Early-stage investors are approached by Startups typically when the founders have nearly finished building their product and are looking to raise capital for growth – defined here as business development, sales & marketing. While startups at this stage could be of interest, the investor will always want to see a Proof of Concept (PoC) before making a decision on funding.
What exactly is a Proof of Concept?
A Proof of Concept (PoC) is a critical first step leading to the implementation of the product/solution. It is an exercise to test the idea and is designed to demonstrate the feasibility of a proposed concept to solve a business need.
PoCs are extremely useful in how the solution/product fits a potential client’s requirement and allow validation of the value proposition. For a startup, it helps identify possible issues in securing a paid contract but more importantly provides an opportunity to gather feedback on the product/solution.
The proof-of-concept is essential for any startup desiring to raise early-stage funding and growth stage capital down the road. The ability to explore emerging technologies and the execution of a successful PoC gets the investors excited. Founders need to be able to back their new ventures with enough PoCs, showcasing the capability of their product to scale. It is necessary and critical to go through this transformation.
The objectives of every startup, either B2C or B2B, should be in attempting to predict accurately sales cycles to drive revenues. Startups should identify a need that can be integrated and target key people in organizations to secure a PoC. Limiting the scope and alignment of expectations is important with the organization where a PoC is to be deployed.
A proof of concept tells the investor that the product can be developed which can be utilized by a customer. Also tells a lot about the founders and the core team – how they analyze information and make decisions in uncertainty. The investor is able to understand what product the startup will build, what they know about their market, and their ability to adapt (pivoting as and when required) with the help of PoCs.
If a startup is able to show an approach to capture early revenue which will create value, then an investor is in a better position to take a call and determine their return on investment.