Should I raise money from VC now?
OFFEO is an online motion graphics video maker for small businesses to create Facebook/Instagram video ads or social videos easily.
Here are the background and my question.
We started building OFFEO in April of 2017 and finally launched the first version in January 2018. The results were disappointing but we learned so much. The truth was we didn't have a clear sense of what the users really need, all we think about was building something cool and we just assume people will love it.
We begin to really understand what our users need. We pivoted and went back to our storyboard to re-think and rebuild the platform. Finally, in August 2018, we launched our new beta. This time, much more prepared and there is good traction so far.
The question is this, we have been bootstrapping and self-funded from the beginning but we cannot last much longer. 2 possible solutions for us,
Firstly, start raising fund from VCs now. However, we are at a messy stage where we are not exactly at a seed funding stage nor do we have enough to prove traction for series A stage. Do you think it is still a good time to raise funding at this stage?
Secondly, try to gain initial prelaunch revenue by offering a 1-time offer for lifetime usage of the platform. This way, we might be able to raise enough to get past the launch and traction stage and also gaining the first batch of committed users in OFFEO.
To give you a better understanding of the platform, you may use the platform for free at beta.offeo.com and register using your email with the access code OFFEOanimatedvideobeta18
Any feedback and advice will be much appreciated.
David, I tried out your app.
It's very good. Seriously. I think you're on to something here.
That said, I don't have great news for you. Having raised a few rounds of funding myself in the past, I'm confident that this is the absolute worst time to raise money for you guys.
The best time to raise is when you are in a situation where you are strong and the investor is weak. It's your job to create that situation. In your case the opposite is true - you are weak and the investors are strong (if you don't give us money, we'll die).
So any offer you get will a bad one.
Also, raising from VCs takes time. At least 3 months, probably 6.
Angels are a possibility - or perhaps a small friends and family round?
You should be able to raise from angels on a convertible note, which shouldn't be too terrible conditions for where you are now. I definitely don't think you're close to ready for VC money.
If it were me (and I've been in exactly this situation before), I'd hustle however I can do just get paying users. Reach out to brands on Instagram etc and offer to help them create videos. Partner with digital marketing agencies etc. Just do whatever you can to get paying customers in the door - probably a lot of outbound sales.
If money is really tight, there's no reason someone in your team couldn't pick up some (maybe contract) development work and support the others for a month or two, right?
Just give yourselves that extra runway to put yourselves in the position where you are strong and potential investors are weak...
Good luck!
Thank you Louis! Really needed to hear some advice from someone experienced in raising funds before. Totally agree with you, I think it will be a better option to hustle our way while getting some sales to support the development for now. When it comes to Angels, what do you think is a reasonable equity dilution %? Also, in your opinion, how will you define the situation where we are strong and ready to raise fund from VC?
Impossible to say as a bystander with no insight into your financials, team, growth, how much you're raising etc.
If it were me, I'd try to go for a convertible note with a reasonably low cap (if you were raising 200k you might go for a 2m cap, although that's probably slightly on the high side for where you are now). If you aren't 100% sure what I mean by that, go read up on the mechanics of fundraising on the internet somewhere - it's important to know what you're talking about when pitching investors.
You're strong when you don't need the VC's money is the quick answer.
Basically you want to be in a situation where you can walk into a pitch meeting and say "look, we're growing fast, customers love our product and we're making money. If you don't want to invest, that's fine - we'll do just fine without outside money. But if you do invest, we'll grow 10x faster and capture this massive market."
Love that, thank you for your advice Louis. Exactly on point, we need to be on the winning side of the negotiation table. We will work towards that.
First off, congrats on the great product! I think you nailed it. I was looking for something similar just yesterday.
As for VC money, I would say that you could probably launch this and get some revenue. Do not touch VC money until you have some MRR. VC's will not understand, and frankly do not really care about how good any tool is.
Do not make this product free.
From using it, it was fairly simple to get started but I can imagine how complicated things can get. The UI feels similar to some other animation tools that I used before, so maybe I have a bias and found myself around it. I think educating your customers might be your biggest challenge.
Thank you for your kind words Zahmed, I am glad you like it so far. We are thinking of the subscription to have a free and paid version. What are your thoughts on not making the product free?
You nailed the point on educating. We are already beginning to face some challenges here. Most people see a lot of potentials but many still find it hard to understand the concept of the "timeline" for example. But it is a good problem in my opinion, we have a huge untapped market here.
I think making the product free brings on a lot of customers who will eat up a lot of your time in terms of feature requests. I'm not sure how big your team is, but if its 1-2 people, it might suck a lot of your time.
I'd say a good balance between free and paid up front is to offer a 7-15 day trial.
It's difficult to execute because you will lose out on a lot of users, but at the end of the day, you should only care about users who are willing to pay you money at this point. If people think your price is too high but your product serves value to them, they will most likely reach out and tell you that's the case. I've used Intercom for this purpose very successfully in the past.
Are you familiar with Jason Calancanis?
He is an angel investor and the host of the YouTube channel: This Week In Startups (TWIST). Jason has wealth of experience and abundance of knowledge in this sphere. I'd highly recommend consuming at least some of his contents as they are full of gems and packed with valuable information. I must profess, his book should be a must read for any entrepreneur foraying into fundraising and considering pitching to VCs.
Founder.University is also something I'd suggest you look into. Brief summary: Founder University is a three-day curriculum for founders who have launched their product but haven't raised Series A (Founder.University -before you ask, yes that's their domain!). Coincidentally, Jason host some of the events. Perhaps, get ticket to one of his frequent Launch events to get a feel and practice your VC pitching.
Crello and Canva of video editing - cannot go wrong! Wistia, from my observation, is very ERP-ish. Yes, Enterprise is where it is at. This may sound silly, but some Saas startup ought to have two entirely different pages for pricing: Enterprise & Consumers.. For a more in-dept and subsequently upsale by conveying the value of each package.
process.st has a really good article about Saas pricing model that I thought was very good and broad overview of how other Saas have set their pricing.
I'd just like to quickly clarify: I have no relationship, of any capacity professionally and personally, with Jason Calancanis. Admittedly, I am a veteran consumer of his contents; albeit no intention of fundraising from vc due to the size of my idea-phased startup.
On a more relevant and positive note, I really like the high impact visual and would definitely subscribe to your enterprise/premium as a tool to produce insta contents for my restaurant clients. ;)
Thanks for the recommendation Geedan, I wasn't familiar with Jason Calancanis, but now I am now a fan of his videos. Interesting you brought up the point on 2 entirely different pages for pricing. We just had a chat with friends from Facebook. This is exactly what they are advising on as well. While our product targets the masses. It solves a huge problem for some enterprises as well. They are still finding it hard to centralize their ad assets for localizing to all the different countries. If we can provide a solution for the country marketing managers to log in and localize easily. It will solve a huge gap.
Can't really find the article at process.st yet but will search more in-depth on that.
Glad that you are enjoying our platform so far. Do look out for us! =)
I haven't had a chance to look at the product yet, but did watch the video once I navigated off the beta site to the main marketing site.
If you are in need of near term cash flow, and want to keep that work aligned with the product, have you tried selling video creation work (where you dogfood your own product) rather than the product? It's often easier to get "consulting/services" revenue in the door a bit faster than product revenue, even if it's just a temporary thing. And you would have the added benefit of using your own product and understanding the end customer's needs and goals even more.
(aside: have you thought carefully about who your early adopter customer is, what your pricing model will be, and run any experiments to de-risk those two things?)
(another aside: the big question any investor is going to ask is whether you have a really sharp strategy for customer acquisition. This is always hard to answer at an early stage, but investors are looking for teams that they think are bringing a gun to that knife fight)
Your views have given me a new perspective. Thank you for that. We didn't think too much in terms of selling video creation as a service yet. I guess it also acts as a form of initial hand-holding educating them while they can be more independent over time using our product.
In terms of the pricing model. I am thinking if I should share the pricing right now to the early adopters for their views?
I've watched the tutorials, it looks good. Pretty much agreeing with other people here, haven't raised any money yet but I don't need to raise money to tell you raising money at this stage would lead you bad deal. In terms of feedback, separating the tutorial videos when first two is only 10-20 seconds doesn't feel right. Just merge those two videos "drag and drop" & "drag & drop text & edit" to one and call it a three step process!
With trying to raise money it's the process, you would need to focus on raising money. Cleaning up the business, prep your presentations and all the while try and get appointments with VC's that might invest.
The other path. I like a limited 1 time offer for lifetime. Take the time you have and product and try and get 5 or 10 customers enough to give you some cash to get to launch.
I would go the second path. Take the time you have left and get some customers paying. It would give you validation for the product and would make it easier to raise VC funding at a later stage if you needed it.
Thank you so much for your input James, right now I am leaning towards that too. Great point, it will also help to give us validation for the product.
I think it's the easier road. Also look at the limit so only sell 10 and be open about that. A limited time offer might create some scarcity and hopefully get you the users you need.
This comment was deleted 8 years ago
Hi Ace, I can't thank you enough for your in-depth advice. You brought up so many great points we should think about, I am impressed that you manage to nail the pointers from a quick glance at our company. I am guessing you might in the video industry as well?
We actually run a motion design studio and OFFEO is really our answer to help make AE more accessible to marketers and graphic designers who want to give live and motion to their designs. The motion design landscape is evolving quickly, and we think it's about time we empower everyone to do what was only previously possible in AE.
Currently, the platform is usable but not 100% stable, we are still solving bugs and making improvements to the user experience. The community has been really supportive towards the platform.
Do you happen to be based in Singapore yourself? We are lucky that the Singaporean Government has shown a lot of support for startups and we have managed to secure some grants from there.
We will love to explore the VC route, it will mean a lot if you can connect us with some VC's interested in the region.
Thank you for sharing your views with us Ace
This comment was deleted 8 years ago
hmm., sounds fishy if an investor charges you money to pitch him or her... (At least here in SF bay area, the standard advice is that if an investor want money from you upfront to hear your pitch, it should be considered as a scam.)
This comment was deleted 8 years ago
This comment was deleted 7 years ago
Thank you for using! Glad you like it so far. Thank you for your advice, yes I agree reaching out to popular experts/influencers could help us too