Financial model examples for downloadable content subscriptions
We're preparing a pitch deck for our startup which looks to partly make money from downloadable content. We'd like to add a subscription model for the content, and we are looking for examples of financial models or pitch decks to understand what other startups have presented when pitching to investors.
Subscriptions Pitch Business Model
1 Answer
@B20000 - Almost all my online businesses are subscription, most are SAAS, and they all differ greatly. A lot of factors come into play, including your target audience, market size, competitors, your pricing, and even how much money you can afford to throw behind your marketing efforts to build buzz.
Unfortunately if you are not that intimate with your product's market your time spent talking to investors would likely not be wisely spent.
My advice is to first study the competition. They will give you the best indicators of what you might possibly do. In business, there is one key rule: "I can do, what you can do, better".
Next, try your best to build the application or site without any investors. If you can do this you will save a ton of equity and your capital raising efforts will be more fruitful. If you can launch, without investors, and run the site for 3-6 months, you will have hard numbers you can show to any investor. After your 3-6 month "beta" period you could do something like this:
Mr Investor, Currently we have 300 customers earning us $3000 per month. Development is done, but we need 50k for feature upgrades based on our feedback. Upgrades will take 6 months to develop. We also are raising 400k for marketing. We were able to get to 300 customers with a marketing budget of $900. We have since realized what ad channels work best for our product, and feel that with a 400k investment we could add 125k customers taking our monthly revenue to $1.25m.
The point I am trying to make is that investors love sure bets. They will be willing to take a smaller cut of a sure bet, rather than a full cut of a shot in the dark. Investors love subscription apps, they are very attractive. You need to only raise what you need, and be VERY FRUGAL WITH THE AMOUNT OF EQUITY YOU GIVE UP. Its in your best interest to only raise capital when its most necessary, and almost always this is for marketing, not development.
Plus if your product fails, because its a poorly thought out product, or the market doesn't respond, you wont burn your reputation with investors. This is also key if you want to be a player in the software community. Word travels fast, and it is a small world.
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Actually, raising money only when you need it and are desperate is when you give up the most. Not great advice there. You get much better terms when you don't need the money. – Tim J 14 years ago
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Really? what sounds more desperate? A new startup without a product, just an idea, or a startup that has its legs, making some money, but just needs more money to grow quicker? @tim you wrong, I work on many web startups and have been invsestor in a few. Investments to companies establised have played more like high dividend loans, Investments for startups that were an idea... well, 1 of them I have 100% in now, after buying out the founder for 15k. He was desperate for someone to bring his idea to reality, and even more desperate for income so he ended up quiting. – Frank 14 years ago
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The fact is as an investor, I can always make good use of my money, in my own ventures, or others. I am looking for the Safest bet, with the highest return. I am not looking for a Dream or fantasy or a business that is on paper in the form of diagrams or a Business plan. I want brick and mortar. I want a starting point. I will take on a dream, and have my team build it, but for full control, and high equity. Essentially at that point I am just being nice and paying 10-15% and a reasonable salary for the person who had the idea to be on board. Most of the time they are not necessary. – Frank 14 years ago
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I always hope to find a leader, someone who is going to take charge during development and really get the most out of the business. But over time I have learned leaders dont wait for investors. They get to work. Anyone that tells you to write a business plan for something as simple as a web startup, and raise investment has never done it, or spends too much time dreaming. The reality is that most successful startups are privately owned, and have relationships with investors as an alternative to bank loans. – Frank 14 years ago
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@franky I have no idea what your rant is about. What I do know is that just like any other transaction - if you NEED to do it, you are in a poor/weak bargaining position. That is a fact. If you can walk away from a deal then you can skip the bad ones and take only good ones. – Tim J 14 years ago
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@tim, my "rant" was in response to saying that this is not great advice. If you had read the response you could clearly understand that I was advising the author to raise capital when he doesnt need it, after he has a viable product. I know there are a lot of Daydreamers out there who think their idea is golden and investors will buy in. As someone who has been on both sides of the table, i understand that raising money is not that easy. I recommend everyone read this: http://www.gidgreen.com/startups.php?topic=investors – Frank 14 years ago
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@franky, it is not great advice. And I did read the response. you clearly state: "Its in your best interest to only raise capital when its most necessary" - and I contend that when you NEED it then it will cost the most dearly. – Tim J 14 years ago
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@Tim I am in complete agreement about raising capital when you NEED it, but what i think you are missing are two things, 1. you likely dont need to raise capital to build an online business, if you dont have the capital to get the actual application built then maybe its best you learn how to save, or tap family resources, and 2. The amount of equity you give up when you need someone to believe in your plan is much higher than when you need cash to meet a payroll or to expand your marketing. You are dealing with a greater pool of investors who will invest into an existing business rather than – Frank 14 years ago
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an idea. That is my big point. I see far to many people who have the next great idea about custom dog houses, or an online dating site for armenians, all who are looking for an investment to get them started, rather than getting started and building a viable business that attracts investments. I guess I am very cynical of this approach since it is the idea that many first timers have. There are just too many would be entrepenuers who think the process begins with a business plan, leading to an investor, and then VC. The truth is it usually start with a business and investments as required – Frank 14 years ago
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Last, why would anyone attract investors when there is no need? That is like me stocking up on toothbrushes? Its a bit absurd. Anytime you are seeking investment is because you feel your business can use the capital. The point I make is to milk everything you got, down to the penny before seeking out investment because it is not cheap. Why else do you think there are so many wealthy investors? Most have made their money getting the most for their money. I dont have the hard numbers, but I am sure that 99 out of 100 startups never raises a dime. – Frank 14 years ago
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99 out of 100 startups fail. – Tim J 14 years ago
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@FrankyB What Tim mentiones about being in a difficult spot when you have some product and then decide to talk to investors is somewhat true... we decided to bootstrap, which we've done succesfully, and then we decided to go talk to angels, VCs, etc. What happens is that they then have a history to look at, and if they think your history is "too small game" for them, they aren't interested and can't appreciate what you've accomplished for some reason. And with VCs, 99.99% of the cases your history will be too small game for them.... – B20000 14 years ago
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@frankyB @tim what i'm really looking for here is an example financial model for a subscription based startup. I know every startup is different, but we're trying to understand the basic economics of a startup subscription service business model, what the key parameters are and when it becomes attractive for outside investors, etc. – B20000 14 years ago
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@b20k i still feel you are better off having a bootstrap versus an idea. It grabs more attention, and a seasoned investor might not like the direction your company has gone in, but could make the changes quickly rather than rebuilding. A remodel usually costs less then a complete build. As for your question on subscriptions, I will tell you this my subscriptions that focus on Business to Business sales do considerably better than our consumer products. There is good reason for this, our consumers use our products for personal enjoyment while business use it to advance their business. – Frank 14 years ago
