When is the best time to look for seed funding for a web-based app - before launch or after?

I have been developing a web-based eCommerce niche app for the past year and am getting close to launching. While I cannot disclose too many details, lets just call it a sort of Shopify, but taking it to a whole different level.

While I can support the project financially myself to a certain level, as it gets bigger I definitely will need funding at some point to support employees and expenses until it reaches profitability.

I fully realize I need to sacrifice a percentage of the company and possibly even voting rights.

The only question I really have is ...

• Is it better to launch the website first and gather as many users as possible and then approach angel investors or venture capital firms and show them "here is what I have achieved" and "here is where I believe it can go".
• Or is it better to approach them with the idea and finished product - but before launching?

This is the first time I will need angel/venture funding for a project, so I hope someone who has already gone through it can assist me.

Thank you very much :)

Before the launch, you have a dream to sell: "this is what it could become". If your dream isn't a fantasy, then you can actually raise money. After the launch, you're selling reality: "this is what it is". So based on that perspective, here are the four possible outcomes:

1) You launch your product without raising funds and your business model works: you built it and people come and come back. In this case, you'd be better off raising money after the launch because you'll have more negotiating power. This would be the best outcome for you and the company, but not necessarily the most likely, especially if you have very little business experience.

2) You launch your product without raising additional funds, your business doesn't work. The dream is gone and now you're selling reality: "I have a site that's not working, do you want to invest?" That's going to be a tough sell; you better have the funds to fix your site if you find yourself in that position.

3 ) You raise money before the launch and it works: great. Now you've got funds to scale a working business, even though you probably had to give a somewhat sizable portion of your equity and control. Not bad at all, many successful businesses took that route.

4) You raise money before the launch and your business model doesn't work. This is the nightmare scenario because even if you have the entrepreneurial vision of what it would take to fix the business, investors will probably take away your decision making power, and perhaps even oust you (Losing Controlling Interest in a company, can that be bad? )

So here are my recommendations based on your situation:

A) The most expensive money is the first money you raise. If you have the funds to launch your business then I recommend you also leverage these funds to secure debt and have enough cash in the bank to operate the business after the launch. Basically, you're going to have to give up a lot to raise funding before launch, not just in terms of equity but also control, not to mention that you could end up with terrible partners in the long run. So, when money is that expensive, borrow it. That way, if you land in case #2, you'll have some runway to get to case #1.

B) Find qualified and experienced advisors who can help you avoid some of the inevitable mistakes. As an entrepreneur, you'll quickly come to realize that everybody is going to want to give you advise: how do you tell the good ones apart? In my experience, good advisors listen first to everything you've thought of and then think of what can help you. Bad advisors cut you off early and come up with ideas and advise that you've already thought of anyway since you've been working on your business for far longer than the 10 minutes they've spent thinking about it, not to mention that a) some seemingly good ideas turn out to be not so great once you think two or three steps further and b) someone may have been very good at building a company in some unrelated space but might not be best suited for your particular business. So find advisors who listen first and who can help you in your particular space.

So to answer your question, it's best to raise money after the launch IF you end up with a working business model. Now of course, before launch, there's no way to know how things will work out, so if you decide to raise funds after the launch then you're also taking somewhat of a risk of ending up in case #2. I think that the best way to reach case #1, apart from having a good product for which there's demand, is to have cash on hand and good people around you so you can avoid case #2. Since you currently have some cash, I'd recommend leveraging it to secure additional funding through debt financing, and looking for good advisors.

Good luck with your business.

There are two types of startups, how and when to raise money differs greatly between the two so it's important you know what type is your company.

1. The "go big or go bankrupt" approach This is a company that plans to be the next Google/Facebook or be acquired by Google/Facebook for obscene amount of money, if you fail to be one of the few companies that get acquired for billions of dollars you go bankrupt - there's no middle ground. The business model is usually giving some service for free, usually at great cost, in the hope that some day some huge company will decide they really want to spend billions on bringing you in, usually as part of some power struggle between the giant companies and not really because they value your product. If you go this way you need lots and lots of money to gain a ridiculously large market share before any one notices and tries to compete with you - and there's a tradeoff between two factors: On the one hand, you want to get as much money as possible as early as possible because you will need this money and trying to raise money when you are weeks away from going bankrupt will be difficult and expensive. But on the other hand, if you do succeed in capturing a big market share it will be easier and cheaper to get funding later. Basically, if you really believe you are going to be a huge success you take the minimum investment possible and do it as late as possible because the more successful you are the better deal you'll get - however, with this strategy if you become anything less than a huge off-the-charts success you will run out of money - so you'll probably be better off taking investment when you still have money to operate for some time and take a little more than you'll need to get to the next round of funding.
2. The "actually make money" approach There is an alternative to the sexy startups being acquired you read about all the time (and the many more startups who go bankrupt and you never heard about) - a startup that actually makes money (unbelievable, I know). In this type of company you start small, get paying customers and you the money to grow the company slowly. In this case you need only a small sum of money to start and it's usually better to get this money as bank loan you'll repay after a while and not an investment you'll have to deal with forever. In this case it's always better to take investment as late as possible, if you have a small profitable business and you want to take investment in order to grow faster you are in a very good place negotiating the deal because you don't really need to money - or maybe you'll just never take outside investment and have full ownership and control of your own company.