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Startup Financing: How To Attract Investments Through Outsourcing

Nataliia P. - February 18, 2022 - 0 comments

According to CB insights, 35% of startups fail because of no market need for their product. This figure indicates that companies are not spending enough time on research, planning, and concept validation. Therefore, they lose money when it turns out that their product is not in demand. To avoid this situation and wisely spend the attracted investments, startups need to adhere to a consistent product development scheme. This post will provide a step-by-step guide of product implementation to help you succeed in startup funding.

What are startup funding rounds?

Startup funding rounds are the stages of raising funds for business development. There are three early steps of attracting investments – pre-seed, seed, and Series A. 

At the pre-seed stage, startups test the hypotheses of the business idea and decide how to turn them into a product. Investors are the startup founders, including FFF resources – friends, family, fools.

At the seed stage, entrepreneurs look for a product-market fit. That is, they determine what problem their product would solve. Investors are angels, seed funds, grants.

At the Series A round, companies grow and develop a product approved at the product-market fit stage. Investors are venture capital funds.

All other rounds occur later when the business enters into a mature stage of development. They are called with the alphabet letters – Round B, Round C, Round D, etc. The number of letters depends on the business development speed and company ambitions.

what are startup funding rounds

Startup funding rounds

Why do you need a product development plan?

Although each funding round is of great importance, the first three are essential for company development. Startups attract pre-seed, seed, and Series A rounds at the rise of their business. At this stage, they can guarantee success neither to themselves nor their investors. That is why, to inspire confidence in potential partners, they need a step-by-step plan to show what, when, and how will be developed and released.

The classic product development consists of eight steps:

Market need identification. Your idea may be brilliant, but it won’t succeed if it does not solve any problem. To prove the high probability of project success, you need to identify the target audience long before the product is developed. Given this, the market need identification is the first step towards launching the project through investment attraction.

Opportunity quantification. Your investors want to know how many people are ready to use your product to solve their problems. For example, let’s say you have determined that dancers want their own social network app to communicate on dance topics. However, a few dance schools in the target region cannot make a sufficient customer base. In this case, you need to either reconsider your idea or change the target market.

Product conceptualization. Some software solutions are self-explanatory while others require clarification. At this stage, you need to explain how a particular product feature will solve a given user problem. For example, integrating a payment gateway into an e-commerce app will eliminate the troubles associated with cash on delivery. Also, it will simplify the refund, if such a need arises.

Solution validation. Here you need to prove that the solution you have chosen is technically feasible through a proof of concept (PoC). To do this, you need to highlight the most difficult feature in your app and ask the technical experts if it is possible to implement it. If they confirm it is possible, you can consider that your solution is validated.

Creating a product roadmap. A roadmap is a graphical overview of project goals and deliverables presented on a timeline. To build a roadmap, you need to take into account the market trends and technical limitations. A thorough analysis of internal and external influencers will help display realistic deadlines of the product development stages.

Developing prototype. A prototype is a simulation of the final product. It displays the app’s look and feel and shows future user experience. The main goal of prototyping is to test the user’s journey, reveal product shortcomings, and fix all the issues before the development starts.

Releasing a minimum viable product (MVP). MVP has minimal, but sufficient functions to satisfy the first consumers. Its main task is to receive feedback from customers and form hypotheses for further development. MVP reduces the time and effort required to test an idea before developing a full-fledged product.

Enhancing a product with extra features. The last stage of product development is filling it with extra features to enhance its value and attract more customers. This process is iterative, which will accompany the product throughout its entire life cycle. The team will constantly monitor customer feedback and market need to keep pace with trends and deliver a suitable value proposition.

product development steps

Steps of product development

How outsourcing can help you attract investments

A known fact is that 90% of startups fail. The reasons seem to be simple – bad ideas, bad implementation, bad leadership. However, very promising projects fail too. Why is this happening?

Tom Eisenman, the author of the book “Why Startups Fail”, thinks one of the main reasons for that is “bad bedfellows”. Here the author refers to a typical early-stage company failure associated with unreliable partners. A startup may have a good idea, business plan, and market opportunities, but lack a qualified team to bring it to life.

Considering the shortage of tech specialists, this problem is not easy to solve. It takes months, if not years, to find skilled developers. Not all startups are willing to wait that long. Moreover, not all developers want to work with a novice company that cannot guarantee long-term cooperation.

Given this, software development outsourcing is a win-win solution opening fast access to qualified IT specialists. Whatever project you have, the remote team can start implementing days to weeks after signing the contract. By choosing to outsource, you can hire a dedicated team or opt for the time and material or fixed price models. You can actively participate in development flow or outsource management functions. Additionally, you can make adjustments to the development process after agreeing with the team.

Choosing a reliable technology partner

Having decided to outsource development, you will face another challenge – to partner with the right service provider. To find a perfect match you will need to spend some time on research: check company specialization, projects, clients’ feedback. The final decision should be made after personal communication with the vendor’s representative. Having studied the project estimate, you can decide whether their conditions are suitable for you.

At Softensy, we have been running web and mobile development for ten years. Our expertise extends to eCommerce, banking, investment, real estate, BPA, CMS, CRM, and other B2B and B2C apps. If you are looking for a reliable provider to implement your project within the agreed deadlines, get in touch. We will be happy to translate your idea into a profitable app

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