Angels or VC's - What should a free web application do to attract their attention?
Is traffic, retainability, volume, constantly growing registration and users base enough to be able to attract VC or angel investment? I am talking about an already launched free web application, not an idea or concept. How "successful" should it be to be able to attract investment?
I would need investment to take it to the next level and offer premium paid services to those who are lured to use it for free.
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why would an investor be interested in "freE"? – Tim J 13 years ago
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@Tim Free is ok. Things don't have to make money from day one. In fact, early revenue is often a distraction from building the best product. – Genadinik 13 years ago
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@Grenadik - Free is no way to run a business. 99% of businesses who try to follow in the "Free is the way to make money" (ala facebook and twitter) will end up succeeding only in the free part. They will NEVER make money and never be profitable and will result in failure. Best to start off actually making real money. It is a BAD idea to start off thinking about how you can give stuff away for free. – Tim J 13 years ago
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@Tim, isn't Facebook free? free for users doesn't have to mean zero revenue. – Ron M. 13 years ago
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@ron - sure - facebook is free - but you are picking a company that is one in a million - in order for a company to succeed as free they have to attract huge audiences or do something else spectacular. Again - trying to win the lottery is no way to runa business. – Tim J 13 years ago
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@Tim, I agree. If you have Facebook's traction and traffic, you can make billions off of ads alone. The smaller startup cannot be 100% free. It *can* be based on the Freemium model, which means a wide base of features of available for free, and some premium features are available for a fee. This is very common today. I happened to stumble on some statistics from EverNote (cloud notebook service). They have 10 million users, of those, about 470,000 are premium paid users, the rest are use it for free. – Ron M. 13 years ago
2 Answers
All of these have to be present to get their attention:
- BIG opportunity
- Interesting market for them
- Innovative product
- Super experienced and proven team
- Defensible product
- Traction (the items you alluded to in your question)
- Experience in the vertical by the founding team
- Clear, efficient monetization model
Great product... goes without saying doesn't it - which is why I won't talk about this much. It has to be compelling, plenty of scope to scale and return significant value. It should be defensible like Genadinik said, i.e. hard to copy.
Compelling, passionate founder(s)... is really important. Often a startup will get investment purely on the back of believing in the person, rather than the product. I know angels that have backed people knowing that even if the current venture doesn't work, a future one will because they have a high degree of faith in the founder.
Paint a picture... as you already have a product that is out there you'll need to show where it can go from here. Plan. Focus on painting the vision of what it could be, given the appropriate investment and backing. Use the product as it is today as a starting point and evolve it out 2 years, 5 years even. Demonstrate clearly how it will result in significant value to the investor.
Some angels like being hands-on... If you find an investor that has key experience in your area and is likely to want to help if they invest, tailor your pitch to them and show how their involvement is likely to accelerate the growth and success of the company. People like to feel wanted and useful.
Hope that helps.
