by knightwatch » Wed Jul 02, 2014 7:28 pm
Great article and right on with funding sources. Many entrepreneurs don't appreciate that it will generally take F&F money to get to the prototype stage (or at least to get a reasonable valuation).
Another common rule of thumb is engineering development projects will take 2-3X the cost and time estimate. Try to lock in a fixed fee arrangement, or the well can go dry quickly. Hard to do, but worth trying with competent engineers that trust their capabilities. Their response might tell you something.
We had success getting partners (outsourced engineers) and low rate CM's to take partial comp in equity. They gave it a little extra effort and priority as invested partners, and you can generally use a little higher valuation making it cheaper than outside money. Becomes more "we" discussions instead of "you and us" discussions, especially during challenging times.
Lastly, as a CPA I am a little biased, but I see many entrepreneurs understating or ignoring the value of getting financial help. They frequently get into desperate situations because they failed to plan and monitor against the plan, and the desperation shows to investors, costing a nice share of equity.