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Is there even a need for idea stage funding? #napkinStage is a myth

Depending on your point of view, it is not for 10% of entrepreneurs. For others, with a dream and nothing else, it is.

When we started #napkinStage our goal was to work with early stage entrepreneurs. True to our name, we thought it would be entrepreneurs at the concept / idea stage, where we’d put about $25K to $50K and see where they go.

For companies in the US that might last them 3 months (maybe) and in India it should easily last them 6 months was our thinking. We expected the founders to not take anything more than bare sustenance, hire maybe 1 person, but largely have the founders build product and validate the problem.

Turns out we are getting much higher quality companies than what we thought we would. If you are an #ideaStage company, with just a concept or some PowerPoint slides, you are out of luck.

Just like the best entrepreneurs have a choice of the best investors clamoring to get “in on the deal”, the best investors have later stage entrepreneurs also looking to get “them in their startup”.

This is amazingly different from even a mere 7 years ago, when the market was one-sided and the investors held most of the cards and would take their time, request multiple meetings and generally move slowly.

These days it is not unheard of to raise a round of funding in less than a week for the top entrepreneurs (think ex Flipkart founder, ex Google or ex Facebook). If you dont fit into that profile, though, build product and get some traction.

Of the 400+ opportunities we have seen in the last 2 months, a full 60% were #napkinStage. The rest were companies doing anywhere from $100 / month recurring revenue to 4 companies doing more than $5000.

All were looking to raise a round between $250K to $500K.

Most had 2-3 investors “interested” and maybe 1 investor committed as well.

Which makes me think the need for “napkinStage” does not exist.

Well, it does, actually, for those who dont have the skills to develop / build the product themselves and need to “hire” a developer to program, or “bring on board” a sales person to get some customers.

So I reached out to a few of my YC friends and asked them how many founders in their pool were “idea” stage. They have been promoting this YC Fellowship program recently for about $12K, which is much less than what we thought we’d give, but the crucial difference is that the program is a grant, whereas ours is an investment.

While the fellowship is recent, the number of idea stage startups according to 2 of the partners is less than 5%.

Not zero for sure, but definitely low.

I know many entrepreneurs, especially in India, would disagree with me, citing a narrow set of opportunities that might fit the “build it on your own”, type of startup, but there seem to be enough of these right now, so why bother?

One thought on “Is there even a need for idea stage funding? #napkinStage is a myth”

  1. Pre-revenue-with-product, idea-stage-can-build, idea-stage-can’t-build. I myself belong to the third category and I’m pretty sure that in India, even the post revenue startups don’t get much attention, leave alone my kind (exception being pedigree founders).

    The result: spent last 1.5 years in building the team and product (which was pretty complex) at a minimum cost I could afford. Competition moved leaps ahead during the same time. Pumped in money from salary I got from day jobs, changed 2 jobs to get more money and hire more. Still have to do these jobs in absence of a funding source.

    It’s a hard way down there for the third kind, especially in India.

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