Greg Alves Hot StartedNow that you have your idea and a business plan in place, you might think the next step is to start the hunt to acquire seed money from outside investors. In reality, that’s about the worst first move you can make according to tech insider Greg Alves. There are a list of things to consider that will put you in a better position to acquire capital, and more importantly – plenty of things you can put in place to make use of that capital effectively once you manage to access it. We sat down with Mr. Alves to discuss the intricacies of going from an idea to a brand with an eye toward the work that ought to be done before your first venture capital meeting.

Hot Started: You mentioned seed money isn’t all a new startup needs to succeed. Care to elaborate?

Greg Alves: “That’s definitely true. I’ve been pitched plenty of ideas by well-intentioned people who want to get funded right away, and I can understand their eagerness to get access to cashflow, but if they aren’t likely to earn anything then seed money is destined to become dead money too quickly to be useful. Nobody is going to provide the kind of long term runway many new startups ask for without assurances that the pieces are in place to eventually take off before that runway runs out.”

Hot Started: Which pieces are the most important to have in place?

Greg Alves: “When I evaluate a business plan I start with three elements: People, IP and Profit Margin. If your new entity doesn’t have the kind of people to bring real talent to the table, it’s always going to be fighting an uphill battle, no matter how much money you have backing it. Startups that name your college buddies, family members and unknowns aren’t ready for seed funding. Make sure you have at least a few key contributors with a substantial pedigree ready to hit the ground running, or even better – already working on the project day to day. I want to see people who have already invested time and energy in exchange for equity, because that means they are invested in the project as much as they are asking me to invest in it. On the Intellectual Property side of the equation, your new idea needs to be original enough to be properly protected. I’m fed up with startups claiming they can do things better than established brands without any kind of IP in their portfolio. Even if you do succeed at getting to market, those entrenched entities will simply knock-off your ideas and incorporate them into their existing platform. Bring something new to the table nobody else can touch and you have something they can’t use without paying you for it. Lastly, profit margins really matter. Unfortunately in the freemium era, many consumers who attempt to start their own businesses make the mistake of thinking that a free service is a great idea. Ad based businesses are taking a big hit as ad blocking applications continue to arrive on the market every day. Your business needs to be an actual business, one that generates real money and is capable of quickly earning more than it costs to run. If your margins aren’t wide enough, you don’t have the room for error that every startup needs. You will make mistakes, no matter how brilliant you are… and so will I. Profit margins give you the ability to overcome those early trial and error tactics as you refine your strategy and go to market with a finished product worth promoting.”

Hot Started: It seems someone with your experience would be the perfect person to run ideas by and avoid a lot of that trial-and-error work

Greg Alves: “I appreciate the compliment, but when I am involved with funding a new start-up I’m not signing on as a consultant. Sure, if I have insight that will help the companies I incubate to grow faster I’m always willing to work with them – but that doesn’t mean I have the time or intellectual space to get involved with the day to day decision making that will make or break each entity I work with on their path from startup to successful venture. That brings up another important point. The people funding you are expecting YOU to have solutions to the obstacles they see in your path. During any seed funding discussion, venture capitalists will raise doubts and enumerate concerns about your proposed business. They want to see how you react, if you have thought things through and whether or not you are a competent leader. Good ideas and seed money aren’t enough on their own. If you don’t have reasonable answers, or look to them for the solutions to their own questions, you can expect to leave those meetings empty handed.”

Hot Started: Would you say the quality of Start-Up proposals has declined in recent years?

Greg Alves: “No, I don’t think so. The nature of entrepreneurism has always brought out dreamers and people looking to land a moon shot. There is nothing wrong with any of that by the way. If you want to take a huge risk on a wacky idea, go for it. I have seen some of the things I’d never have invested in become huge successes, but just because you are willing to go all in with a wild idea, that doesn’t mean it makes sense for someone else to finance your attempts. Bootstrapping is a great way to get an unconventional idea far enough along to prove the concept. I’ve had companies that were turned down for VC funding come back months later with a much better plan, a somewhat proven product and they got their seed money on a second or third try. Don’t get discouraged by being told no by anyone. If you believe in yourself and your idea, every no along the way is an opportunity to smooth the sharp edges, polish the fundamentals and eventually prove people wrong.”