5 Essentials for Maximizing Results From Seed Capital

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One of my favorite consulting services is to advise founders on how to start their own startups.

I work with a founder who knows what problem he wants his startup to solve and asked him for advice on how to work with potential investors to raise capital.

He has persuaded some investors to write checks and, as money rolls into his bank account, he turns to the most efficient use of this capital.

Based on the hundreds of entrepreneurs I have interviewed and the seven I have invested in, I know there are many pitfalls to avoid at this point. One of the most dangerous is the desire of a founder to build what he believes to be the perfect product. But what if he spends every waking moment coding, only to realize that all of his seed capital is gone and that his startup has no paying customers?

Here are five steps that founders should follow to make sure they turn their seed capital into a paying customer.

1. Build a diverse team.

The founder should not work alone to develop the product of a startup. Instead, she should form a team that includes a customer who really wants the product from the startup, a technical person who will build the prototype, and a sales or marketing person.

If you are selling your product to a company, the perceived need for your product may vary depending on the level of the organization. For example, the CEO of the company may see your product as a way to cut costs, the managers reporting to the CEO may see it as a way to do their jobs more efficiently and the people who use it will want your product be simple and bug free.

You should start with your team’s CEO, move on to department heads as the concept develops, and work with users once you start coding.

Related: Find out which investors you haven’t considered yet

2. Agree on a clear goal.

You then need to lead your team to agree on a common goal. For example, Y Combinator gives start-up teams four months to demonstrate their product to investors and win their first customer.

Although four months is not the right period for each start-up, I recommend that the founders set a similar specific objective once they have raised the seed capital.

3. Build an inexpensive prototype.

Your next step should be to ask a potential client to describe the pain they want your company’s product to alleviate. Let its description inspire you to design a product that will relieve his pain, then build an inexpensive prototype of your inspiration.

If you want to create an app, model some screenshots of what the main screens will look like and show them to your potential customer. If you are building a product, you may be able to build a simple model out of balsa wood or use a 3D printer to print a simple version of your product.

Set time and cost limits for prototypes, because you will probably have to create four or more versions before you can get something good enough for a customer to pay. If you have raised $ 50,000, you should not spend more than $ 10,000 on each version of the prototype.

Related: the challenges women face when raising venture capital

4. Get feedback from early customers.

Once you’ve built the prototype, show it to your potential customer to make sure you understand it. Before spending too much time and money creating a product, you need to know if you got it wrong or if it communicated incorrectly.

To find out, ask her what she likes about your prototype, what she doesn’t like and what she really needs you to add to it.

If she has a long list of features she would like to add, ask her to rank the features according to their value to her. Ask her what features she would pay the most for and why.

5. Repeat steps three and four until you register your first customer.

You need to build constantly improving prototypes and keep showing them to potential customers for feedback.

If you do it effectively, you will end up creating a version of your product that is good enough to convince one of these early customers to pay for it before your startup consumes its seed capital. When you do, you will be able to overcome the next obstacle to the success of your startup – from your first customer to your hundredth.

Related: 5 Things Investors Want To Know Before Signing A Check

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