continue meeting VCs or build?

[georgios22]

Hello YC Community,

I'm a Co-Founder of a Developer Tool startup and I'm looking for some situational advice. Just to set the stage we went live with a product 7 months ago, had a couple hundred people try out the product, and got ~65 people to really use the tool in a consistent manner for mission critical stuff. After two months of being live we got a ton of really useful feedback from a majority of our users. It has required a major redesign and now we are looking to raise capital because we need the engineering velocity.

At the moment we are about two months into raising a pre-seed round (finished an accelerator with angel investment this past Dec). We have met with 24 VC firms (22 came inbound to us) and the waters feel a bit murky. 9 have flat out rejected us, 4 only cut checks above $2M which isn't what we are looking for, 5 want to wait for additional traction, 2 are super top of funnel, and 4 are currently open and we are undergoing due diligence with them.

I'm the less technical founder (Business Intelligence / Data Analytics background) so I do a limited amount of coding and I'm just building sales and investor pipeline at the moment. Our CEO and core engineer is worried about the lack of progress being made on the product (I completely agree). He's growing skeptical that at this point in time we can raise and wants to postpone it another 4-6 months until we have better traction metrics.

I'm a bit torn because our first 5-10 meetings we were so much less prepared, had limited investor material, and didn't know the answers to some pretty critical questions. I personally feel much better about pitching the product now and I think we can raise capital NOW.

I see three options:

1. Power through and keep meeting with investors (get capital now)
2. Recruit friends who are good engineers and give them equity, increase engineering velocity, and raise again in 1.5 - 2 months/flip on revenue generation earlier
3. Tough it out the next 4-6 months, run out of money but have a lot more traction, and try raising again. But we have a more mature product we can monetize

Any and all advice would be lovely.

 

[thewordgirl]

@georgios22 I’m not sure there is enough info here for you to get good advice

It doesn’t sound like you guys are in a position to “choose” when to get capital. You’re knocking on doors.

If you don’t have 6+ months of runway. What’s gonna change in the next 1-3 months?

 

[georgios22]

@thewordgirl What additional information would you like to know, happy to answer.

The debate we are having internally is if we go heads down on development for 2-3 months will we have a fully functioning product with traction? Which would lead to us hitting traction metrics that a few VCs have asked us to achieve before continuing discussions.

My stance is we already did an MVP with a few hundred people that tried it out and we got a bunch of useful and obvious validation that people want what we are building. I feel confident we can get an investment within the next month which would immediately be used to get more engineering resources.

 

[georgios22]

Also, my expectation is we are going to have to meet with 30-40 investors before we get an investment. We are building in the infrastructure space and many generalists don't know that market well enough to feel comfortable investing.

 

[lillian2014]

@georgios22 Curious to know why you’d reject raising $2M+ at this stage?

 

[georgios22]

@lillian2014 Sorry, we never actually rejected a $2M check. We mutually agreed that it was too much capital for such an early stage business.

 

[sursh123]

@georgios22 If I were in your position, I could continue to meet VCs and don't wait for another 6 months. The problem with the developer space is that there is a lot of competition. Although I don't know your startup idea or anything else, if I were building anything in the dev space I could raise if I already got a solid idea validation as you have outlined. This is different from other verticals because the ones creating AI startups are mostly devs, so obviously the best ideas that they are going to come up with are for their own problems, just as you did. So beacause of this, the probability of a solid technical team building exactly what you are builiding and raise a lot of money is higher. I don't mean that based only on that metric you are going to be behind them, but it's a critical factor to consider imo. If someone building in the legal, real estate or similar verticals could ask this question, I could tell them to not raise now. Anyway, those were my 2 cents, I am 18 so don't take my advice as if I were an expert.

 

[georgios22]

@sursh123 I agree, we are building an incredibly simple cloud abstraction. These tools already exist but adoption is low because of poor business models and most are still prohibitively complex compared to us. But over the next 6-18 months the other abstractions will reach simplicity parity with us so getting capital and focusing on distribution is key.

 

[onlycurious]

@georgios22 If you think you can build a good solution to a real problem and get adoption in the next few months, do it. Raising money (and on good terms) will be a lot easier after that.

In the devtools space, this should be possible.

 

[georgios22]

@onlycurious This is completely fair. I'm just a little worried that we are going to be so desperate for capital at that point in time we will need to take any dollars that come our way (and that's if they do)

 

[butrflys78]

@georgios22 What's stopping you from raising 2M$ as you mentioned in the post ?