April 21, 2019

How do you fund R&D when you sell something that doesn't exist?

Let's say that someone took a prototype into a demo and the client was ready to write a check right then.

My thought is that taking a half baked idea in is a cheap way to check product market fit. Is this just a dumb idea?

In the physical manufacturing world maybe I have sold 100 unit buts I need to order 10k units to get them landed.

Can I get a company to pay me for something that doesn't exist yet? Maybe sell a perpetual license for the cost of r&d? Is this a place where you need to raise money?

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    Getting a letter of intent might be helpful. I have seen those used as a way for a potential customer to say "I will pay for this once it exists." Getting a few of those signed gives you the ability to raise money from someone else (angel, bank) who now has more confidence that you just need to build it and you have customers ready to go.

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    This comment was deleted 5 months ago.

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    This comment was deleted 6 months ago.

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      It sounds like from the company's point of view they want

      • skin in the game (equity)

      • to reduce the risk that r&d results in "it isn't possible"

      • to see personal investment

      The first two seem fair as they are going to be expected by any investor. The third one is interesting. Why is this company different from any other investor? What do they bring to the table to be able to demand that when typical investment routes wouldn't?

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          Interesting. I'll noodle on this more. I suppose that even VC want to see the 3rd point in the form of a minimal salary. Thanks for taking the time to explain it to me :)

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            This comment was deleted 6 months ago.