Many enterprise software programs come from service businesses solving a problem for their clients. In searching for a solution on the market, they find none, so they build their own. Later, other clients come ready to buy it.
I call this contractor funding, and it’s one of the most overlooked forms of funding in the startup space.
In this method, you sell a customized version of what you want to build to an anchor customer for a substantial one-time fee, say $250K. Then, you use the funds to build out the platform you envision, to which the customer gets a non-exclusive license.
The advantage here is you have a customer telling you exactly what they need and what they will pay for. They improve the product by testing it and telling you what changes to make. They become a happy customer which you can use to attract prospective customers.
After three more of these engagements, you will have $1M of investment in your platform with zero dilution.
For your raise, consider using contractor funding.
Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.
Let’s go startup something today!
Copyright (c) 2020, Hall Martin and investorconnect.org. All rights reserved.
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.