For start-ups, cash is always, well, expensive—and elusive. Early stage investors (HNIs, Angels, friends and family, Seed Funds) who are themselves usually investor-evangelists, need a demonstrated, tested and ‘battle-hardened’ concept before parting with funds. Therefore, start-ups and entrepreneurs need to go beyond their great ideas and get down to figuring out and eventually, walking the talk. A proof of concept (PoC) makes you aware of your challenges and the future road-map, thereby, raising the level of confidence of your potential investors in your business idea and team commitment.
The PoC is also commonly referred to as a Minimally Viable Prototype or Product (a.k.a. MVP). In other words, the concept should have the minimum attributes determined to make it a success among early adopters or buyers in the market. The MVP approach identifies the first set of your product advocates or evangelists. However, the attributes are very useful to be determined on their own. These could range from production values to price discovery to sales force management, design or tech. While an idea may seem like a great game-changer to the entrepreneur, it is important for start-up teams to remember that an angel investor is looking at safety first. He/ she would like to know about the viability of the business idea and not just the uniqueness of it in theory.
Of course, proof costs money. A proof of concept, to be demonstrated and implemented and eventually measured, needs to be included in the budget at the outset. This is one of the biggest mistakes and errors in judgment that is made by most start-ups. It is important to have customer feedback data to demonstrate not only the viability and sustainability of the business model, but also to show the degree commitment of the team that is behind the idea. Successful fund receivers are those who approach investors with a working model and a PoC to beat. The other good thing about the PoC approach is that the primal entrepreneurial spark — risk taking — also clearly emerges from the effort put into the PoC stage by the start-up. After all, any investor will be supremely confident and at ease with people who have risked their own money and worth into a project that they believe in.
Majority of angel investments are made in companies and people that already produce revenue. Small wonder then that angels and other early stage investors are in awe when potential customers who are willing to test/ sample your product and are, in principle, committed to purchase it, are available and identified. Any entrepreneur who can demonstrate that he/ she has access to a great idea and a method of making it a success in the real world is much closer to fund access than the entrepreneur who simply has a business idea on paper. It is of prime import that funds are abreast about the MVP stage of your fund-seeking exercise. It is always a good idea to start thinking through your proof-of-concept marketing needs right from the beginning given its significance. The proof of the pudding is after all, in the eating!