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New Ideas and Bootstrap Financing

April 30, 2006

Q- I have come up with an exciting new software concept. I need about $25,000 to get some programmers to write a viable program that will show how really neat my idea is. Can you suggest some ways for me to raise this money? I have heard about these angels who have a ton of money to invest in projects like this. I work full time at a store. Any suggestions would be really appreciated.

I admire you for wanting to make an improvement in the world. If you have come up with one idea, however, you can come up with others as well.

What I mean is that you have to be careful not to fall in love with your first idea. Rather, you must focus on the best idea, which is generally not your first.

There is no sense in spending a lot of money on an idea that is not going to materialize as a financial success. I have seen way too many inventors throw money at ideas they fell in love with but which proved to be financial disasters.

The answers to two questions can gauge the potential for the success of your proposed venture. First, is there a known demand for your product or service? That is, are people who are not relatives or friends willing to pay for your idea? Second, can some firm take your idea and make a profit from it?

Angels are affluent investors who invest in private deals or investments. The probability of getting outside investors to provide backing in this very early stage of your venture is very small. Generally, you would have to be pretty far along in the development of your software to attract them.

If you’re sure your idea is a good one, then the way to finance it is through “bootstrap” financing, which is the money raised from relatives, friends and acquaintances. These are folks that may not even care about the idea but trust you so much that they are willing to invest. I would strongly encourage you to follow the bootstrap path if you are sure of the viability of your software.

Having been in the software business, I can tell you that your estimate of cost is probably going to be way too low. Most people end up doubling their estimated cost before getting the programming completed.

Also, there are countless horror stories (I have lived through a bunch of these) of programmers either not producing or stealing your product. You need to be very careful here because dealing with programmers is tricky territory.

Good luck on your new venture and thanks for writing to me.