Hello everyone. I am currently working by myself on what I believe to be a very possible and very real marketable idea that I am very excited about and hope that it will succeed (like most people). However I have recently run into a problem where the money I have available to spend is greatly dwarfed by the amount I actually need. I recently talked to a few people about the legalities of raising capital and I have read some howto guides and books on the subject but I am still unclear on how it is done. Basically, I continue to read that startup companies often times raise capital through investors and venture capitalist firms built primarily on an idea, and yet when it actually comes to that they immediately say that you need a tangible product firsthand (so, in lay terms, you can sell an idea but you need a tangible product first). Now, past all that chatter, I am currently looking into how one sells on the idea of prospective profits. While I know that ideas are a dime-a-dozen and I am sure that many people have thought, are thinking, or will think of an idea identical to mine, currently there are no such ideas on the market after much time spent researching. So, in conclusion, I guess I am looking for feedback from experts or people who know about this sort of thing on how someone sells an idea. Because although I will have a tangible product hopefully by the end of 2010, I might need funding beforehand. Thanks, Zach Meyer

search around for tsloper and go read the docs on his site about this.

The basic summary is: if you've never started a company before or worked professionally elsewhere (on very successful products) on the type of thing you are making you will not get venture capital.

The only money available to such novice entrepreneurs comes from the 3 Fs: friends, family, fools

-me

Quote: Original post by ZachMeyer
So, in conclusion, I guess I am looking for feedback from experts or people who know about this sort of thing on how someone sells an idea.

Investors don't buy ideas. They invest money into a product or a business.They want to see a business plan that shows how your business will grow and operate over the next 5-10 years and what your exit plan is so that they can earn a 300-500% return on their investment at the exit point.

They will expect this plan to be backed up by an experienced management team - one that has proven experience developing hit games or at least proven management experience in a similar industry.

You will also need more than one idea. I am sure you have total faith in your idea but unfortunately history shows that the chance of it being a success a slim. Investors understand the risks which is why they seldom invest into developers unless they have a proven track record.

You might have more luck finding a grant from a regional development agency whose remit it is to build up the industries in their region. Sadly few of these understand/fund media companies and fewer still games companies. Your best bet in that regard is to locate your business in a location which actively supports the games industry. Several Canadian cities provide tax incentives and similar schemes to attract developers.

Failing that (which is sadly the most likely outcome) your money will need to come from the 3Fs - friends, family and fools. One final option. A bank loan or running up debt on a bunch of credit cards.

Hello,

As told in the previous reply, ideas have no value at all, unless you implement them. So no one will invest in your idea, unless you are able to show a prototype of the idea as to show that it is feasible and you actually know how to implement it.
Then you will need to show that you actually know what you are doing, and put a business plan that will show investors how you are able to put in practice in a profitable way, the business needed to implement your idea.

At this point, most of the venture capital will most probably reject it, because it will be too risky, but you have to try it, as maybe there is one "hungry" for investment and willing to put money on extra risky businesses.

So, how to assure that you will have a positive answer?

Well, you will have to make a proof of your faith in your idea, and a part from your own initial work and capital, raise extra capital for the 3F's (Friends, Family and Fools) and start working on the idea, according to the business plan you have put in place earlier on.

Go back to the same venture capitals and run again the pitch information, now with your action plan already put in place and working on it.

If you don´t think you can risk your own time and your money, don´t loose your time trying to find others to invest, because they will only do so, if you are taking the same or superior risk. In the end, it is your idea.


regards,

GD

Quote: Original post by game developers org
If you don´t think you can risk your own time and your money, don´t loose your time trying to find others to invest, because they will only do so, if you are taking the same or superior risk. In the end, it is your idea.

Actually this isn't correct. Most VC/Angel investors will require that the management team are investing their own money equal to about 10% of the amount the investor puts in.

This is different from a grant in which case the money is usually match funded 50/50.

Quote: Original post by Obscure
Most VC/Angel investors will require that the management team are investing their own money equal to about 10% of the amount the investor puts in.

This is different from a grant in which case the money is usually match funded 50/50.

Interesting. Bank lenders (as opposed to VC/Angels) require 25%.

> Bank lenders (as opposed to VC/Angels) require 25%.

And they will lend against hard assets they can monetize quickly - like your house. I've yet to find a banker who will fund against thin air, even if the business owners invest 75% of their own money. And in this dwindling economy, bankers have soooo many skeletons on their books that they will pose additional - even ludicrous by anyone's standard - conditions before you see the first penny.

> raise capital through investors and venture capitalist
> firms built primarily on an idea, and yet when it actually
> comes to that they immediately say that you need a tangible
> product

Actually, VCs look at 3 things. 1) a savvy and experienced management team, 2) an explosively growing market, and 3) a killer value proposition that will capture that market. In that order.

-cb

Quote: Original post by Tom Sloper

Interesting. Bank lenders (as opposed to VC/Angels) require 25%.
Quite different as one is loaning money in return for repayments with interest, while the other is investing money in exchange for equity in your business. The bank give you a loan and charging interest and that loan usually needs to be secured against your home (or some government loan guarantee scheme), whereas a VC/Angel invests money in exchange for equity in your company but will often require that you invest your own money also so that you "have skin in the game".