Is $50,000 the Right Amount to Give Startups?
Recently, when I was advising a new startup, I suggested that they consider getting some seed capital by joining an incubator or accelerator programme. There are lots of them here, and around the world, and if you're adventuresome, you could find yourself turning your idea into a reality in France or Korea or other glamourous locations. Many of these programmes come with some funding, accommodations, mentors, and access to markets or marketing or other needs that a nascent business might have.
But the question that I was left wondering was why do so many of these programme offer $50,000? Is this truly what most startups need to get to an MVP and launch into market, or was this some sort of arbitrary number picked by someone who wanted to spread their prize money across the maximum number of contest winners? Let's take a closer look at a few types of startups to see what might work...
1. Mobile Apps- $50,000 probably works best for situations where a couple of people want to create and launch a mobile app. For this amount, you can pay the developers something reasonable for the 2-4 months that it might take them to develop, plus have some cash leftover to promote it upon launch.
2. SaaS Software- $50,000 is probably not enough to properly get the company to the point where it can be launched and start becoming self-sustaining. Like with the mobile app, it is possible to develop a prototype, but SaaS software might be up against well-funded competitors, or need a long time to establish a self-sustaining cash flow, so it might be the case that this kind of startup would need Series A funding soon after launch of the MVP.
3. e-Commerce Startups: $50,000 is enough to create a custom website for an e-commerce site, and launch it, but be prepared to spend a lot on digital marketing and even traditional marketing. This might not be enough budget to truly break through to establish brand awareness in consumers' minds. A work-around could be to launch a mini-shop in an existing marketplace, such as TMall or sell your products, if they're distinct enough, via Amazon, and stay very lean in the early days.
Verdict: POSSIBLY NOT
Is there a better way to fund startups so that they can have enough funds to be successful, but not so much that it causes them to go slower, go off track or get bogged down in too many hires too soon? Or worse- run out of funds before the company can realistically launch commercially?
Factors that startups and their angel funders and incubators should consider include:
*The type of tech and business strategy planned.
*The competitive landscape (are competitors fully funded? If so, it may be difficult to go up against them just by growth hacking).
*The time and other resources needed to develop the product before launching commercially.
*The expected adoption rate for the product.
*Whether the product will require significant marketing costs to reach target consumers.
Whether you're an Angel Investor, incubator or startup looking for funds, truly assessing your need for funds can help you avoid failing by having the wrong amount of funding.