I have a prototype and I just applied for a patent, but the design could use improvement. Should I go ahead looking for capital, or would investors be happier with a more-finished product?

This is a common question that unfortunately has no easy answers. Investors are typically looking to take the minimum amount of risk, so it is important to have some proof of concept, like a working prototype, and investors are usually very interested in a finished product assuming there is a clear market need. However, a fully functional or finished product is often why you need their investment. My experience has been that the key to getting investment is that there is clear path from prototype to finished product that can be completed in a reasonable time period. One challenge that I have seen inventors and scientists bump into repeatedly is “feature creep,” adding additional features just because they are possible. This often increases the complexity of the development and can often lead to delays. It is important to clearly define the final product specifications and attributes before embarking on generating the final product. This enables all the development pieces to align. This doesn’t mean that future versions can’t have additional features; it is just that the first commercial product may not have every feature possible.

It is essential to do thorough market research to determine what the problem you are going to be solving requires. Because consumers rarely buy features, but most often buy utility, it is important to have a clear understanding of the competition and how your product will be differentiated from theirs and a clear understanding of how you will solve the customer’s problem. Investors will want you to have a clear product definition, a competitive market entry strategy, and a way to manage changes to your product during development.

The other thing to consider is that raising capital is often a very long process that is largely about relationship. Therefore, it can be useful to engage investors early and tell them you are going to be back for capital once you reach a certain milestone (such as a final prototype, or proof of concept). This gives them time to think about your project and gives you an opportunity to demonstrate to them that you are able to meet your developmental milestones. It also gives you valuable feedback in terms of what features that they may see.

In conclusion, approaching an investor early is generally a good thing, but you may not want to make “the ask” until the major risks have been reduced to something that the investor is comfortable with.

Darren Fast, Ph.D.
President
Solalta Advisors Ltd.
204-480-8272
dfast@solalta.com
www.solalta.com

Do you have an Investment question? Send your questions to Adam Levin