but I don't see why signing a contract which will not cost them anything if it does not happen is such a stumbling block.

I have to have some sort of property rights to the idea to talk about it.

 

[The Byre]

No sensible person signs an NDA on some vague idea, because that leaves the door open to legal action if they do something similar later.

It's (again) like a movie producer. There are ten basic movie plots, such as buddy-love, monster-in-the-house, ensemble, etc. Now imagine if that producer were to sign an NDA on one of those. A few NDAs down the road, he would not be able to make another movie ever again!

 

[Clinton]

... but I don't see why signing a contract which will not cost them anything if it does not happen is such a stumbling block...

Because ...

1. They don't need to.

2. They don't want to deal with people who demand NDAs .Those people tend to think their idea is worth millions (and are therefore difficult to do deals with).

3. Like @The Byre said, the idea has been done before or it partly overlaps what someone else is planning. If I've seen 100 pitches and signed 100 NDAs, you really want me to keep track of what your particular idea was and make sure none of the future business opportunities I investigate overlap in any way, shape or form with your idea? Seriously?

I have to have some sort of property rights to the idea to talk about it.

Why? It's an idea, it's not worth anything! People seem to be really struggling to understand this!

If you have actually done some work worthy of having a value - rather than coming up with an idea while sitting on the loo - create a prototype and go patent it. Or write the software and go copyright it.

 

[Psl]

Protect your idea. Then go and get advisors - accountant and solicitor. Explore the SEIS route to get upto £150k funding and get advice on EIS as you will need more money. Once you have the basic advisors in place, created a detailed business plan, you will be taken much seriously by any investors.

You need to be able to fund this first part youself, or from friends and family.

 

[garyk]

Some great advice already given but I can't stress enough you need to drop this concern over someone copying your idea. You need to get it 'out there' to determine commercial viability before anything else.

One other thing the fact that nobody else is doing this is a bad thing, not a good one. It *potentially* means that it has been tried and failed as it wasn't viable, you need to do alot of research.

 

[Tim Grindley]

Protect your idea. Then go and get advisors - accountant and solicitor. Explore the SEIS route to get upto £150k funding and get advice on EIS as you will need more money. Once you have the basic advisors in place, created a detailed business plan, you will be taken much seriously by any investors.

You need to be able to fund this first part youself, or from friends and family.

How do I protect an idea that is not a "better mouse trap"?

I understand how an invetive step is required to patent an invention but if it is just essentially a method of presenting information, even a style of doing it, that is already public domain how do I get any sort of ownership over it?

As I have explained once I explain it there is little to stop others from just doing it. And yes I know it is sounds like the guy on Dragons den with a short pencil.

The idea is clearly of it's own and would have no (very little) similarity to other stuff out there.

 

[Mr D]

No similarity.
So no idea if it is a good idea. Or a bad idea.

Bringing to the market a different version of something already known and with demand is a lot easier than something for which demand has to be generated due to being unknown.

 

[Clinton]

Do the development, then go for registration.

You. Can't. Register. An. Idea.

 

[Psl]

How do I protect an idea that is not a "better mouse trap"?

I understand how an invetive step is required to patent an invention but if it is just essentially a method of presenting information, even a style of doing it, that is already public domain how do I get any sort of ownership over it?

As I have explained once I explain it there is little to stop others from just doing it. And yes I know it is sounds like the guy on Dragons den with a short pencil.

The idea is clearly of it's own and would have no (very little) similarity to other stuff out there.

Clinton is right - develop it and then protect it. I should have clarified that, sorry.

 

[Rhysk]

A strong brand that's hard to replicate might be quite good protection if your idea can be very closely tied to the brand. If you had invented some kind of hybrid heater/entertainment device you could call it the "radioator". Even if someone had your idea and the means to replicate it, they'd struggle to market it if you already had the logo, domain name, trademark, etc (none of which are expensive).

 

[Tim Grindley]

2. The Agreement does not provide an absolute guarantee that disclosed information will be protected. It just serves to give each of the parties the right to injunctive relief or a monetary remedy, if in breach. If you do consider that *** will be likely to disclose Confidential Information of value then please do bear in mind that as the Agreement is to be entered into with an individual, any financial remedy would be limited to the value of the individual's assets which are currently unknown to us.

Is this a normal clause to attach to a none disclosure agreement?

It sounds like a complete get out clause for the other side to me. I sounds like it makes the NDA not worth anything at all.

Am I being paranoid?

 

[Clinton]

... sounds like it makes the NDA not worth anything at all.

Er, most NDAs are worth nothing at all. People think NDAs will protect them from disclosure. They don't. If a party violates the terms of the NDA the chances are that you'll not know about it. Even if you do, the costs of taking them to court are prohibitive.