Evan Carmichael explains why $20,000 is too small for venture capital or angel investors. His advice: charge an existing customer a premium to fund the feature they need, then make it available to everyone. He shares how his biotech software company got paid for a Spanish translation that later benefited all users.
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How to raise $20,000. So I got a great question from one of my YouTube viewers, love you guys, Jonathan, who wrote in to say, "Excellent advice, Evan. I'm on the expansion capital train right now. Got a product, got customers, but I'm struggling to scale because our software needs an algorithm update. Any advice on that front wouldn't take more than $20,000." Great question, Jonathan, and honestly, you don't have a lot of options. The reason is because you're not really on the expansion capital train. Expansion capital is when you are— you've proven your concept and now you need marketing dollars to help you grow, right? So you've tackled this one market and now you're ready to grow to another market and you need to hire a salesperson or you need more marketing dollars to help you expand. That's expansion capital. What you need is R&D money. You got to put money back into product development and investors hate funding that. That's the worst kind of funding to go and ask for. Help me make my product. Nobody wants to invest into that. And so at the amount that you're looking for, $20K, you're not going to get it from a venture capital. This is way too small. An angel investor usually is looking at a $50,000 limit, so you're beyond— you're too small for that. You're really looking at your personal savings, you know, Visa, maybe bank loan on a personal guarantee. Government grants and loans, but there's a huge cycle you have to wait to get it. Honestly, your best bet is to raise it from your customers, right? If this feature was so valuable and so helpful and your customers are asking for it, you either use the cash flow that you're getting from your business, or if somebody really, really, really, really has to have it, then you have them pay for your development. This is something I did over and over again with my first software company. It was biotech software and it was started by these two founders, and I joined as an owner, and they, they were the programmers, so they put all in all their time to create the product, and any new features they would have to do themselves. But when we got a new feature request, if it was widespread enough that we felt like everybody could benefit from this, we used the cash flow that we had from our business to support it and say, okay, here's what we're going to go and create. But if somebody really, really, really, really wanted a feature You know, we had one customer who needed to have it translated to Spanish, like it had to be in Spanish. Like, that's not our market yet, we're not ready to go there, we have to have it in Spanish. So we charged them for it, and they paid for our development costs. Okay, we can make it for you in Spanish, we can add this feature in, but it's gonna cost X amount dollars more. And they made a decision, and a lot of the times people said, okay, I'm okay with that. And we weren't making a huge margin off of it, those were our costs. To actually go out and create this new feature, but then we could roll that out into the product for everybody else to benefit from as well. So you're in a zone that's really hard, man. It's like, that's a tough area to be where you're trying to raise money to make your product better instead of sales and marketing dollars, and you're such a low amount that you're really dealing with your, you know, you're excluding the angels and the VCs and the bigger money. So honestly, your best bet is fund it through your customer since you already have a business and it may not be exploding out yet, but it will soon. And, uh, and see if they pay a premium to get that specific feature in. Believe. For those of you watching, like the video, you can subscribe to the channel, see more videos just like this. Thank you so much. I'll see you soon.
