Competing for startup funding truly is you versus the world. Your competition numbers in the thousands, and only a select few will receive the funding they need to turn their idea into reality.
And the competition is only getting tougher. Indeed, data from PitchBook shows that seed funding has decreased over the last several years, even as the size of each deal has increased.
This leads to the all-important question: what can you do to make your idea more appealing to investors and increase your odds of funding?
A well-designed prototype is a good place to start. A good prototype shows investors:
You’re committed to your idea
How your idea looks as an interactive product rather than an abstraction
You’re ready to take the next step and get user feedback
All of these points are critical to separating yourself from your fellow funding seekers — which is why I’ll cover each one in greater detail later in the article.
But first, let’s develop a shared understanding of what I mean by the word prototype.
What kind of prototype do you need?
In UX design terms, the prototype can refer to range of different types of product designs — from a sketch on a paper to an interactive digital design.
If you’re going to pitch your idea to investors, you need a clickable prototype.
This is essentially a design-only version of your product. You can interact with the application by clicking through fully-designed screens, and the user experience will function in the same manner as the finished product.
If you want to see one for yourself, here are a couple of examples.
In our UX design process at DePalma, we always produce clickable prototypes before moving on to code. This lets us make changes to the prototype based on the feedback of clients and their users more cheaply than if we had to rewrite the code.
The relatively low cost of a well-designed prototype (relative to a fully-coded application that is) means you can hire a UX design firm to build one for you pitch investors.
Like I mentioned earlier, having a strong prototype to present to investors can significantly increase your odds of getting the funding your startup needs.
Here are three good reasons why.
Why a prototype helps with startup funding
1. You’re showing investors you're serious
Be honest. We all know people — smart people, even — who are always hard at work on an idea that will disrupt your face off.
And we also know that all their talk rarely amounts to anything resembling progress.
Bringing investors an interactive prototype of your product shows that you’ve done more than throw together a pitch deck and rehearse a presentation. It shows that you’ve actually rolled up your sleeves and made some progress.
If you hire professionals to design your prototype, then you’ll show investors that you believe enough in your idea to commit your own personal capital.
Even if you build the prototype yourself, then you’ll have committed hours upon hours of your free time to visualize how your product should function.
In either scenario, you’re displaying dedication, which is absolutely critical if you expect other people to give you money to keep working on your idea.
You’re also displaying a fair amount of grit, or determination to keep going in the face of hardship, which is perhaps the most important trait for success.
Investors want to back ideas they believe will succeed, but they also want to back people they believe will succeed. Investing your time and money into building a prototype will certainly go a long way toward convincing investors that you’re the right human for the job.
2. You’re selling a product, not an idea
Professional investors likely field thousands of ideas a year. The best way to blend in with everyone else is to only bring an idea to your meeting.
Even if you bring a presentation with some bar graphs and pie charts, you are still asking strangers to give you money for something that only exists in your mind.
But if you unveil a clickable prototype, then you change the entire rhetorical situation. You’re no longer selling an idea; you’re selling a product in its earliest phase. The difference is profound.
Instead of a mental picture — which are difficult and unpleasant to build in most circumstances, let alone a pitch session — investors will have a fully-designed, interactive product to analyze.
As a general rule, people are more apt to believe in something they can see.
That’s why data is visualized for presentations: it makes the concepts less abstract, easier to digest, and more believable.
Displaying a prototype also gives investors an example of your ability to think through and execute on your idea. Showing you’re capable of executing rather than just talking about can be exceptionally persuasive.
For context, here’s Steve Jobs talking about execution vs ideas:
“You know, one of the things that really hurt Apple was after I left John Sculley got a very serious disease. It’s the disease of thinking a really great idea is 90 percent of the work.
And if you just tell all these people “here’s this great idea,” then of course they can go off and make it happen. And the problem with that is that there’s just a tremendous amount of craftsmanship in between a great idea and a great product.”
If you don’t believe him, just consider that the iPod wasn’t the first MP3 player on the market. But it was hands down the best executed product.
3. You have a ready-made vehicle for user research
When you’re trying to raise funds, you really need to look like you have a plan. When you present a clickable prototype, the next step in your plan is straightforward: use the prototype to do user research.
Now, you may have already done some market research before you created your prototype, which is smart.
But once you have an interactive version, you can test it with people in market and optimize the UX design based on their behavior. Resources like usertesting.com let you pay to test your prototype with people who match the demographics of your audience.
So if your idea is compelling, and you have a prototype, the next step is obvious for investors: fund your startup so you can get in test the prototype with your market and exponentially improve your chances of creating something success.
Look, the first step to getting startup funding is to have a good idea. But it’s not necessarily the most important. History is littered with the gravestones of good ideas that weren’t executed well or couldn’t get the support they needed.
That’s why you really should build a prototype before you take your shot with serious investors. The better developed your prototype, the more committed and trustworthy you seem.
Plus, it’s just easier to embrace an idea when it’s a real-life product rather than the ramblings of a some person in a pitch meeting.