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When asked about backing someone who has never done a deal before, Marc Andreessen, a prominent venture capitalist, offers a realistic yet encouraging perspective. Andreessen acknowledges that it's unlikely for someone who has never founded a company to raise top-tier venture capital if they merely have a plan. However, there's an exception to this rule: those who have already built a product.
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Andreessen cites several examples to illustrate this point. Mark Zuckerberg, for instance, had already developed Facebook while he was at Harvard. By the time he sought to establish the company, he had a tangible product that demonstrated his capabilities and vision. Similarly, Andreessen himself had created the Mosaic browser before founding Netscape, which provided a solid foundation for raising capital.
Another notable example is Google. Larry Page and Sergey Brin developed the Google search engine at Stanford before seeking venture capital. Their working product served as a calling card, showcasing their technical prowess and the potential of their idea. This made it easier for investors to see the value and invest in their venture.
Andreessen's advice to first-time founders is clear: build a product. While it might seem like a catch-22—you need money to build a product, but you need a product to get money—those who manage to create something tangible before seeking funding have a significant advantage.
Building a Product: A Tangible Demonstration of Vision
Building a product before seeking investment demonstrates more than just technical ability; it shows commitment, vision, and the ability to execute. Investors are more likely to support someone who has proven they can take an idea and turn it into a real, functioning product. This approach reduces the risk for investors and gives them confidence in the founder's ability to overcome challenges and deliver results.
The Chicken and Egg Problem
The dilemma of needing funds to build a product but requiring a product to secure funds is a common stumbling block for many aspiring entrepreneurs. However, those who can navigate this challenge often emerge stronger and more credible. Sometimes, this might mean working on a project part-time, using personal savings, or seeking initial support from friends and family. Once a prototype or a minimum viable product (MVP) is ready, it becomes much easier to attract larger investments.
Learning from Others: The Power of Prototyping
Steve Jobs, co-founder of Apple, often emphasized the importance of showing, not just telling. One of his famous quotes is,
"People don't know what they want until you show it to them."
This underscores the value of having a tangible product that potential investors, customers, and partners can see and interact with. When Apple introduced the iPhone, it wasn't just an idea; it was a revolutionary product that people could experience firsthand.
Similarly, Sara Blakely, the founder of Spanx, created a prototype of her product using her own savings. Her ability to show a working product helped her secure manufacturing and distribution, eventually leading to her becoming the world's youngest self-made female billionaire.
Conclusion
Building a product before seeking investment is a powerful strategy for first-time founders. It provides a tangible demonstration of vision and capability, significantly increasing the chances of attracting top-tier venture capital. While the challenge of needing funds to build a product is real, those who can overcome this hurdle often find themselves in a much stronger position to succeed. As Marc Andreessen and other successful entrepreneurs have shown, having something real to showcase can make all the difference in turning an idea into a thriving business.
Listen to Marc: