Author: livewiregroup

Reasons to trade Code for Equity instead of raising a traditional Pre-Seed or Seed Round.

4. It will cost you a lot less equity.

If you are lucky enough to get someone to back you based on an idea or your team’s ability to deliver on a concept, then they are taking a substantial risk. In return for that risk, the investor will ask for a large amount of equity.

On the other hand, if you sign up for code for equity, the investor is not giving you money, but rather a technology so it reduced their risk somewhat. That translates to lower equity given away.

3. An idea alone is often not enough.

If you are looking to raise money on an idea or the strength of your team, it is possible but very difficult. Investors want to see real traction, a working product, a proof of concept. Something they can touch and feel that supports your pitch. Research and info-graphics sometimes may cut it, but more often than not is not enough to get investors to pull the trigger.

2. The cost of capital at your next round will be much lower.

Once you have a delivered MVP, a tangible working prototype of your product, then you have reduced a great amount of risk from investing in your business.

A working product, a proven concept and ideally validation of your market will get you to the next round of funding faster and for a considerably lower amount of equity than you would give up without a ‘proof of concept’ or ‘market validation’.

1. You will have a technology partner invested in your success.

It is expensive to set up an in-house team, especially at the very early stage. Most start-ups end up outsourcing to onshore or offshore firms. There is a multitude of things that can go wrong with outsourcing your product.

When you agree to code for equity investment, the investor provided you with the tech or code, not cash. The beauty of this model is they are not paid for their services. Their success lies in your success. There is no greater motivator for quality production than a positive return on investment!

Major Sources Of Investment For Startups

Today’s startup-saturated economy has its pros and cons for new budding entrepreneurs. Markets may have become more crowded and therefore investments needed to take your startup to the next level are becoming harder to obtain. Almost every entrepreneur goes through the peril of fundraising at some point. If you do not hail from a very wealthy background, you will eventually need to raise funds for your startup.

So you have a great idea, a concept, a gap in the market that could be the next big thing. Now, you need to find a way to achieve your entrepreneurial goals.

Though there are many ways to get funded, including government grants, bank loans, incubators programs etc. The following are the 4 major sources of investment that the majority of startups will use as their pre-seed or even seed capital.

Self Funding

The first place to look is obviously your own wallet. Some entrepreneurs save up before jumping into their new venture. They work hard and work on their company after hours. Others are lucky enough to be financially sound enough to delve right into their new business.

Should you choose to fund your own startup, you will need to put a plan in place on how you will efficiently sustain yourself and your business in the near to mid term. Be careful, It is not uncommon to see startup founders living at family or friends’ places, occasionally even in the office because they have put everything they have into their business, or they are ‘all-in’, as they say.

Friends and Family

The second place to look for funds is, quite naturally, with your friends and family. This is because at such an early stage, it is difficult to convince people who do not know you so well to invest in your ‘vision’. An idea alone without any physical presence, ‘proof of concept’ or ‘market validation’ is quite difficult to get funded.

However your friends and family know you so well that more often than not, if you are truly the right person with the right concept, they should jump at the opportunity to back your business.

Angel Investors

Another source of funding is to approach high net worth individuals within your network. IF you are truly onto a winner and you have a great pitch, you might be able to snag some startup capital from an angel investor.

How do you reach out to one? Through networking; expand your net a little bit wider, go to startup events and see if you can find people interested in your business. It would be wise to know that not all Angel investors are angels at heart. They might even expect interest on the amount loaned. Some might have an agenda behind helping you out. It is important to not accept the first offer of investment and to find the right investor who shares your vision.

Venture Capitalists

Venture capitalists are investors that provide funding to firms that have exhibited high potential of growth or are uniquely profitable. A venture capitalist usually gets involved at seed funding, so anything south of US$1 million will likely not get your average VC excited.

You need to be well informed and experienced in dealing with corporate entities and their agendas should you choose to enlist the aid of a venture capitalist. There are hundreds of cases of founders being driven out of their own business because they gave away too much, too fast and their new board found it better to replace them.

Takeaway.

While it may at first seem difficult, there are a number of avenues that entrepreneurs commonly use to get their startup idea to the next stage. The path of least resistance may not always be the best way forward for your fundraising needs. It is essential that whoever you bring on-board should share your vision and that you do not give away too much equity too early. Once you find the right fundraising option, it is up to you to execute on your plan ans provide real value for any of your investors. Goodluck!

What makes a promising startup?

In an already startup-packed economy, it is difficult, close to impossible sometimes, to come up with a unique idea of your own. Market penetration is often tricky and a majority of startups fail within the first 5 years.

Even if you are able to create something altogether unique, if your initiative is not sustainable in the long run and does not have a sustainable monetization model, you will find yourself exiting the industry early. There is no doubt that not every venture is destined to succeed. However there are clear and consistent traits between successful startups.

• A Perfect Idea

It pretty much goes without saying that a perfect idea makes for a perfect startup. What makes is perfect idea is scalability. Have a wider vision and take long-term factors into consideration before settling on your idea. Think big. Investors are not interested in good ideas to own relatively small companies with limited or niche scope. They need big visionary ideas that could disrupt multip billion dollar industries like UBER or AirBNB.

• A Great Team.

Alright, so you have a great idea, now what? Now you need the right people to execute the idea. A great team is the difference between a successful or failed venture. The quality of your team depends on education, experience and also, quite a lot—more than the rest, in fact—on the personality of each member of the team and their ability to work together.

Building a Team

You need to your weaknesses. If you are technical, find a business person. If you are a business person, find someone technical. If your industry is highly specialized or technical, find a veteran relevant to thay industry.

Once you have both of these things then the biggest challenge is raising funds which leads us to the pitch deck.

• The Pitch Deck

Creating a pitch deck is actually one of the simplest steps if you have a clear vision. Start by stating the problem you are trying to solve, then a simple explanation of how you will solve the problem. After this, include some industry data, market size and very importantly your team information; why are YOU the perfect team to solve this problem.

Once completed, it helps to practice and rehearse. Standing in front of a mirror and delivering the pitch will help you perfect the pitch. Keep practicing then try in front of family, friend and eventually start with the investors you are closest to. Remember, make sure you know your market well, you have a clear plan and be confident!

• Proof of Concept

Every startup needs that initial financial push to be able to kick-start. To avail yourself that much-needed funding, you need to develop your proof of concept. This proof is, usually, physically viable. A prototype that can be tested, measured, and improved. It works quite well for software products like apps, websites, and other similar makings—even though they are not quite physical. However, if you are a services-based startup or your product-to-services ratio hinges more on services than an actual product, there are other ways to present your proof of concept. Like visually projecting your initiative through a presentation or providing a detailed overview of how you plan to run things. The end goal is proveto your investor that your idea is tangible and will work.

For more on Proof of Concept and funding, read this blog here

• 5 Year Projections

Last, but not the least, are financial projections.

You need to be very clear on where you want to see your business venture in the next five years. This is not an exact science, the investors just want a better idea of where you will be spending the majority of your money, how you plan to allocate it and importantly, your vision for the next 5 years.

Takeaway.

In conclusion, be sure that you choose the right problem to solve. Once you have identified it, assemble a super team of experts to help you achieve your goals. Investors want to see the size of the market, your go-to market strategy and why you are the perfect team to address this problem.

Help minimize the risk of your venture by providing proof of concept. Either by building an actual prototype, or even drawings of exactly what you are looking to build and identify early customer who can vouch for their need for the product.

Once you are ready and you have all of the above, then you need to network, go out and meet people already in your industry. Reach out to influencers, potential board members. You might want to apply to accelerators or incubator programs to help get things started.

If you feel you have the perfect partner and want help with the proof of concept of validating your market, apply now for our code for equity program and learn how we can help your funding goals!

What is code for equity and why is it better than traditional funding methods?

The startup culture is taking over the world. It is what everyone is talking about and has become a popular choice for fresh grad students and seasoned industry veterans alike.

People get into the startup game for a range of reasons. Sometimes it is because they want to earn more than they currently do, sometimes because they want to make a difference in the world. It may be simply that they want to be in control of their own time and destiny, not stuck in a 9-5 job.

According to smallbiztrends.com, the reason 29% of startups failed was because they ran out of cash. Funding is what often makes the difference between a failed idea and a successful company.

There are many forms of funding which you have probably heard of. You can raise money through Bank loans, Friends & Family, Angels Investors, VC’s or go through various Incubator’s or Accelerators who will often fund your company and provide guidance along the way.

A not-so-common way of raising funds is “Code for Equity”.

What is Code for Equity (C4E)?

With Code for Equity, you compensate for the funding you receive with shares from your company. The percentage that you give away depends on your company valuation, product development stage, and a host of other variables and can be anywhere between 5-30%.

Code for Equity Vs. Traditional Funding.

In comparison with traditional funding, Code-for-Equity is often a road less traveled. So why would you choose it over the traditional methods?

  • 1. The cost of capital is much lower with C4E.
    When you take money for equity, specifically at an early stage company (pre-seed and before an MVP is built), the investor is taking a huge risk and therefore often wants a large percentage of your company.
    When you trade code for equity, you get a product/tech in return for a fixed amount of shares/equity. The risk is significantly reduced for the investor and so they take a lower percentage of your company in return..
  • 2. Future rounds are de-risked and cheaper.
    Once you have built an MVP or a product, with tangible users, a proof-of-concept or if you are lucky, market validation you have significantly de-risked your business. Where you may have given away 20-30% at Pre-seed and then a further 15-25% at the Seed round, you will now be giving away a significantly lower percentage at the pre-seed stage and accordingly at the seed stage with a product built.

Risks

The biggest risk with code-for-equity is similar to all outsourced projects, where the initial Intellectual Property (IP) is going to be shared with a third party.

Arsalan Amdani, CEO of LiveWire Group, an active investor through C4E says “The investments we make are long-term plays. Start-ups are one of the most illiquid and high-risk investment options. The biggest advantage of partnering with LiveWire Group to build your MVP rather than outsourcing to a development firm is that we will have a vested interest in your success. This guarantees the safeguarding of IP as well as maximum motivation to achieve project quality and timeline goals”.

Takeaway

At first glance, code-for-equity seems like a harder road to travel. There are more initial negotiations and trust required in your investor than traditional methods of funding. However, if you are able to find the right partner, it seems there is no doubt it is a great option and will result in much lower dilution of the founders, along with a higher chance of further funding for the startup.

If you would like to apply for the code-for-equity program with LiveWire Group, click here.

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