If you’re building your startup in the south you’re not going to be able to raise money from Angel investors without significant revenue. There will always be exceptions, but most investors aren’t going to invest in an idea. They want to see a proven concept with some real traction and a plan to scale the business up.
Investors want to de-risk their investments as much as possible. And the overall capital climate is more conservative in the south than out west.
This leaves founders 3 options for funding their MVP:
If you have the money and are comfortable taking on all the risk, you can always fund your business yourself.
Pros: You get to keep 100% of your company.
Cons: Not everyone has tens of thousands of dollars to invest in a new business venture.
2. Friends and family round
Go to someone you already have a relationship with, someone who believes in you and knows what you’re capable of to raise the money. If you have friends or family who can handle the financial risk, this can be a great way to get your business off the ground.
Pros: You give up a small percentage of your company to people you trust, or take on debt at little to no interested.
Cons: Your investors most likely won’t have a ton of technical experience.
The third option is to build your company manually. Start small and start generating revenue right away, then re-invest that all back into the business.
You may start off by consulting and build software to augment your consulting down the road. Or you could hack together existing solutions to create what feels like an entirely new product.
Pros: This has the added benefit of validating your idea before anyone puts money in.
Cons: Going the manual route is a much slower way to build a business.
Lauren Sturdivant went with option number 2.
After pouring her life savings into her business, she raised a small friends and family round in order to get her MVP off the ground. And within a week of launching her product Case Status she had her first paying customer.
Hey Lauren! What’s your background and what are you working on?
Hi! My name is Lauren Sturdivant. I am the Founder and CEO of Case Status, an app for attorneys and their clients. I’m an attorney, and I have been practicing law for seven years.
"From the beginning, I was very open with my family about what I was trying to accomplish. Before I approached them for money, I put together a business plan and found a development team."
Founder & CEO of Case Status
What motivated you to start Case Status?
During my years of practice, there were two pain points that were consistent regardless of the practice area.
1. Dealing with client calls
In general, clients are going through an incredibly tough time in their lives, and they want consistent updates on their cases. When they don’t hear from their attorneys, they think their attorneys are not working on their cases.
On the other hand, attorneys cannot get work done/focus on building their firm if they spend the majority of their day on the phone updating clients. This is especially true for personal injury attorneys. In personal injury law, you only get paid when the case is complete. So you can’t bill for the hours spent on the phone.
Lack of communication is the top complaint clients have regarding their attorneys. This disconnect creates distrust with the person that the client should trust more than almost every other person in their life.
2. Getting new clients
There are very specific rules about how attorneys are allowed to market themselves. This makes getting new clients one of the biggest challenges every growing firm faces. Referrals are the number one way attorneys get new clients.
So Case Status also lets clients refer their attorneys with a single click.
How did you fund the MVP of Case Status?
Luckily, I had money in savings to start the initial process of creating the MVP. As we dove further into the project, I raised money from family.
What did you need in order to raise money from friends and family?
From the beginning, I was very open with my family about what I was trying to accomplish. Before I approached them for money, I put together a business plan and found a development team. It was only once I had a solid idea for how much building the application was going to cost and how I was going to take it to market that I asked my family to invest.
They believed in me, and they had funds available so they were willing to invest in Case Status.
How did having an estimate and a prototype of your app help?
When I showed the Case Status prototype to friends and family, their eyes lit up. I explained the problems, and they saw and understood how Case Status solves those problems. There is something about having a working prototype that brings legitimacy to what you are doing. If you have to raise money, I would suggest developing a prototype to show investors and receive feedback.
Case Status Prototype
The Invision prototype of the Case Status iPhone app that Lauren used to raise her friends and family round.
How did you decide who to go to for your initial funding?
It is important to go to the people you trust the most. You also need to approach people that have the funds available to invest and can do so without expecting a return right away. You do not want to put anyone in a difficult financial position.
Can you also talk a little bit about why you should be careful how many people you go to?
If you are offering and selling securities to even one person, you have to either register with the SEC or fall within one of the many exemptions under the Securities Act. When you start taking money, you need to know those exemptions.
The exemptions discuss the permitted number of investors as well as the amount of money you can raise without registering with the SEC. Registering an offering with the SEC would make your company a public company, and going public is a very significant step for any company.
How did you decide how much of your own money you were willing to invest?
I was willing to invest all of my savings. I believe in what we are doing, and I believe in myself, and I was willing to go all in to achieve my goal.
I am an all or nothing kind of person and I knew that I could never build a company if I was committed to another job. So after doing some financial math, cutting down on expenses, talking to other loved ones whom supported me in this journey, I also decided to quit my job.
Granted, it is very tough. Every month is financial jujitsu, but I believe in what I am doing and I know I made the right decision.
Talk a little more about the specifics of raising the money.
Considering I was dealing with close family, we did not draft a contract. I need to repay the money eventually, but everyone was on the same page in that we do not know when that is going to happen. It’s important to be clear with expectations, thus, if your investors are not close family members (and even if they are), it is best to put the agreement in writing.
Is there anything you would have done differently getting the MVP of your app off the ground?
No, I would not change a thing. If you don’t take risks, you don’t reap rewards. Also, you can't expect another person to invest money into your business if you don't do the same. Your level of investment is a clear indicator to others how serious you are.
What has been the most surprising part of building Case Status?
The most surprising part of building Case Status is meeting others in the startup community and realizing how supportive everyone is. Fellow entrepreneurs are willing to go out of their way to share wisdom, war stories, and make introductions. There is major talent in this community, and knowing that you are not alone is a huge help.
What’s your advice to new startup founders?
If you have a dream/goal, you can achieve it. However, on the same note, you have to be willing to sacrifice everything to achieve that goal. Nothing will be handed to you, and you will have to fight with every fiber of your being to grow your startup into a big business. You have to be honest with yourself from the beginning and understand what it is going to take to achieve your vision.
As you get started, I would suggest getting involved in the startup community. Attend events and try to meet people. Attempt to find a mentor or someone you can contact with random questions that has been through the process. People are busy, so offer value to potential mentors in order to learn. Lastly, break down your goals into achievable steps over the course of six months, and hold yourself accountable to those goals.
What is your biggest challenge right now?
My biggest challenge is on-boarding new customers as smoothly as possible. I knew I needed help in this area, so I found advisors who are helping me smooth out this process.
Where can people go to learn more about you and Case Status?
Visit us at www.thecasestatus.com for more information, and we are happy to provide you with a quick demo. Also, if you have any questions, feel free to reach out to me personally at Lauren@thecasestatus.com. Good luck, you are going to kill it!