How to Finance the Development of Your MVP or Prototype
The first few weeks and months in the life of a startup are possibly the most exhilarating and exciting. That period between making the plunge to “found” a startup and when the MVP or prototype is launched can be likened to expectant parents awaiting the arrival of their child. This period is punctuated with milestones unrolling at a quick clip: business registration, account opening, patents, a first micro cheque and so on. Good news after good news and there is almost nothing to dampen your enthusiasm and optimism.
Except when you have to fundraise! And then you realise there’s more to raising capital than having a world-changing idea. Unless you are one of the 0.00001% of startup founders that are able to raise capital with just a napkin – pre-deck, pre-product, pre-revenue! So how do the majority of founders navigate this complex, painful, expensive process?
Take a Short Quiz – To Gauge Where You Currently Are With Your Fundraising
Startup Fundraising Options to Build out an Idea to MVP
Your singular objective at this stage is to transform your great idea into a tangible product that can you can put in the hands of early adopters. It’s about creating that initial version of your product, the MVP, that allows you to begin gathering invaluable user feedback. As a founder, you want to ideate, experiment, and iterate endlessly. The MVP is the very first concrete tool at your disposal to test out this feedback loop which most successful companies perfect and keep using throughout their lifecycle.
An MVP is not a first release of a rudimentary product. As in: “my final product has 10 features but I’m launching my MVP with 3 core features so people can start using it.” –
So how do you finance your MVP? Based on the working assumption that you are building out a simple prototype that helps you test your hypothesis, we will look at the top funding options suitable for most founders.
Bootstrap
Yep! Do you really want to go fundraise on the back of an idea and perhaps a very pretty prototype? It’s possible to raise external capital as we will explore in next few options but the default for every single founder should be to build out your first milestone based on what you have.
How to Make It Work
It cannot be overemphasised that a prototype or MVP should be as basic as it gets. There is always the temptation to produce something you love and that reflects your vision. That then means founders think they need much more money to build out an MVP than they really need. So the key to bootstrapping to is keeping it simple. For physical products, stitch together what you can from whatever you can lay your hands on. For software solutions, use “no-code” tools.
Bootstrapping May Not Work If…
For founders building out in capital intensive, research-heavy and or regulated industries, it may not be practical to bootstrap. For instance, drug discovery, financial services or deep tech requires following pre-defined steps to comply with regulations. This often involves having appropriate resources and clearances in place before interacting with customers. Except for these cases, it is possible to keep it simple and bootstrap your way to your first milestone
Grants & Entrepreneur Competitions
Grants are funds provided by an organization, often a government entity, corporation, foundation, or trust, to be used for a specific purpose. They are non-dilutive, meaning you won’t give up any equity or incur debt, and they usually don’t have to be repaid.
Entrepreneur competitions, on the other hand, are contests where startups pitch their business ideas to a panel of judges. The goal is to win a prize, which can include PR, cash, mentorship, office space, or other resources that can help get the startup off the ground. The amount of funding available to idea-stage companies through grants and competitions ranges from small prizes (~$1,000) to hundreds of thousands of dollars.
How to Make It Work
The key is research. There are a lot of local and international opportunities tailored to all sorts of niches. If you don’t know about them, you cannot benefit from them. Look for grants that align with your industry, mission, and stage of business. Grant opportunities often involve very detailed application processes which have the added benefit of helping you refine your messaging and value proposition.
Impact businesses in particular have a lot of options even at the early-stages as there are a lot of organisations, foundations and individuals who are keen to support businesses-for-good.
Grants and Competitions May Not Work If…
Friends and Family Round
This is one of the earliest forms of funding your startup will potentially tap into, and it certainly comes with its unique dynamics. Essentially, the friends and family round involves raising funds from, well, your friends and family. These are the people who believe in you almost unconditionally. They’re investing more in you and less in the business. They’ve seen your passion, commitment, and they want to support your vision.
Now, approaching these funding conversations requires a delicate blend of professionalism and personal warmth. This isn’t a discussion to have over your family’s holiday dinner or in passing with a friend at a bar. Instead, treat it much like you would an investor pitch. Explain your idea, your plan to make it a reality, and what you need to get there.
What’s absolutely critical during these conversations is clarity. Your friends and family need to understand that their money is at risk, and that startups often fail. This isn’t meant to scare them off, but rather, it ensures they make an informed decision. The last thing you want is to jeopardize personal relationships because of misunderstandings about the nature of the investment.