When do You Need Funding?

I’ve spent the last couple days in scenic Salzburg, Austria with 20 other people from both traditional journalism and new media backgrounds. Our goal: discuss strategies for more effective engagement and investment in “tomorrow’s media“. There are a mixture of organizations in the room, some established and others start-ups, like myself representing Ushahidi.

One of the questions posed, and which I’ve been ruminating on, is “when do you need funding?” (At this particular meeting, we’re talking grants primarily, but this applies to traditional seed and VC funding as well.)

Invest in Doers not Talkers

972816_tape_measureI don’t think it’s as early as most people think. There are a lot of people out there who claim they need funds in order to build a product. I disagree. Your first job is to build it. It might be in your nights and weekends, but that’s to be expected.

Yes, at a certain level you need funding that allows you to live, feed yourself and grow a business, but that’s not until you actually have something to show. Why would you expect someone to pay you money for a good idea? There are good ideas everywhere, but few examples of great execution upon these ideas.

A great presentation, Powerpoint or speech will get you a long way, and the ability to communicate is essential in both getting funding and getting user adoption or partners to work with you. However, nothing sells a good idea like a working product.

Whether it’s building a prototype, like we did with Ushahidi in Kenya, or a couple guys in a garage creating a new search algorithm and having to shop the product of that research around before they find investors, it’s too be expected that the work comes first, the funds second.

Growing

When is funding needed then? It’s needed when you have a product and it shows potential for success. Where you can talk to smaller investors who can support your work a little longer so that it can be refined and grow into something that has a real chance to make a difference, make money or both.

The second level of funding is about scale. It’s when you have a proven product that already has some success and needs more than it’s current cash-flow, or personnel, to take it to make a broader impact.

9 thoughts on “When do You Need Funding?

  1. kiwanja

    Another post right on the nail, Erik.

    I always say to people who are starting out that they need to build something (usually quick and dirty) at the beginning, not only to prove their commitment and ingenuity/entrepreneurialism, but also to show that their idea meets a real need. “Learn to do what you can’t afford to pay other people to do” is one of the tips on a post I wrote recently to help people starting out. The whole post is here:

    http://www.kiwanja.net/blog/2008/11/mobile-applications-development-observations/

    We received our first funding for FrontlineSMS in 2007. The project started in 2005. Proving to donors over those two years that we were committed to something which had real world value was key, and continues to be.

    Ken

  2. Miquel

    I would completely agree with both of you except for the fact that in the grant world, it rarely works that funding is granted to those with a prototype or real world item to show. More often than not, groups come up with a project idea, pitch it to a foundation (or VC for that matter) and are then granted accordingly. Additionally, there are countless groups who are simply spitting out new projects (that are usually doing nothing new) for the sake of getting new funding due to the fact that foundations are typically loathe to fund general operating costs. There are several large groups I’ve seen this year pitch only an idea to foundations simply to get that idea funded and then redirect the money in to their general budget while underfunding the actual new idea.
    So, I think that while it can help to have something to show for a new idea, it is so much not the case that this is what gets funded.

  3. Wayan

    Miguel is so right. If you want a grant, then DO NOT build anything. No funder will sign on if you have something already. They want to crow about how they funded the shinny new thing. So its a constant dance – show shiny flashly new thing, price it at 500% over cost, and use the difference to fund G&A. Not underfunding as Miguel suggests, but not honest either.

    Yet good luck changing that paradigm. NGO’s with their hand out have no power and foundations want the fame of “finding” the new idea. Best to work with what the system is.

    Which means, DO NOT build in advance of pitch to foundations. VC’s are a different story.

  4. HASH

    @Miquel and @Wayan – That’s interesting to hear. My experience has been exactly opposite of this with Ushahidi. We’ve successfully raised grant funding due to our having a new digital platform. Are you saying we’re the exception?

  5. Isaac

    A related question is “when do you seek intellectual property protection?” The answer depends on a number of factors, one being whether you intend to seek funding and from whom.

  6. Miquel

    I think that there are actually two camps to think about in this discussion.

    First are the groups such as Global Voices and Frontline SMS. They have worked in the more traditional way in which you’re talking in that they had a initial ‘product’ prior to getting funding. In the case of GV, they also had Ethan which went a long way to grant a voice of authority to the project which wouldn’t have been afforded it if it were just a couple of nobodies starting up.

    The second group is where Ushahidi fits in. Your project was born of an idea by several people that then created a mashup that was less of a prototype and more of a sandbox experiment. You’ve since gone on to create a platform from that original line of thinking. Ushahidi had the benefit of reaching a critical mass of acceptance due to the time in which it was built in Kenya, as well as the fact it had the equivalent of several ‘Ethans’ promoting it who already were accepted authorities on the situation. There were not clunky, link roundups that defined the first incarnations of GV or the Visual Basic first version of Frontline. Because of this, it could be said that it was the exception to the rule of having to go through design iterations before getting funding, but I think the key exception in all of this is you, Erik. Ushahidi could have easily died off after stability returned after the elections, but you’ve managed sell the product well and to maintain momentum which has brought continued funding. It’s an opportunity that not a lot of groups manage to pull off.

    If you think that this isn’t the case, check out the grant applications guidelines for a lot of the big foundations out there. They specifically spell out, “we do not award grants for general operations”. They are very much project/idea based.

  7. Mani

    My thoughts are more in line with the author. You could always seek funding before doing the work and many people do that. However, a better business model, from both parties perspective, is to do the work (prototype, model, proof of concept etc) before seeking funding. Less risk for all.

    There are of course some high ticket projects that may need funding from start. So the above thought, of course is not applicable blindly.

  8. Josef

    Great post & following comments. I’m particularly interested in the subject of funding, since I’ve only recently launched a nonprofit initiative of my own. I appreciate and understand Erik’s statement of investing “in doers not talkers.” It took me a long time to fully appreciate those who put blood, sweat and tears into their work and passions versus those who were good at coming up with brilliant ideas yet failed to execute anything tangible. This is part of why I hold so much respect for Erik and the team at Ushahidi (among many others).

    Having said that, I’m also coming from a completely different model than the “Ushahidi’s” of the world. My nonprofit offers a service to Africans rather than a product and is in a somewhat different boat. It is difficult to tell when I should begin to seek out funding and in what forms due to the nature of my work. I see a great need for more discussion on this topic for those of us who might not fit the social enterprise model that seems to be more prevalent now.

    Thanks for bringing it to light. It is refreshing to those of us just beginning on the nonprofit pathway. Keep up the great posts Erik.

  9. The guy

    Getting any kind of funding in Africa and particulary in kenya is a very hectic process.It is near impossible so it is easy in your mind to point at who is talking and who is doing.Any venture capital firm will ask you a simple question “What have you been doing”?.In most cases a developer in Africa will have done a couple of websites and can make out what $this->load->funding(‘means’),that is not adequate to many.
    The thing is when you are in Africa,do not bother looking for venture capital,its impossible!.How i hope banks will correct such a damaging oversight!.

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