Recently I received an email from an Internet entrepreneur I had worked with a couple years ago. I could feel the intense frustration in his message - things were not moving along the way he had hoped. Although the analytics are showing that a lot of people are trying to sign up and use his site, there are too many defects and users are getting frustrated. So, this entrepreneur has concluded that what he needs is venture capital so he can hire some full-time people and move faster, but he's concerned that now it  might not be possible if he can't get his traffic numbers up. It's a chicken and egg thing.  Ya think? 

 

But it gets better. He has been using interns to fix the site and the turnover has been high because they're not being paid and they have other commitments ( no surprise here).  He has personally been committed full time to the site--he's the only full-time person--but now, clearly out of frustration with his lack of progress,  he has a back-up plan to go back for a graduate degree if things don't work out. Wow, didn't see that coming.  He started this business 3 years ago.  The clock is ticking.

 

So I'm looking at this from an investor's perspective and I'm saying there are two huge red flags. One, it's obvious that he didn't amass enough of the right kinds of resources to get his site through the proof-of-concept phase. This was vital. You don't launch a site before its functionality and user friendliness are ready to go. Remember, you only get one chance to make a first impression. So he's already lost on this count. 

 

Second, I want to see that he has validated that his business model works and you can only do that if you can test whether your customer acquisition strategy works over and over again. He lost on this point as well because if users are frustrated, they're definitely not going to come back and they will tell others.

 

So where does he go from here? Assuming after all this time, the window of opportunity is still open, he needs to scrounge up as much FFF money as possible and think creatively about those sources. A few months ago Peter talked about Kickstarter (www.kickstarter.com), a rather interesting way to raise money, and more recently, if you're really desperate, the game show approach. The bottom line is until that site is working right and has a decent number of users who keep coming back and referring others, no investor is going to risk his or her capital when there are too many unknowns.