New business : Venture Capital

mick.fr · 03-02-2007 1:45am #1

Hi there,

Let's say i need 200k to start a business the first year and 300k the second year.
Business is about developing a software and a 500k budget is covering the needs for 2 years. Plus at the end of the first year I am expecting to generate sales already.

What type of structure would be keen to do this kind of investment usually ?
And what are the conditions usually ? Do they give 100% or 50% ?

It is a huge amount of money for me but for a VC this looks small I guess.

Ideally I would look for a 100% investment, even in 2 times, one per year.

Any experience on this ?

Thanks

Merrion · 03-02-2007 10:50am

Have you got the IP side of the software locked down?
Remember: ideas are not an asset on the balance sheet

VC for a totally new venture is tricky - they are more interested in growth/takeover/buyout scenarios but they might be interested if the business plan is good enough.

They will, however, want you to put your own capital in too. If you are in software development then I would suggest doing contracting for a year to build up some money and experience/contacts and start getting the software you are going to sell to a level that it can be shown to potential customers or backers before going solo.

mick.fr · 03-02-2007 11:04am

I am a freelance since 2001 so. But in consulting, not software dev.
My product is based on Unix BSD, so the OS is here and well established.
I just need to build some stuffs on the top of it, and for this I need 2 C++ coders.
So I need to afford to pay them etc...
Which is not possible at all with my own means

antoinolachtnai · 03-02-2007 4:30pm

What is the potential market? What would be your plan to give the VC's an exit in five years or so?

On the face of it, no serious VC will touch this, because the deal-size is just too small for it to be worth their while managing. Howefver, individual investors might do this sort of deal. Also, industry players might be a potential source for funding if the product is really innovative.

The BES tax incentive scheme might make this investment attractive for small investors, if the product's prospects are right.

Is it the sort of product you can pre-sell the product to any of the potential customers? That's another way of priming the cashflow.

Best of luck with it!

mick.fr · 03-02-2007 4:44pm

The potential is huge as I am actually offering a real alternative to Windows Server, Linux Server and Unix Server as we know them.

I have not done the Business Plan yet.

This product has no concurrent yet, altough I said it is a real alternative to other Server's operating systems, as it is extremelly innovative, easy to deploy and offer out of the box, data mining, business intelligence, ressources sharing, security, Content Management Solution, Collaborative work etc...

I need 2 developers to package the product itself, the OS is already written and based from an existing UNIX BSD Operating System which works perfectly on any major Server's manufacturers such as Dell, HP, IBM...
This based operating system we are working on, is the most secured in the world. And it has a huge community of end users. But out of the box is blank and offers nothing a part from encrytion, firewall, VPN and a few other thigns.

I like your ideas about the industry players, this might work. I will try to dig a little more about this, but first of all, need a good business plan.

Thank you for your time guys

misterq · 03-02-2007 4:55pm

VC and BES investors won't touch something that does't have any sales.

You need to get it to that level yourself by hook or crook
(NB: I'm not suggesting criminality here!)

If it is going to be a success, then you should be putting up some of the cash.
Why should someone stump up 100% of the cash for some of the possible reward?

But don't for a moment think I'm knocking your idea itself.

I would recommend 3 things:
- Try to get a sale or two under the belt, even if unpackaged. Maybe offer a trial/proof of concept to get people interested.
- See what you can put up to fund it, even partially (I think this might also help you rethink costs!)
- Look at possible partnerships/alliances: going it alone can be tough

mick.fr · 03-02-2007 5:35pm

Thanks Misterq

antoinolachtnai · 03-02-2007 5:57pm

Your business idea is way too broad. You're not talking about raising remotely enough money to implement what you are proposing.

I'm also sorry to say that it's not really that innovative either. There's already a product in the marketplace with almost exactly the same positioning, highly similar technology, and the backing of one of the best marketing operations in the world.

mick.fr · 03-02-2007 8:07pm

antoinolachtnai wrote:

Your business idea is way too broad. You're not talking about raising remotely enough money to implement what you are proposing.

My business idea has just been quickly detailled here, this is just an overview.
The framework and all the details have not and will not be released til I have a beta version. Should make sense ?

antoinolachtnai wrote:

I'm also sorry to say that it's not really that innovative either. There's already a product in the marketplace with almost exactly the same positioning, highly similar technology, and the backing of one of the best marketing operations in the world.

What product are you talking about ?
I a not sure we are talking about the same kind of thing here.

antoinolachtnai · 04-02-2007 1:59pm

Apple OS X Server.

mick.fr · 04-02-2007 2:20pm

antoinolachtnai wrote:

Apple OS X Server.

Oh yeah not really the same market, plus MAX OS is not really doing what I am planning to do, only partially.
But that's a really good product I agree. But it only fullfill partial business needs, lots of lacks.

is_that_so · 04-02-2007 2:41pm

From a business point to view as pointed out you need an extremely detailed plan, definitely a beta, however limited the functionality but more importantly something to show people. If your idea is the same as a current recognised product why should I buy your product if a very large company already sells it, one with a customer base I can refer to.

Enterprise Ireland may give you something if the product can be shown to have an export potential. However initially BES might be the best approach. VC guys may come in but you may not like the deals they offer.

I don't agree with misterq that you necessarily need to put a lot of cash in yourself. If you do get to a beta stage you can attribute a value to that. That is your investment.

But ultimately it comes down to the plan, market research and potential client base. The best of luck with it.

mick.fr · 04-02-2007 3:42pm

Yeah thanks "is_that_so".
You are right, and this is what I am trying to do at the moment.
A guy in India agreed to join me for free and develop the Beta version, so I might have something to show up within 3 months as the first step is pretty easy.

Now the product has already a huge community internationaly and many companies are using it, such as Adobe, for their production servers.
This particular version of Unix is known as the most secured Operating System in the world, so that helps.

My idea is to go way further what the community is developping, because what they do is excellent, but has a lot of gaps. It is not business oriented at all, it is a very good product to build servers in corporates, no doubt about this, but the product does not answer business needs directly.

Since 2001 I have been working as a consultant and I know very well Windows, Linux, Unix, MAX OS, and I know they all have some serious lacks in term of Business Features, to precisly respond directly to the business needs.

This is the main issue, having the latests terchnologies is fair enough, but how do you actually implement those features according to what a company is trying to do (Making business) and how such technologies can actually help a company to save money, make the business easier.

This is far to be easy to reply to a question like that today, because despite all Majors are claiming you save money with their products by paying them a lot of cash to get software licenses, it has not been proven this is actually true, and TCO are still very high (Training, hardware, OS/Software licenses, lack of features, security issues causing loss of money...)

My idea and the framework on what I want this product to be based on, is answering those questions really easily, and defitnitly integrates business needs out of the box with a TCO etremelly low.

So once I will have a Beta, I will make it public from the official website and then I will start to look for investors.

Thanks guys

dahamsta · 04-02-2007 4:16pm

I don't know why you keep referring to it as "the product" and "this product", it's obvious you're talking about OpenBSD. If you're not, you need to start again!

And of course any comparison to Mac OSX is incorrect, since that's FreeBSD based and doesn't have anything like the committment to security that OpenBSD has.

(Although it's still a hundred times more secure than Windows out of the box.)

adam

mick.fr · 04-02-2007 4:21pm

dahamsta wrote:

I don't know why you keep referring to it as "the product" and "this product", it's obvious you're talking about OpenBSD. If you're not, you need to start again!

And of course any comparison to Mac OSX is incorrect, since that's FreeBSD based and doesn't have anything like the committment to security that OpenBSD has.

(Although it's still a hundred times more secure than Windows out of the box.)

adam

Yes OpenBSD, I have posted about getting information with VC/Investors, not to give the technical details of my project, which is pointless in a such forum (Business).

Yeah plus MAX OS is not targeting the PC market :-) It could, but it is not atm.

antoinolachtnai · 04-02-2007 5:20pm

You definitely have a point, and there could be some sort of niche there. But there are issues.

Interesting fact before we start: Until 1998 or so, Microsoft itself was known to be a major user of OpenBSD on its corporate firewalls and gateways.

The problem is that it is hard to get corporates to take on a new operating system. Most of them have spent the last 10 years trying to get rid of old operating systems and to consolidate down to one or two. They then expend all their efforts in trying to train their staff up to administer this limited range as well as possible. They have found that this is the best way of managing their systems.

Also, many of them have only now managed to consolidate their user databases and email systems using products like Microsoft ActiveDirectory and Exchange. Much as you (and many corporate sysadmins) may dislike these products, corporates are slow to move away from them now. Your ability to operate in this market may be dictated by how well you can integrate it or replace it. There is a lot of work to do to get OpenBSD to integrate well with these enterprise directory systems, but this is a barrier that has to be overcome if you want to get deep into these enterprises. Again, Apple have worked hard on this problem (and only come up with a sort-of solution).

On the other hand, vendors like Microsoft (and also Apple) have worked hard to remedy the serious shortcomings of their systems. MS's server products are nowhere near as insecure as they were five years ago. They may not be as good as you'd like, but they are acceptable to many corporates.

At the same time, starups the likes of Red Hat have failed to provide corporate solutions that are really a great deal more secure than Windows. I don't mean to start a war here. But the fact is that Red Hat system updates remedying important security holes do not come out as quickly as they should.

If they need specialized, high-security hosting (and all of them do, sooner or later, you are correct about that) it appears to me that they are beginning to just outsource it. The outsourcing company has the deep skills in firewalls and secure operating systems, so that they don't really need your product as much.

OS X certainly do sell against PC servers. Not aggressively as yet, but it does happen.

So I think this is a tough niche to get anywhere with. Even if you do get somehwere, you may find that you can't charge a premium for the product, and your product is easily copied (because the underlying OpenBSD is an open product, obviously.

But it is a good idea to try to build a beta and figure out more detail about what your products benefits will be.

Personally, I'd love to build some sort of product for this market on the basis of the amazon EC2 or S3 technologies. I think that could be a really powerful niche for a new business to get into.

mick.fr · 04-02-2007 6:26pm

Yep antoinolachtnai I share your vision.

This is the reason why my product is integrating solutions that other Majors are not integrating, such as a full Content Management Solution (Only one of them).

But really I am not targeting a Windows 2003 Server Active Directory directly, I am more focused on the back office applications. This is where the business needs are. My solution is not part of the infrastructure directly, like an LDAP directory would be.

Microsoft do have really good solutions for CMS, with Sharepoint, like there are some good solutions in the open world (Joomla, subDream...), but everything has a price, is complicated to implement (For a newcomer), ...

My solution, has everything, to resume, has everything out of the CD.
They are provided in a really effective and nice way, no hassle. They are optimized in a way they cost nothing to be implemented, my license scheme is also extremely flexible, as we do not want to charge per user/cpu, but per installed host only.

This might look like a stupid loss of revenue, but this is the way I want it to be, simply to have a serious financial argument in favor of the product.
Plus selling a product X to one user or to 1000 users, will not change the product itself, a Windows Server remains the same in a SME or in a Corporate.

The only limitation is the license, which is in my opinion, just to way to rip off more customers, without really providing any added value for the extra fees.
Take a MAC OS X Server, 999USD for unlimited users, this is fair to me.

This is based on OpenBSD right, but the product is closed source but does not really reference to OpenBSD.

As I am sure you know, BSD license allow us to do almost everything, even close our own source. But some programs, are sometimes only available on GNU/GLP, so in that case we will share our source.

This is what Cisco (OpenSSH), Microsoft (Winsock), Apple (Darwin?) have done, and the code has not been released after new integration/optimization.

Anyway I came to the point where I could actually hire Russian coders for 8 USD an hour, this is what one of my Irish friend is doing here in Dubiln. He is working remotly with 4 Russian doing outstanding work for him, and this is working very well. At least to begin, you know...

But still even at 8 USD / hour, I can not afford everything myself. So I can not wait to have a working Beta.

Sponge Bob · 05-02-2007 12:06am

not that you should answer me Mick but there is drupal and opencms for content management (and they are klunky hoors)

anyway, you need to fund a working beta before you got to VC and as Antoin said their horizon is in /make a buck / out / 5 years tops.

The ****s will keep you in meetings for 3 months out of the next year

, they are unreal.

mick.fr · 05-02-2007 12:23am

Sponge Bob wrote:

not that you should answer me Mick but there is drupal and opencms for content management (and they are klunky hoors)

anyway, you need to fund a working beta before you got to VC and as Antoin said their horizon is in /make a buck / out / 5 years tops.

The ****s will keep you in meetings for 3 months out of the next year , they are unreal.

My solution is not a CMS solution based on OpenBSD, this is more than that, I thought I made it clear.

Yeah u right I need to invest my own money first.

Are u saying I can not make a Beta in 3 months ? If so, yes that's enough for what has to be done, this is more than enough to show what we want to show.
The first step of the dev, Beta 1, only includes a graphical installer + a 2D desktop environment and we already have the code, a stable one, taken from another distro.
Other steps (Beta 2 and +) will includes GUIs and other re-packaged and re-compiled applications.

antoinolachtnai · 05-02-2007 12:36am

I don't really know if you can build a genuine software team the way you plan to. The cohesion of the team is a big part of the value of a software company. I guess it can be done.

I would watch out for competing on price. It is nearly impossible to compete with Microsoft (in particular) on price. MS products are pretty cheap for what they are.

It is really difficult to develop a good content management product. Believe me, I was that solider. Movable Type is probably the most successful commercial content management software in the world now. But the features are nothing like what you might think a company would want from content management software (in my opinion).

Most of the success of MT is in the marketing. The product is good at the core, but it gets paler looking every day in comparison to the free alternatives.

I would really look at the positioning on this. Who exactly do you plan to sell it to (SMEs?, large companies? one-man bands?)? How much do you plan to charge for it? How many do you think you will sell? How will you package it (with hardware, training, etc?) How will you distribute/market/sell it (channel or direct)? Would you be better with some sort of ASP model?

mick.fr · 05-02-2007 12:53am

antoinolachtnai wrote:

I don't really know if you can build a genuine software team the way you plan to. The cohesion of the team is a big part of the value of a software company. I guess it can be done.

I would watch out for competing on price. It is nearly impossible to compete with Microsoft (in particular) on price. MS products are pretty cheap for what they are.

It is really difficult to develop a good content management product. Believe me, I was that solider. Movable Type is probably the most successful commercial content management software in the world now. But the features are nothing like what you might think a company would want from content management software (in my opinion).

Most of the success of MT is in the marketing. The product is good at the core, but it gets paler looking every day in comparison to the free alternatives.

I would really look at the positioning on this. Who exactly do you plan to sell it to (SMEs?, large companies? one-man bands?)? How much do you plan to charge for it? How many do you think you will sell? How will you package it (with hardware, training, etc?) How will you distribute/market/sell it (channel or direct)? Would you be better with some sort of ASP model?

Yeah sure that make sense.

Yeah I am targeting the SME exactly, not really the corporates atm.
The design of the product has been done for general users, the shell is still here of course, but there is a nice 2D desktop environment extremelly easy to access the server's settings etc...

Well Microsoft Licenses are pretty expensive, I deal pretty often with MS Select providers for my customers while we are in the design process, this is still very high. But I do not compete with the desktop, and the server, only partially.

For the price I am planning to sell it for 500 USD max, unlimited licenses, only per host installed as I said.
Any application (About 12 such as Database, CMS, Web Server...) available from the CD/DVD can be installed for free at no extra cost at all (Mainly BSD license type software).

We are not developping a CMS product, we are using an existing one.
Like we do not develop anything from scratch, a part some GUI for the 2D desktop.

Anyway my idea is not to make a CMS solution based on openBSD like I said.

Well I guess if you guys visit the temp website I have built a few weeks ago will have a better idea of what am I talking about.

http://www.matrice-in-motion.com

Thanks

information · 05-02-2007 6:03pm

I backup what antoinolachtnai said.

You need to do market research first.
Lots of people build products that they think are great,
but nobody wants them, because they never did the market research.

mick.fr wrote:

Yeah I am targeting the SME exactly

Who are you selling to the IT manager, the finance director ?
What are the benefits ?
What is the market size and potential ?
What is the competition in the market ?
What is your marketing plan ? (if you think development costs are high, wait until you get to the marketing budget)

You need a business plan to get any investment.

VC's even the small ones will not do less than a million, due to the cost of due dilligence and legal fees.

An angel, private investor would probably be your only route.

Contact your enterprise board and EI, you can get grants for doing feasibility studies.

You need to get grant backing first before you can apply to the revenue for BES.

New business : Venture Capital

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