My answer to How do VC firms value start ups that have a prototype but no revenues?
Answer by Raad Ahmed:
Prototypes are a great way to transform an idea into a functioning reality (even if only on a small scale). The value of having a prototype to present to an investor is certainly worth your time and energy to create. You shouldn’t feel discouraged about investing in this initial phase of business planning because you can learn so much and still attract investors if your prototype speaks to them.
The truth is, some investors may be turned off by the lack of revenue. All investors have their quirks when it comes to the type of businesses they will or will not invest in. Lack of revenue may be a deal breaker for some. However, because this is still incredibly important, I would like to discuss the benefits of having a prototype.
- Not a huge investment if you fail. Of course, nobody enters business with the idea that they will fail, but you can’t pretend that there isn’t risk. Creating a prototype allows for an inexpensive way to fail, learn, and try again.
- Detect and fix problems. When you have a working prototype, you are going to learn very quickly what works an what doesn’t. Technical issues or even design glitches can be easily handled on this level of planning.
- Easier to file a patent. While you don’t have to have a prototype in order to file for a patent, it’s still the best way to showcase that you are the first person to actually use a new product or technology.
- See your idea in action. An idea is great, but it’s not always viable. A prototype allows you to see firsthand whether or not your idea will sink or swim when it is put to use.
- You can gain financial support. While some investors will look the other way because you have no revenue, others will still be interested in your idea if it’s presented well in your prototype. They can see for themselves what your idea looks like in motion. It could be the very thing that influences them to write a check.
If you are interested in learning more about how to attract investors, you should contact a business attorney.
is a marketplace of freelance attorneys that are transforming the way clients have access to quality legal advice. We believe that legal advice should be simple and affordable. Additionally, we’ve helped over 1000 start-ups with their business concepts, and we would happy to be a resource for you. Contact us today for a free consultation.