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Ask HN: Why can't I raise funding?

• coldtea 10y ago
  >I don't believe a capital intensive market is a reason not to invest. It's what investors believe that matters though. And if they tell you that "the market is too competitive and too capital intensive to get involved in", then what more do you need? The investors you've managed to attract are not for big risks.
  • _funding 10y ago
    Does this mean there aren't any investors that would be willing to do such a thing? Do I simply need to look elsewhere for funding?
    • coldtea 10y ago
      Possibly, unless you have reason to believe that they just don't like your implementation, and are lying it to you about their true concerns. In general European investors are more conservative that SV ones.
• brudgers 10y ago
  What gets measured becomes the goal. I think about payments and the numbers I'm likely to care about are number of transactions and revenue per transaction. I would not really focus on users because it is vague...could be a harvested email or someone who downloaded an app etc. Or rather I would not focus on number of except as it relates to transactions. Having just ten users who do a million transactions a month suggests a strong network effect and the potential for profits from volume on fractional fees. A million users who do a million transactions a month might also be good, but 4k users at $60 acquisition per user does not suggest it will be easy to get to the hundreds of millions of users that would are probably required to make a consumer facing Unicorn. Fintech may be a hot space. By the time I hear about hot spaces I figure the smart money that earns 40% a year is already there and big dumb money that is happy with 6% a year is on its way. Not that I have money to invest either way. Good luck.
  • _funding 10y ago
    In Feb we did 1k+ transactions, done by 615 users. 4 months before that we did half. We're seeing a little bit more growth in usage in the last months than we see in user growth, mainly because of the network effect. A transaction costs a few cents per transaction, and the prices will drop a lot in two years from now.
    • brudgers 10y ago
      For a back of envelope calculation, call that ~0.3 transactions per user per month and round the few cents up to a dollar and the revenue is $0.30 per user per month. That's $3.60 per year and the current acquisition cost is ~$60.00 per user without accounting for churn. Over twenty years that's $72.00 of lifetime value and $12.00 over acquisition costs. I'm not saying those are the numbers but they are a starting point for a pro forma. A low rate of engagement and a high cost of acquisition and a low margin per transaction are all considerations in terms of viability of the business. A changing regulatory landscape is a huge risk that probably does not favor small companies with constrained resources. The probability of lower prices in two years is an insight into the market, but not one that encourages investment. As an exercise, it might be useful to think about what should be done if the company does not obtain outside investment. How would bootstrapping work?
• chatmasta 10y ago
  Which investors are you pitching to? If "capital intensive" is the main complaint, perhaps you are trying to raise the wrong kind of funding. Is the "capital intensive" due to the need to float money between payment cycles? If so, perhaps you would fare better trying to raise a line of credit from a bank. Or, specifically target fintech funds. Also, where did you get the first 250k from? Are those investors not interested in further investment? If so, that's a very negative signal and you need to figure out how to fix it.
  • _funding 10y ago
    I've pitched to VC's. They tell it's too early stage for them, because we're 4-7 years away from profitability. I've pitched to angels, they want to invest, but I'm reluctant to take their money as I am not seeing how their money is going to help me get the next round of funding, with the comments from VC's I'm getting right now. Also, the angel network in my country is not big (5-10 people I can raise from). First 250k we got from a big bank. We since then pivoted the company to a more mainstream product and they just killed a proposition like this one of their own (because the product sucked), and are afraid to invest more in the same space.
    • chatmasta 10y ago
      Still wondering what's so capital intensive about the business. Is it the need to float money? Could you restructure your business to avoid this? i.e. by partnering with an existing merchant account provider and signing your customers up as "sub merchants"? (isn't this what stripe does? or at least used to do?) Why not reach out to other big banks for investment? Perhaps you can frame the pitch so that they feel like they're capitalizing on a missed investment opportunity by their competitor (your original investor).
      • _funding 10y ago
        One big bank ripped our idea off after having pitched the idea at the same time we did at Bank A (our investor). If we don't close something this month, we'll sell to them (they're rather eager). Making it an acquihire, because they don't know how to take the product to the next level. This outcome would certainly feel like a big failure to me. They are not extremely hard to beat, their product lacks a lot of strategic implementations, making the barrier to exit extremely low. Our product also tends to be better. The reason it's capital intensive is because you'll need to pay for transactions up until about 2020, and also need to acquire users very rapidly before 2018. Only to find out between 2018-2020 how much you can monetize the product. (big risk, fairly unkown reward). There are ways to get the transaction costs down, but they will always be there long before we become profitable.