Questions

How to raise money for a hardware startup that needs money upfront to even produce a prototype?

I want to start a hardware startup where I have a solution for home water monitoring. The problem is: some investors are already requiring a prototype and most of them are requiring an existing customer base, and a validated market. But how can I validate my product and make a prototype if I can't even get started? I tried raising cash from the family, but no one has an amount available for me. My other options were selling my car (it is worth only US$ 2k) or saving myself. But I would need to save for at least 2 years and I don't want to wait all that long or I'll lose momentum. Notice that I am from Brazil, some points to consider: 1) Some states are going thru water shortage crisis. So my solution would come in good time. 2) There are just a few angels here (around 100) and they aren't that open for projects without a customer base. 3) Banks require credit proof that are 150% of the amount that I want to lend. So if I want 50k they require a guarantee of 150k.

5answers

Have you considered crowdfunding?

Investment grants will be able to take care of funding but crowdfunding has the benefit of taking care of funding and providing a customer base.There are many examples of teams without a fully working prototype being successful on these platforms.

Kickstarter will be off the table but you have some great options with Indiegogo (https://www.indiegogo.com/) and the Brazil specific network Catarse (http://catarse.me/en)

Of course, you will have to focus on things like presenting your story and getting attention for a bit but if you are successful you will have money for a prototype, access to a customer base and exposure that could bring some helpful people onto your team - even the angels and VCs you'll need to get to the next level.

Message me if you need some help - I'm not personally an expert in crowdfunding but I can connect you with some of the best in the business.


Answered 5 years ago

HI...

In your case, banks may be a difficult option. May be in the future you start thinking of banks to redesign the company equity / debt leverage ratios. But not now...

To raise the fund you have some few options..

Venture capitals / private equity is your main target of course. Those who want a customer base will be avoided.

Having it really dififcult to convince these people is something normal, but also, consider you may be doing something wrong, or incomplete. Regarding the feasibility study or the business model. You need to review that..

Why can't you have a proof of concept ? or a prototype ? How much do you need ? How much would it cost ?

what about the tech labs in the university ? The schools of engineering may have some fund. Actually lots do to fund research and small projects. You may also find some other students that can help you build it for a share ..

Go to one of the factories, but make sure you speak directly to one of the board members , CEO , head of engineering or research.. Lots of companies support intrepreneurship. They can then hire you and fund your project as a subsidiary of their company.. That's another option.

Some famous funding alternatives can be intel capital (http://www.intelcapital.com ) , or Bill and Melinda Gates Foundation ( http://www.gatesfoundation.org ) . You may be able to have a grant from this foundation if you have a cause, like the water issue you mentioned. (still your idea is not clear to me )

If you go to angel investors, or some platform like angel.co , you can post a job asking for a partner to raise money for the project.

I will also not mind sending proposals to big banks outside your country. If the project is profitable they will fund it.

and ...

It is always tough in the beginning. Never loose the spirit.

Good Luck!


Answered 5 years ago

Here is a list of places you should check to see if you can crowdsource you idea in Brazil:

https://beta.catarse.me/en/projects
http://www.ulule.com
http://ideias.me

Can't tell you if they would take hardware but you should also look into the brazilians accelerators http://startupbrasil.org.br/landing/guide-of-accelerators-startupbrasil.pdf

Hope this can help you get started


Answered 5 years ago

See if there is a way to make a prototype even if it is wood and wires. Arduino boards are relatively inexpensive.

& Take a look at: http://highway1.io/


Answered 5 years ago

Well, for reassurance, this is a problem for almost every hardware-focused startup unless you are an entrepreneur with a successful track record. You need funding to build a prototype, but those providing the funding want to see a prototype first. The key is to focus on funding options that are appropriate for your current stage of development. I'm not familiar with the startup ecosystem in Brazil, but here are my thoughts:

1. Banks - no need to approach a bank or any typical lending institution. They will require collateral and some revenue history or payables.
2. VCs - you're too early for VCs. They typically want revenue being generated or potential customers lined up and usually aren't the first ones to invest (unless you've been successful with them in the past).
3. Angels - many angels are now requiring a prototype or customers lined up. An introduction to an angel investor may get them interested, but it sounds like you've already exhausted this option.
4. Friends and family - depending on how much you need, you could raise the funds through those you know. This highly depends on the relationship as they can lose all their money.
5. Vendor financing - you may be able to have a contractor build a prototype for you with no upfront cost but with an agreement for future compensation such as revenue sharing or equity.
6. Government funding - considering you are addressing a federal and state problem, maybe there are government funding options such as grants.
7. Crowdfunding -you may be able to crowdfund your prototype development. It's worth looking into, just make sure you become aware of the strings attached regarding crowdfunding including any regulations in Brazil.
8. Bootstrap - you may be stuck bootstrapping, which is really the best way to go in the early stages if at all possible. With electronics such as Raspberry Pi and Arduino and numerous 3D printing options, you may be able to build a minimal prototype on your own just to prove your concept and have something to show people.

Feel free to get in touch if you need more guidance on early-stage funding.

Good luck!
Gareth.


Answered 5 years ago

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