The Secret to Funding: How Many Customers You Need Before Contacting VCs

Getting funding is the first milestone of any startups and some succeed in early stages and some struggle to get funded. Irrespective of whether a startup is funded or not, everybody tries to attract investors and invest in their Ventures. On the otherhand,  “Investor” is someone putting money into something in hopes of getting more than that back in the future. That’s what investors do in hedge funds, on Wall Street, and in investing in companies. Investors are not banks, they aren’t credit cards, they expect a future greater return than is possible today, by investing in what’s being done.

So what do customers (and by that I presume you mean people paying for what you’re doing – customers give you money – revenue), what do customers have to do with INVESTORS’ potential return on investment?

Very little in and of itself.

Don’t misunderstand that point, without customers and revenue you very likely don’t have anything (though we know from Twitter and Medium that’s not accurate) BUT just customers and revenue are meaningless to an actual investor – go get a loan and you can pay it back from revenues.

So what do customers help investors today understand about your business?

  1. Depending on how you acquired them, that you know what you’re doing and that people want it
  2. That there is a market for it, and depending on how you found that market, how competitive it is, and what it cost to acquire those customers, that there is an opportunity
  3. That the company has a more clearly measurable way to establish a value (multiple of revenue; that multiple being dependent on what you’re doing)

Source : the secrets of funding

his is wherein your startup is actually validated, are you accomplishing the things that actually matter, evident in some customers proving that?  Customers are merely evidence of your validation, not the validation itself and how many you need depends on all of your shortcomings as an investment opportunity.  Shortcomings in areas such as:

  • Do you have an experienced team in place capable of building a bigger business?
  • Are there many competitors in the market, competitors that will arrest your growth at some point, or make it very difficult to achieve the size (value) they’d need?
  • Is there brand, IP, or other risk in what you’re doing?
  • Are those genuinely acquired customers or friends, family, and referrals?
  • Have you shown that you can reduce the cost of acquisition and improve the performance of the business?
  • Is the business scalable, how much so, or the likes of which is just measured growth? (Sales oriented and service based businesses generally aren’t scalable)

Funding is the result of such shortcomings being overcome by points of validation (growth, attention, revenue, etc.) sufficiently to substantiate an opportunity.  How much of that do you need?  It depends.