TLDR
Avoid raising big to outsource initial product builds and risk becoming a developer hostage. Secure technical co-founders with equity and prove market traction first.
Natural Intelligence (NI)
This was written without the help of AI, even though I use AI daily. Sometimes, it's probably going to be necessary to specify when Natural Intelligence (NI) is writing, for the benefit of other NIs. (And we'd better learn how to cooperate, by the way, because they (AIs) are faster than we are, and soon will be connected to one another much more efficiently than we are.)
Phenomenon
There is a phenomenon I regularly observe, which is a principal problem in early-stage, venture capital-seeking companies. I call it "Prepaying your hostage taker," and it is evidenced by CEOs raising significant amounts of money (mid-six figures and above) for the purpose of hiring developers to build a consumer-facing software tool they then plan to test in the market.
Problematic
It clearly signals the founding team does not have the necessary technical chops to execute the project baseline. Today, particularly with tools available, the expectation is that the technical start or heart of the team is clearly at the table for equity before cash. Raising cash to pay outsiders for your first wireframes, early betas and maybe even initial production products puts you in the unenviable position of being...
Held hostage later by the outsourced development team, who, generally speaking, are more valuable than you are on a day-to-day basis. Meaning they can earn cash, and while they're happy to earn cash with you today, you can rest assured that they will earn cash with whomever is offering it tomorrow, when you almost certainly, inevitably, as startups do...
Become cash-constrained while seeking your breakthrough model and product — because you almost certainly will not hit either, or both, out of the park on your first try. If you are the type that can consistently hit either or both out of the park on the first try, then you're probably not looking for other people's early-stage capital to deliver on your product vision.
Backwards
It's well understood by now that leading with the market (or these days, even better, leaning into a community one has built or joined), and then developing products for that market and community, is much easier and more cost-effective for your average nontechnical CEO than it will be to design, develop, deliver and support a brand-new tool for a market not yet proven.
Ideas
Go back to the drawing board.
Develop a market or community to serve.
Attract a technical co-founder with more equity than cash (it is understood that people have to eat).
Bootstrap the first wireframes, alphas, betas and maybe even 1.0 version in-house.
Demonstrate significant traction (thousands of users, tens or hundreds of thousands in revenue).
And then reapply for funding consideration.
Summary
Early-stage companies all too often make a critical mistake: raising significant capital to hire external developers, which I call "Prepaying your hostage taker." This signals a founding team's lack of technical expertise and leaves them vulnerable to outsourced teams that hold the code. Instead of paying outsiders, seek a technical co-founder with equity, bootstrap your initial product, establish a strong market or community, and demonstrate traction. Then seek venture capital.
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