Working on an "auction" site - Should I let an investor give me money?
I am working on something I call "reverse auctioning". Lame name I know but I cannot think of anything else that I could call it. I showed this to a couple of guys and they told me that they interested in giving me some money to work on the project full time. After I told them the entire details of said "reverse auctioning" idea they were very enthused and said that my idea was pretty ambitious blahdey blah. My question is this, since I do not need money (I do this in my off time), I have free colocation for the one server that everything is running on until I launch it and I am the only developer, should I take money to hire people? I am good at talking to people and I actually enjoy selling and talking about products. I do not want to be a one man band but I also do not want to hire someone that is not willing to work as hard as I have to get this to where it is at.<p>Can anyone else identify with this?
I know free advice is worth as much as I paid for it but I like this board so far.
3 comments
First of all, welcome to HN.
It sounds like you might have already answered your question, as you say you don't need the money (yet). In general, the earlier you go out to raise funding, the more it will cost you; when your company is nothing but an idea, your valuation is quite low, and raising something like $10,000 at this stage might require giving away 50% of the company. But if you wait until you have a working prototype and a handful of users, raising that same $10,000 might only cost 10% of the company.
In general, you should avoid raising money before you need to, and you should avoid raising more money than you can reasonably make use of.
Of course if you turn down money that's on the table, you run the risk of later on needing funding and not being able to get it -- perhaps the investors changed their mind, already invested in another company, or otherwise lost interest...
Finally, if you do decide to bring on another person, I recommend trying to find someone who is willing to join you as a co-founder. Simply hiring an employee, paying them a salary, and expecting them to "work as hard as [you] have" isn't going to turn out too well, because they won't really benefit from your company's success.
PS: As it turns out, the term "reverse auction" is in somewhat widespread use (apparently nobody else could come up with a better name, either): http://en.wikipedia.org/wiki/Reverse_auction
It sounds like you might have already answered your question, as you say you don't need the money (yet). In general, the earlier you go out to raise funding, the more it will cost you; when your company is nothing but an idea, your valuation is quite low, and raising something like $10,000 at this stage might require giving away 50% of the company. But if you wait until you have a working prototype and a handful of users, raising that same $10,000 might only cost 10% of the company.
In general, you should avoid raising money before you need to, and you should avoid raising more money than you can reasonably make use of.
Of course if you turn down money that's on the table, you run the risk of later on needing funding and not being able to get it -- perhaps the investors changed their mind, already invested in another company, or otherwise lost interest...
Finally, if you do decide to bring on another person, I recommend trying to find someone who is willing to join you as a co-founder. Simply hiring an employee, paying them a salary, and expecting them to "work as hard as [you] have" isn't going to turn out too well, because they won't really benefit from your company's success.
PS: As it turns out, the term "reverse auction" is in somewhat widespread use (apparently nobody else could come up with a better name, either): http://en.wikipedia.org/wiki/Reverse_auction
I have software built but I think after posting here it was a simple answer... No.
I have been looking for a co-founder that is sharp but the two guys that I talked to wanted to talk about Stanford and MIT more than about building applications and businesses.
Thanks for the reply. It was insightful and I appreciate you taking the time to respond.
I have been looking for a co-founder that is sharp but the two guys that I talked to wanted to talk about Stanford and MIT more than about building applications and businesses.
Thanks for the reply. It was insightful and I appreciate you taking the time to respond.
i would question the assumptions in this response.
valuation and investment terms are something to negotiate, rather than assume that they would be unattractive.
there are data points of folks raising money at significant valuations without working prototypes etc.
when opportunities come your way, don't shut them out just because you assume that they won't work out.
generally speaking, the first investor is the hardest to recruit.
valuation and investment terms are something to negotiate, rather than assume that they would be unattractive.
there are data points of folks raising money at significant valuations without working prototypes etc.
when opportunities come your way, don't shut them out just because you assume that they won't work out.
generally speaking, the first investor is the hardest to recruit.
Welcome to the market! I'm a founder at a company that has been in the reverse auction services game for about three years, and I don't think it's lame at all :)
Don't take money until you have to. We managed to self-fund our venture by building a founder team (four of us) with different skill-sets: sales, operations, management, and technology/development, each willing to contribute sweat equity and our own cash to make it work. I know a lot of people will disagree with me here, but I can only testify to what has worked for us. I love having three other founders who I often disagree with. Technology people often need a reality check. Refining your core algorithms doesn't necessarily ship a product. In other words, I like having someone to push me to build what sells, rather than what's interesting.
What type of reverse auction space are you entering? Are you building a self-service tool? Consulting and SaaS? Our company focuses on the latter, and we've been pretty happy with the results. We're not on course to become another Google, but that wasn't really our goal. We'd be happy with a buy out from a large consulting firm after a few years.
Another piece of advice would be to have a look around at the big competition: Oracle, SAP, Ariba, etc. They've created several healthy niche markets by building really huge products that a lot of large-mid-sized (and smaller) can't use effectively, because they don't have the quarter-million dollar budgets required to implement.
There is still a lot of room for new products and new providers in this market. I think small-scope, focused purchasing facilitation tools are only going to become more popular as time goes on. Have a look at the tools and services that technology people use. We tie together services from at least five different small service providers to build our technology stack. Why can't purchasing do the same? Why must someone buy a $250k license from one of the big guys? As more technology savvy users move in to the workplace, the future becomes brighter for providers like us.
Don't take money until you have to. We managed to self-fund our venture by building a founder team (four of us) with different skill-sets: sales, operations, management, and technology/development, each willing to contribute sweat equity and our own cash to make it work. I know a lot of people will disagree with me here, but I can only testify to what has worked for us. I love having three other founders who I often disagree with. Technology people often need a reality check. Refining your core algorithms doesn't necessarily ship a product. In other words, I like having someone to push me to build what sells, rather than what's interesting.
What type of reverse auction space are you entering? Are you building a self-service tool? Consulting and SaaS? Our company focuses on the latter, and we've been pretty happy with the results. We're not on course to become another Google, but that wasn't really our goal. We'd be happy with a buy out from a large consulting firm after a few years.
Another piece of advice would be to have a look around at the big competition: Oracle, SAP, Ariba, etc. They've created several healthy niche markets by building really huge products that a lot of large-mid-sized (and smaller) can't use effectively, because they don't have the quarter-million dollar budgets required to implement.
There is still a lot of room for new products and new providers in this market. I think small-scope, focused purchasing facilitation tools are only going to become more popular as time goes on. Have a look at the tools and services that technology people use. We tie together services from at least five different small service providers to build our technology stack. Why can't purchasing do the same? Why must someone buy a $250k license from one of the big guys? As more technology savvy users move in to the workplace, the future becomes brighter for providers like us.
I believe you are referring to a Dutch Auction (http://en.wikipedia.org/wiki/Dutch_auction).
The fact that you don't know what the technical name is of the type of auction you are building would suggest that you probably haven't done enough research into the area.
You've not given enough info on what you are building, and perhaps this isn't the question you were asking, but you might want to research this some more before launching anything/taking anyone's money.
The fact that you don't know what the technical name is of the type of auction you are building would suggest that you probably haven't done enough research into the area.
You've not given enough info on what you are building, and perhaps this isn't the question you were asking, but you might want to research this some more before launching anything/taking anyone's money.
Actually kiwidrew nailed it.
But, you are right. I have not done enough research. I actually didn't do any. I built some software and it turned into a reverse auction site (as defined in the WP article). I guess being sick and tired of terrible customer service helped as well. Thanks for your feedback. I am going to do some more research now! I am not sure why that did not seem like the thing to do when I started... Anyhow. Back to work!