Programmer gets investment: our experience
Not so long ago we went through the stage of receiving the first venture investments, therefore we would like to share our experience in preparing a project for investments. Previously, I talked about the emergence of ideas and published a step-by-step guide on what needs to be done before searching for investment.
The university is taught to speak professionally, but often it is not clear for the layman. The essence of the idea for an investor must be formulated so clearly that even grandmothers understand. And it’s good if you can describe not the technical side of the issue, but the value for customers, or the business component. Because only this way you will prove to the investor that your project is clear to the consumer and has a chance of success. Before we decided to look for investments, we had purely technical projects implemented on our own, and this is how the ideas were formulated: “a software and hardware complex designed for the rapid generation of distributed systems for processing, recording and analyzing data.” To look for an investor with such a formulation of the idea is an unpromising business. Even in a business incubator, everyone sat with their eyes like saucers and did not try to get to the core of the product with simple examples.
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The fact that you need to know your competitors, does not say just lazy. However, as practice shows, the phrase “I have a unique product and no competitors” is still popular. Do you have a restaurant service? Take other services for restaurants. If it was not possible to find data on the revenue and market volume of systems implementing the electronic menu, then surely there will be data on other services for restaurants. For the investor, the phrase “We have no competitors” is an excellent marker of the applicant’s incompetence and a reason for refusal.
While working on projects to order, both as an employee and as the head of my organization implementing the order, I realized that the simplest prototype not only does time faster than a pile of documents, but also works much better, which I mentioned in the last article. We created a functioning prototype in less than a week, having decided for ourselves a lot of questions and problems that arose. This helped us better understand the service and more accurately predict development. We used a similar approach to create a full-featured mobile application, which can significantly reduce the likelihood of major changes in the structure of the application and its interface in the future.
LLC InnoTrio was created by me, together with a girl, back in 2010, while still studying at MSTU. N.E. Bauman. The company gradually developed at its own expense and through contract development. When we realized that there was an idea of ​​a business that is relevant and in demand, and it can be quickly brought to the market only if there is a smart investor with experience and finance, then we started the search. In my opinion, excessive money at an early stage can greatly harm a startup, because All cardinal changes always take place in conditions of limited resources and a looming crisis, when we need to strive for real payback, and not to implement KPI to “eat away” the next round of investments. However, a smart investor with experience will be able to show opportunities that you could not even guess, or dispel erroneous theories on the basis of which certain predictions were made. Do not underestimate timely financial support, because If you continue to implement the idea in the market at your own expense, then by the time you launch the first working prototype, your competitors will already have a working business, a rapidly exciting market.
They often talk about taking a loan, instead of getting an investment. If you are sure that you are looking for a _only_ financial instrument, without any synergy with the investor, then yes, of course, you can put the loan on the same level as the investor and choose for financial gain. I am convinced that novice startups need the support of experienced investors. However, it is the support, not the a priori guide, since no one knows the idea of ​​the project better than the founder. In my opinion, an essential component of support may be the brand and business connections of the investor. That is why I think that the choice should be mutual: both the investor should be comfortable working with the team, and the team with the investor. Do not take the first money in a fit of euphoria. If you became partners with a person, giving him even 50% of the company, worth 1,000,000 rubles, and thanks to joint efforts, the company began to cost 100,000,000 rubles, instead of the expected 10,000,000 rubles, then both of you are in a good plus .
We had the experience of receiving one of the state grants - from the Foundation for Assistance to the Development of Small Enterprises in the Scientific and Technical Sphere (Bortnik Fund) - a couple of years ago. When receiving a grant, efforts to prepare primary documentation, financial and scientific interim, and even more so final, reporting are spent in proportion to the rest of the project work. If not more. There are also tight salary and cost limits. And you can not spend less, and you can more, but it is better to strictly go to zero on the financial statements. If the cost structure changes even for a ruble, you need to make changes to the contract, sign a new estimate, etc. etc. Also, projects such as 47 restaurants, as a rule, do not fall into the interest of funds engaged in grants, since usually the project should be a scientific novelty. Therefore, venture investment allows you to solve emerging issues much more efficiently, focusing on business problems, rather than on a pile of statements.
When developing the “47 restaurants” project, we focused on the monetization model with a subscription fee of connected restaurants, based on which we made the calculations. When you start the test operation, it became clear that many players in the market are trying to work this way. It also became clear that this approach significantly reduces the potential market. Significant adjustments were required, but this is normal, and there was already something to start with in new calculations and forecasts. The main thing is to understand in time that they are needed, and without control points in your own plan this is not possible.
The first round of sowing investments is usually an amount in the region of 1,000,000 rubles, of which even a company of just a few people will last for a maximum of six months. In this case, the receipt of money, of course, accelerates product development, but increases the amount of work. During our six months, we became familiar with the nuances of taxation of IT companies, working with employees like individual entrepreneurs, drafting various contracts on their own, got into contextual advertising, promotion, display of applications in google play and app store (I didn’t even expect so many artificial difficulties, comparison with google play, which must be solved before you can send the application for review). In this case, the founders salary was 25 000r per month. The question of finding adequate employees, from developers to sales managers, was also a non-trivial task. By the way, Habrovsky hantim showed itself very well for IT. And this is not to mention the coordination of development, basic code review, development, choice of hosting, administration, configuration and display releases. This is despite the fact that the team we have gathered is small but cool, and people are very literate, who can be relied upon not to control over trifles. Thank you, colleagues! In general, as teachers said in Baumanka, a day is three working days.
It is widely believed that when an investor joins, even for a small amount of investment, the investor will immediately “wither” almost half of the company. And if not “wiped out” - it means “gave little” (comments of friends). We also met with investors who wanted to get a controlling stake at the first stage for a couple of hundred thousand rubles. Unfortunately, I cannot tell the exact details of the contract with Qiwi Venture, but at the first stage the share transferred to the investor is less than the next ones. At the same time, even after all three stages, it remains possible to keep the controlling stake in the company in the hands of the original co-founders, subject to a number of conditions.
When creating a company, an active person joined the university business incubator six months after the start of the project, an active person who participated in just a few weeks, who insisted that there were three of us, then when registering a legal entity. all persons should have 33.3% of the company, despite the previous work and the authorship of the idea. Then, for the first time, we were confronted with the concept of the conflict of the co-founders, well, that even before making rash decisions. Then I realized that the development vector should be defined by one person, as well as be responsible for it, but without partners it will be several times less effective. As a programmer with experience in project management, it was pretty clear to me what to expect from developers and how to work out a comfortable work for all. Finding a sales manager was more difficult, but I can proudly say that we had a great team when people are interested in the product and can rely on each other. Problems happen, but everyone is interested in their early elimination.
I was also told by the university that a quality presentation is often valued more than the work itself; colorful advertising, rather than the product itself; interface, rather than speed. This breaks the techie pattern a bit, but it needs to be understood and accepted. If the executive summary turns out to be done in a few hours, in the presence of calculations, materials and due skill, then it is necessary to work with the presentation. There should be two. One for email, such as a commercial offer, which does not require accompanying oral comments from you, and the other for presentations. It is necessary to hone both, because they must attract attention, remain informative, but be extremely compact. Usually, my wife and I make the main frame of the slide, and then we begin to squeeze it, removing everything that is superfluous and rehearsing. Always need a view from the side, because even the most harmonious presentation falls apart on what is obvious to the person who wrote it, but it is absolutely incomprehensible to the one who sees it for the first time.
I have never looked specifically for specific funds. Periodically I talked with some representatives, read articles on various resources and learned information from my colleagues, especially I never made fan mailings. True, I have been told many times that representatives of funds receive letters, where even emails from other recipient funds are not hidden. Employees of venture funds immediately send them to the trash. Also, many, due to the large number of incoming letters, accumulate hundreds of unread messages, as a result of which some applicants will not even get an answer. It turned out well that when we made the decision to look for investments, I came across information about Qiwi Venture and their strategy and focus. Comparing their priorities and ours, we realized that they were suitable for us at first glance, so the entire application was worked out for a specific fund. After talking with the representative of the fund, we realized that our focus was correct and the application would not have been considered without it. I wrote more about the process in the first article and I will write in the next one, which will be about the development of the project.
Thank you for your attention to all who read it. In the next article I will touch on the issues of theft of ideas, patenting, pilot launch and search for customers.
I will be glad to answer your questions!
Why an idea should be simple and easy to present.
The university is taught to speak professionally, but often it is not clear for the layman. The essence of the idea for an investor must be formulated so clearly that even grandmothers understand. And it’s good if you can describe not the technical side of the issue, but the value for customers, or the business component. Because only this way you will prove to the investor that your project is clear to the consumer and has a chance of success. Before we decided to look for investments, we had purely technical projects implemented on our own, and this is how the ideas were formulated: “a software and hardware complex designed for the rapid generation of distributed systems for processing, recording and analyzing data.” To look for an investor with such a formulation of the idea is an unpromising business. Even in a business incubator, everyone sat with their eyes like saucers and did not try to get to the core of the product with simple examples.
')
No competitors!?
The fact that you need to know your competitors, does not say just lazy. However, as practice shows, the phrase “I have a unique product and no competitors” is still popular. Do you have a restaurant service? Take other services for restaurants. If it was not possible to find data on the revenue and market volume of systems implementing the electronic menu, then surely there will be data on other services for restaurants. For the investor, the phrase “We have no competitors” is an excellent marker of the applicant’s incompetence and a reason for refusal.
Where does the idea start?
While working on projects to order, both as an employee and as the head of my organization implementing the order, I realized that the simplest prototype not only does time faster than a pile of documents, but also works much better, which I mentioned in the last article. We created a functioning prototype in less than a week, having decided for ourselves a lot of questions and problems that arose. This helped us better understand the service and more accurately predict development. We used a similar approach to create a full-featured mobile application, which can significantly reduce the likelihood of major changes in the structure of the application and its interface in the future.
Why are investments needed?
LLC InnoTrio was created by me, together with a girl, back in 2010, while still studying at MSTU. N.E. Bauman. The company gradually developed at its own expense and through contract development. When we realized that there was an idea of ​​a business that is relevant and in demand, and it can be quickly brought to the market only if there is a smart investor with experience and finance, then we started the search. In my opinion, excessive money at an early stage can greatly harm a startup, because All cardinal changes always take place in conditions of limited resources and a looming crisis, when we need to strive for real payback, and not to implement KPI to “eat away” the next round of investments. However, a smart investor with experience will be able to show opportunities that you could not even guess, or dispel erroneous theories on the basis of which certain predictions were made. Do not underestimate timely financial support, because If you continue to implement the idea in the market at your own expense, then by the time you launch the first working prototype, your competitors will already have a working business, a rapidly exciting market.
How about a loan?
They often talk about taking a loan, instead of getting an investment. If you are sure that you are looking for a _only_ financial instrument, without any synergy with the investor, then yes, of course, you can put the loan on the same level as the investor and choose for financial gain. I am convinced that novice startups need the support of experienced investors. However, it is the support, not the a priori guide, since no one knows the idea of ​​the project better than the founder. In my opinion, an essential component of support may be the brand and business connections of the investor. That is why I think that the choice should be mutual: both the investor should be comfortable working with the team, and the team with the investor. Do not take the first money in a fit of euphoria. If you became partners with a person, giving him even 50% of the company, worth 1,000,000 rubles, and thanks to joint efforts, the company began to cost 100,000,000 rubles, instead of the expected 10,000,000 rubles, then both of you are in a good plus .
Or maybe a grant?
We had the experience of receiving one of the state grants - from the Foundation for Assistance to the Development of Small Enterprises in the Scientific and Technical Sphere (Bortnik Fund) - a couple of years ago. When receiving a grant, efforts to prepare primary documentation, financial and scientific interim, and even more so final, reporting are spent in proportion to the rest of the project work. If not more. There are also tight salary and cost limits. And you can not spend less, and you can more, but it is better to strictly go to zero on the financial statements. If the cost structure changes even for a ruble, you need to make changes to the contract, sign a new estimate, etc. etc. Also, projects such as 47 restaurants, as a rule, do not fall into the interest of funds engaged in grants, since usually the project should be a scientific novelty. Therefore, venture investment allows you to solve emerging issues much more efficiently, focusing on business problems, rather than on a pile of statements.
How to deal with monetization?
When developing the “47 restaurants” project, we focused on the monetization model with a subscription fee of connected restaurants, based on which we made the calculations. When you start the test operation, it became clear that many players in the market are trying to work this way. It also became clear that this approach significantly reduces the potential market. Significant adjustments were required, but this is normal, and there was already something to start with in new calculations and forecasts. The main thing is to understand in time that they are needed, and without control points in your own plan this is not possible.
Got an investment - and you're in paradise?
The first round of sowing investments is usually an amount in the region of 1,000,000 rubles, of which even a company of just a few people will last for a maximum of six months. In this case, the receipt of money, of course, accelerates product development, but increases the amount of work. During our six months, we became familiar with the nuances of taxation of IT companies, working with employees like individual entrepreneurs, drafting various contracts on their own, got into contextual advertising, promotion, display of applications in google play and app store (I didn’t even expect so many artificial difficulties, comparison with google play, which must be solved before you can send the application for review). In this case, the founders salary was 25 000r per month. The question of finding adequate employees, from developers to sales managers, was also a non-trivial task. By the way, Habrovsky hantim showed itself very well for IT. And this is not to mention the coordination of development, basic code review, development, choice of hosting, administration, configuration and display releases. This is despite the fact that the team we have gathered is small but cool, and people are very literate, who can be relied upon not to control over trifles. Thank you, colleagues! In general, as teachers said in Baumanka, a day is three working days.
What are the conditions of investor entry?
It is widely believed that when an investor joins, even for a small amount of investment, the investor will immediately “wither” almost half of the company. And if not “wiped out” - it means “gave little” (comments of friends). We also met with investors who wanted to get a controlling stake at the first stage for a couple of hundred thousand rubles. Unfortunately, I cannot tell the exact details of the contract with Qiwi Venture, but at the first stage the share transferred to the investor is less than the next ones. At the same time, even after all three stages, it remains possible to keep the controlling stake in the company in the hands of the original co-founders, subject to a number of conditions.
How to be with the team?
When creating a company, an active person joined the university business incubator six months after the start of the project, an active person who participated in just a few weeks, who insisted that there were three of us, then when registering a legal entity. all persons should have 33.3% of the company, despite the previous work and the authorship of the idea. Then, for the first time, we were confronted with the concept of the conflict of the co-founders, well, that even before making rash decisions. Then I realized that the development vector should be defined by one person, as well as be responsible for it, but without partners it will be several times less effective. As a programmer with experience in project management, it was pretty clear to me what to expect from developers and how to work out a comfortable work for all. Finding a sales manager was more difficult, but I can proudly say that we had a great team when people are interested in the product and can rely on each other. Problems happen, but everyone is interested in their early elimination.
How to deal with the presentation?
I was also told by the university that a quality presentation is often valued more than the work itself; colorful advertising, rather than the product itself; interface, rather than speed. This breaks the techie pattern a bit, but it needs to be understood and accepted. If the executive summary turns out to be done in a few hours, in the presence of calculations, materials and due skill, then it is necessary to work with the presentation. There should be two. One for email, such as a commercial offer, which does not require accompanying oral comments from you, and the other for presentations. It is necessary to hone both, because they must attract attention, remain informative, but be extremely compact. Usually, my wife and I make the main frame of the slide, and then we begin to squeeze it, removing everything that is superfluous and rehearsing. Always need a view from the side, because even the most harmonious presentation falls apart on what is obvious to the person who wrote it, but it is absolutely incomprehensible to the one who sees it for the first time.
How did you get into Qiwi Venture?
I have never looked specifically for specific funds. Periodically I talked with some representatives, read articles on various resources and learned information from my colleagues, especially I never made fan mailings. True, I have been told many times that representatives of funds receive letters, where even emails from other recipient funds are not hidden. Employees of venture funds immediately send them to the trash. Also, many, due to the large number of incoming letters, accumulate hundreds of unread messages, as a result of which some applicants will not even get an answer. It turned out well that when we made the decision to look for investments, I came across information about Qiwi Venture and their strategy and focus. Comparing their priorities and ours, we realized that they were suitable for us at first glance, so the entire application was worked out for a specific fund. After talking with the representative of the fund, we realized that our focus was correct and the application would not have been considered without it. I wrote more about the process in the first article and I will write in the next one, which will be about the development of the project.
Thank you for your attention to all who read it. In the next article I will touch on the issues of theft of ideas, patenting, pilot launch and search for customers.
I will be glad to answer your questions!
Source: https://habr.com/ru/post/209068/
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