An MVP is the earliest iteration of a fully operational product. You can use this version to communicate with the target audience and shareholders to show you have a product that can be turned into something better. MVP can be used to raise funding during the seed stage as well.
Not all MVPs are suited for raising funds. To ensure funding you must create a well-performing, full-fledged product MVP. Want to use your MVP for funding? We have just the right set of instructions for you.
Reasons To Create An MVP For Funding
Still, it can open the door for pursuing investors from a very early stage. Let’s look at a few reasons why creating MVP to get funding is a great idea.
To Showcase The Product’s Functionality
Let’s get the most basic question out of the way: Would any investor spend money on a product that doesn’t work at all? The answer is simple: Never.
When you create a Minimum Viable Product, you uniquely present your ideas while showing that your idea works. With minimal functionality, proving you have a functional business idea with future scalability is easier.
Nowadays, simply pitching your idea doesn’t magically get you access to funding. You have to prove that your idea applies in real life. Even with its basic functionalities, an MVP can help you prove it.
To Test The Product’s Viability
It’s tough to figure out what makes a product viable and can help it fit into its target market. The only way to determine viability is to figure out if the product has a market need.
With an MVP in your hands, you can test the viability of your idea. Of course, investors will always support ideas that have an eager audience. When you release your MVP in the market, you can test your product idea’s viability.
Once you’ve proved the viability of your idea, you can ask the investors to back up your future development with pre-seed funding.
It Proves That You Are Committed To Your Product
You are not the only one worried about the cash flow, the investors suffer from the same problem.
You fear that you won’t gather enough investment to develop the product further, and the investors fear that the money they spend will never bring any results.
You need to prove your commitment to your idea to bridge the gap. The best way to do it is to build your MVP to show the investors that you are invested (pun intended) in your idea.
When the investors see that you have an initial version ready to perform basic operations, you can convince them to fund the progress further.
It Helps You Receive Initial Feedback
We’ve already talked about how user feedback can help you progress and improve your product development several times. But it doesn’t only help you; it helps your investors too. But how does it work?
Your investors expect profits from their investments. When they see user feedback, they understand where they need to invest more to improve the product. That way, they can provide you with development funding while maximizing their profits. It’s a win-win situation!
It Proves Your Market Awareness
Creating an MVP requires an in-depth analysis of the targeted market. Businesses can only create a successful MVP by knowing the market demand. Building a great MVP proves that you’ve taken the time to research and increase your market awareness.
Investors like to invest in businesses that use market awareness to make the most of their products. That way, the investment is safe and promises more profit. Building your MVP only increases your investment-gaining chances.
To Prove You Have An Efficient Team
You need a team of professionals for a perfect MVP to come together. The team can share their expertise to give your product a tangible form. The quality of the MVP reflects the quality of the team.
Suppose you manage to create a great MVP. In that case, it proves that you have a great team capable of developing and improving a product that can bring profit to investors.
When you prove the capability of your product development team, the investors can rest assured with their investment in safe hands.
Difference Between Pre-Seed And Seed Funding Rounds
To understand their differences, let’s start by knowing what these terms mean. Because not knowing how these two phases are different can make the launch process even tougher.
Over the years, fundraising dynamics have changed a lot, and it’s very easy to confuse these two. So let’s get to know what’s what.
Pre-Seed Funding Round
Pre-seed funding stage is when you must prove that your idea is viable within the target market and that further development is necessary. The time range for this stage is the MVP development time. This stage has three steps:
- Creating an efficient team
- Creating a great MVP with the help of the said team
- Maximizing the fundraising possibilities
Seed Funding Round
The seed funding round is when you have to prove that the product you created has achieved product market fit. During this stage, you will also have to develop your MVP roadmap to detail how your product can be scaled in the future with funding.
Timeframe for this stage is 12-18 months.
Using Your MVP For Seed Funding Stages
Ready to use your MVP for raising seed funding? Let’s get on with the steps!
Step #1: Research Your Potential Investors
When you research all potential investors, you can find someone whose interests align with yours. These individuals are more likely to invest in your product.
Every great work starts with much research, and searching for investors is no different. It’s very tough to find the perfect investor to back up your development process.
If you’re not sure where to begin, Visit Linkedin. Look up Venture Capital and Private Equity industry and set up your location. Voila!
Step #2: Start Networking With The Investors
Once you’ve found your potential investors, it’s time to start networking with them. And that doesn’t mean leaving them a message about your ideas.
Create meaningful, long conversations that can establish mutual trust while maintaining professionalism. Do the same for all investors. It will help you narrow down the ones who are most receptive to your idea.
Step #3: Emphasize Securing Future Development Of Your Product
When discussing your product with your potential investor, it’s important to focus on your product’s future. To simplify it, the idea is not to get funds for what’s already there; it’s about getting funds for future product development processes.
When you have a clear development goal, you can highlight the scope for scaling the product in the future.
Step #4: Craft The Most Awesome Sales Pitch
Now that you know your audience and your intention for your sales pitch, it’s time to create it. Put your heart and soul into it, and craft an amazing sales pitch to resonate with the investors.
Your sales pitch will help you create the best impression of your business concept. It will increase your chances of landing an investor as well.
Step #5: Be Ready To Answer Every Question Your Investors Have
After you’ve presented your sales pitch, it’s no surprise that your investors will have many questions regarding your product idea and different phases. As the idea presenter and the business owner, you must be ready to answer all of them.
Here’s a list of (almost) all the potential questions your investors might ask you:
- Why do you think your product is relevant?
- Which problems can your product solve?
- Who is your ideal customer?
- What is the size of the market?
- Who are your main competitors?
- What are your advantages over your competitors?
- Where are you falling behind?
- What is unique about your idea compared to others?
- Do you have real users? If so, how many?
- Have you received any feedback from them?
- What is your growth rate?
- Can you demonstrate your product functionality?
- Have you raised any funds in the past? If so, how many?
- How will you monetize your project?
- How long till the idea starts turning a profit?
- How will the stock of equity distribution work?
- How many team members do you have, and who are the key members?
- Is your team capable of solving the problem?
- What are the core values of your team?
- How will you split stock among the team?
- What is your current goal?
- What’s your estimated time for achieving the goal?
- What’s your required amount of funding?
- How soon do you expect to conduct the next round of fundraising?
Step #6: Optimize The Funding You Receive
Another thing to remember when pitching is to optimize the funding before receiving it. Investors always like to have a clear idea about where they are spending money, and your development plan can help you do so.
Map out every instance where you might need to invest in getting your MVP working correctly and minimize your expenses as much as possible.
Step #7: Put Every Last Bit Of Marketing Data In Action
The best way to connect with any investors is through numbers. For you, these numbers come in the form of marketing research data metrics. Calculate ROI for every action you take by considering every bit of research data.
Once you’ve created a detailed sheet, present it to your investors. Once the numbers convince them, you are sure to receive funding for future development.
5 Potential Funding Partners During Post-MVP Stages
There is more than one way to skin a cat, which also goes for collecting MVP funds. But we will highlight five of them that work best.
Community Development Finance Institutions (CDFI)
Several financial institutions invest in Low to Moderate (LMI) business communities. They invest in any business that can create jobs and has scope for growth. If you can join an LMI community, you can acquire funding by showcasing your MVP to potential investors as a community member.
Federal, state, and local governments are great sources of funding. They offer investments to different early-stage companies to promote economic growth. You can gain different forms of financial assistance like loans or grants from these entities to support your startup development.
Angel investors refer to high-value industry individuals who can take a liking to your idea and invest in it. Most of the time, these investors don’t worry about gaining traction as long as they like the product vision.
There can be instances when you may still need an MVP, and they can provide you the funds to create one if they think your idea is worth it.
Though angel investors focus more on high-level organizations, they can also be a great source of pre-seed funding/ seed funding for tech startups.
Venture Capitalist Funds
These professional investors are quite the opposite of angel investors. While angel investors focus on the idea itself, VCs focus more on the ROI of the idea.
Only pursue venture capitalist funds when your MVP already has gained some traction to make yourself come off as more convincing.
Crowdfunding is when you pull a small amount of money from a large group of people, and it sums up to a great amount. Most modern entrepreneurs prefer crowdfunding.
A great example of a crowdfunding source is KickStarter, where people show their ideas to gather funds from the masses.
There are two types of crowdfunding:
- Donation-Based: People offer their funds for your initial product without expecting anything in return. A good example is GoFundMe
- Reward-Based: This is where the donors get rewarded for providing funds. The reward can come in the form of early access, a discount, or even a free product.
Friends & Family
Charity begins at home but should not end there.-Thomas Fuller
While you are going around for funds asking other people, why not look for funding within your family and friends as well? They will be far more receptive to your idea and support your development with donations and other necessary funding.
To Wrap It Up
Here’s a surprising fact: you don’t always need an actual product to market to secure investors. Sometimes, people can get funding just by pitching their ideas. But the catch is that the idea must be exceptionally good for it to work.
Creating MVP goes the extra mile to show your investors that you are already acting on your idea and are looking to take it further. Build your MVP, measure your MVP success, and start pitching to investors if you want higher chances of success.
Investors measure the ROI and traction of an MVP before deciding if it’s a viable idea to invest in the product any further. Also, they take note of the key features of the MVP that can be scaled in the future.
The trick here is to go with a type of MVP that can express your idea completely while implementing the list of features you have planned for the product.
An MVP can prove to the investors that you are determined to work and improve on your product while returning a profit. It can help investors understand how to improve and scale different products in the future with the right investments.
Not every MVP can be a total success. Sometimes, even with an MVP with innovative features, an idea may need to be more convincing to an investor. As a result, you will not secure funding for further development, and your MVP development expenses will count as a loss.
An MVP can help you secure pre-seed, seed, and even super-seed funding, considering your MVP is good enough.