I’ve been spending all my weekends working on a new cloud-based software product that has really big potential. Can I start talking to investors before I leave my corporate job?
You are not alone in milking a corporate job for security, salary and benefits while you burn the midnight oil in pursuit of something fun, and hopefully more lucrative.
Your question made an important distinction. That is, you ask if you can solicit investors while employed by another company. Usually, pre-launch entrepreneurs want to know if investors will allow them to keep their day job (usually at a higher salary) for some period of time after a company has been funded by investors.
The answer to this latter question is pretty clear cut. Outside of friends and family members, independent investors expect business founders to devote 100% of their time to the new business endeavor.
Can you start soliciting investors while working for another company? Sure, but investors may be uneasy about it, especially if what you intend to market competes with your employer.
Investors will be extra cautious about funding a new company in which there is any chance of litigation regarding solicitation of their customers or the rightful ownership of developed technologies. Investors will want assurances that your technology was not developed on company time or on company property.
The safer route is to do everything you can to advance your company’s interests before beginning your investor solicitation. Here are five things you can do before you leave your day job to set your company up for fast funding:
- Organize your company.
If you have not already done so, create your formal business organization. Double check that your desired company name and product names are available for potential U.S. trademark registration before buying domain names or printing business cards.
- Prepare your solicitation documents.
Now is the time to start researching and preparing your executive summary, presentation slide deck, financial projections, business plan, list of target customers and market demand analysis.
- Determine cash requirements.
One of the most common problems I see in first round investor pitches is entrepreneurs don’t know how much money to ask for. Don’t just guess what you need to reach the “next level.” Be specific and purposeful. Think in terms of milestone accomplishments, meaning how much funding will be required to complete a prototype, launch your service, sell to some notable first customers, etc.
- Find a test customer.
Provided that you will not be soliciting your employer’s customers for similar services and that you have not signed an employment agreement that expressly prohibits participation in outside entrepreneurial endeavors, consider finding a small customer to test your new product. Employ someone else on a temporary basis to manage the test. Nothing satisfies investors like satisfied first customers.
- Create an investment solicitation strategy.
It takes time to develop a list of prospective contacts for your upcoming fundraising campaign. Usually angels invest within about 300 miles of their hometown. Are there some angel investment clubs in your home state? How often do they meet? What do you have to present in order to secure a presentation opportunity? Who else do you know who can connect you to angels or VCs who like investing in your kind of deal? Check out the Start on Purpose Action Steps for more guidance.
I think that the essence of entrepreneurship is so much more than starting and building a prosperous business. Successful entrepreneurs always talk with pride about overcoming obstacles and exceeding their own expectations. You can be next.