Should I try to bootstrap or find investors?

I am selling a b2b enterprise software application. We have been in development for about 4 years, which include some beta testing. Over the past 5 months, we brough on a couple developers with experience launching enterprise applications. Unbeknownced to me, the code was in shambles and the architecture and database structure had to be rewritten from the ground up. These two developers are working part time for equity incentives. They are estimating another 6 weeks before we can give demos.

In the mean time, we have been out gaining significant traction at industry conferences, and even have one client ready to sign us up as soon as we can demo the application. This client would bring in roughly $200K per year in licensing.

Financially, we are completely out of cash, after spending about $250K on R&D over the past 3 years. The question that I am having a hard time answering is this. How should I bridge the gap in terms of financing? We will be hard pressed to find any investor up front to give us money without a demo. Once we do have a demo ready, I'm 95% sure we will be able to sign up the client above. Should I be patient, continue as is with part time developers, and try to bootstrap the company with the first client's revenue? Or should I try and get significant financing, allowing us to bring on multiple developers right away, as well as myself, and our sales guy? I really don't want to half @ss it with our first client and then potentially ruin the relationship and lose a reference from them.

Thanks in advance. This might be one of the most stressful times I've faced during this company's life span.

Sounds like you're a non-technical (co)founder. How is the IP of the enterprise solution protected? I ask because your description of the situation seems to imply that an entity would spend ~$200K per year on licensing at the point that a demo is ready. Having worked in both small and large enterprise software companies, my reality has been a demo or prototype still requires a lot of development effort (usually more than initially estimated) to make it production-ready. Is there a mechanism in place that protects the value of the software or could any competitor with access to more capital wipe you out in a few short weeks?

I think both financing options you proposed are valid. If an enterprise is willing to part with ~$200K per year at a demo stage, then that can fuel perhaps 2 additional year of continued R&D per year of licensing. The benefit is that if the t&c's are lax, then you obtain capital in accordance to the terms with an assumption that the product will be delivered (the customer then takes the role of an investor, assuming they don't require immediate (or near term) delivery). On the other hand, if you find investors, they'll likely want a return that could include some part of the company. Since you've already been in dev for some time, you may be able to raise more capital from an investor, but like you said, you'd have to be able to run a dog and pony show. In addition, you may have to spend more time working with the investors from an operational perspective. On the other hand, the investors may be able to connect you with resources that make you more successful in the long run than flying solo.

Alternatively, there are other sources of funding that's available. Friends and family are always sources of capital commonly overlooked. After that, you can take out additional funding through LOC or loans. Not a great method because the cost of capital can be quite high, but it may buy you a few months if structured correctly. If the issue becomes a delivery problem (i.e. having a competent team that can deliver on time (there's always a risk that a new batch of developers may claim that the new re-written code is crap)), then you could always sell the IP protection itself.

HTH and good luck!