Questions

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.

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 9 years ago

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