I have been pretty active on answers.onstarups.com. If you have not visited this website, it is basically a forum to ask questions related to entrepreneurship, in return, you get some really high quality answers from some very successful entrepreneurs. A question that keeps coming up time and time again, is the one about raising capital for web based businesses. In most cases, the individuals asking the questions have not finished building the product, have not got feedback from the community or any user base traction, and do not really have a clear plan about where they will use the money. In most cases, they all get the same advice, that is, they should come back and ask this question when they have a finished product & some revenue.
If I were to put it into simple steps it would be like:
1. Write a business plan on where you want to take the business in the next 3 – 5 years. This will help to test your idea and also gauge how you can grow, and the sort of monetization route you plan to take. At this point, I would recommend going out to get feedback from potential customers, to determine if there is any potential interest in the product/service you
2. Get a couple of co-founders to help you realize your plans. No matter how skilled you are, entrepreneurship is a tough business, and without support, you are far more likely to throw in the towel earlier, rather than later. This also gives you the opportunity to get co-founders to help in areas you are not so strong in.
3. Start building your product. Keep it simple and do your best to avoid feature creep. The key here is to get your product to market as quickly as possible. Usability and design are secondary at this juncture, the more urgent concern should be whether users actually want to use the product/service.
4. Launch your product and start building a user base to generate revenue as soon as you can. Freemium plays require a lot more time and capital upfront to gain traction. Investors want to see activity and revenue generation capabilities. There will always be companies such as Twitter, who do not follow this methodology. However, if this is your first startup, I would recommend generating revenue as quickly as possible.
The time to start raising Capital is only after completing step 4, when you see activity in your product/service and need capital to take it to the next level. Chances of getting funded before step 4 decrease dramatically, and you will get lost in the crowd in today’s age where just about anyone with web development knowledge can release a product.
My last bit of advice is, do not focus on just raising money from the onset. Rather, put all your energy into building the best product/service you can. This will have a far better chance of future payoff.