Outsourcing development with friends and family money


1

My cofounders and I have bootstrapped so far to get a hardcoded (doesn't connect with a server) iOS prototype for $10k from a local outsourced developer. We have no traction yet and are in need of funding, so we tried to raise $300k from angels but everybody said to come back when you raised a friends and family round. So reluctantly, we raised $100k in friends and family money. The plan was to hire some in house developers and get a small office with the money but now that is all out the window. Since 100k would be too little to hire anyone and get an office, I am guessing the only solution is to outsource this again to a bigger team and get some traction from what they develop. There is a team within a two hour radius of my home that has experience building this sort of application for iOS and Android and the head of the firm co-owns a separate business that would be a potential customer and has already provided great feedback on what we are trying to do.

Is outsourcing such a complex app and putting most of the friends and family money into one team a good idea? I know optimally it would be best to hire some people but we don't have the money and no angel will fund us yet. I have heard some horror stories about outsourcing a majority of your work but in this case it is a bit different since I would be able to visit the team frequently to check on the progress and communicate properly. In addition, the head developer can add his valuable feedback throughout the process as someone who could potentially buy the system.

Funding Development Outsourcing

asked Dec 16 '12 at 14:26
Blank
V B
24 points
Top agency to build award-winning mobile apps: Utility NYC
  • My thoughts - $10K is too much to spend on any application. That too you are telling that it is all hard coded right now. My sincere advice to you would be to find out a technical guy in your family/friends and vet the solution through him. You need $100K or $300K when you are onto very big thing like Evernote or Temple Run etc. Even these big applications would have started with moderate thoughts. To sum it up, you need to figure out where you are heading and don't get robbed on the way. If you would like, you can discuss your points with me. – Pradeep 7 years ago
  • @Pradeep - sorry, I disagree with your statement that 10K is too much. There are too many unknowns here (us firm vs overseas, graphic complexity, etc) - and looking in the interwebs (**example:** [quora post](http://www.quora.com/How-much-does-it-cost-to-build-an-iPhone-app)) and from personal experience with launching IOS and android apps, 10K is within the (low) range of what others paid. – Jim Galley 7 years ago

1 Answer


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You've done great in raising the $100K. Hold onto it. Here's the reason why. You need a seed round to get you where you need to go. You can do this without having the product done or at all. What you need to have is a stellar pitch deck. Ten slides that are going to tell a potential investor what your about. You need to have your pitch down to one sentence with a little longer one if you have the time to discuss it with someone. I know someone who just got $750K in a seed round and all they had was a pitch deck and nothing else. No team, no product just the deck. He also made upwards of 60 different calls to VC's AFTER introductions had been made.

In getting money it's about who you know. You need to start tweeting about YOU and what YOU are working on. Not just spamming about the company or product. You need to get people even slightly interested in what your doing.

Investing for the investors is a heard mentality. No one wants to the first guy to jump in, yet if enough people jump in they don't want to be left out thinking their going to miss something. See if you can get into an accelerator. These might be, TechStars, 500 Startups, YCombinator etc.They have a ton of contacts and can make introductions. And intro's are key. You DONT want to cold call someone unless what your building is out of this world. An intro from someone the VC or fund knows goes a long way. It's like you've already been vetted by that person. So, the VC is more willing to hear you out. Here is where your $100K comes in. You also didnt need to actually take possession of the $100K, you just needed to get letters of commitment from your F&F. The letter states that if you had raised say $500K from angles. Then and only then would they have written you a check.

Ok, back to the $100K. If and when you go to talk to a early stage VC they're going to ask you how much you've already raised? Boom! $100K from angels. We're looking for another $400k for a total of $500k. Now here's the trick. Your only looking for this guy to get you half way there. You only want him to give you $150K. Why? Well, once other investors start to see that your getting traction they will want to jump in. At that point you will be turning money away. Why? Take to much there you give up to much and save nothing for later rounds. If you went for an A round and needed to give up x% but don't have it because you gave it up upfront, well you have a problem right.

Hope some of this helps. To answer your question. Don't outsource anything as you really don't need to build it right now. Work on your pitch deck, get the funding you need 18 months of salaries and a small bit of expenses. Figure that number and that's what you need to raise. In the west coast of the US a seed round could be $3MM where on the east coast it would be $1.2MM. Also, if you took the time to write an old school business plan. It was a good exercise but no one cares anymore. It will change by the time you will launch anyways. Focus on the deck.

answered Dec 16 '12 at 14:56
Blank
Tony
271 points
  • I believe I just can't tell other people that I got the money from other angels. Isn't the point of a family and friends round to use the money to gain traction and build the product further so that you can actually get an investment later on? If we told investors we had $100k from friends and family, they would just say to come back after we've spent it and see how we have progressed. Thanks for the reply. – V B 7 years ago
  • Not true, you use the $100K to show that there is investment interest. That they should want to jump on board even for something small. Like I said. I've seen a $750K raise with NO PRODUCT and NO TEAM. All that the person had was the pitch deck. You can burn through the 100K. Show something and then try and get traction with what you have left. – Tony 7 years ago

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Funding Development Outsourcing