Great question, with a million different ways to get it done, but none without a lot advertising/word of mouth in some way, shape or form. I remember at one of my startups, we grew 350k+ subscribers in a couple of months, but it was very painful and expensive. Today, you're in luck. There is a new tool you might try instead - Kickstarter. Post a campaign on Kickstarter: raise some much needed capital without giving away equity, sign up some very interested people to the next version of your productivity tool and get immediate market feedback. If you run the campaign for 30 days and get more than 5000 people, which will all be highly motivated evangelists, to sign up...you're a double winner. You will have met your goal and gotten additional funding. If you don't, it's great marketing feedback that something is not quite right yet with the product or the value proposition. I would be happy to provide additional thoughts on how to do this with a follow on call.

Unfortunately, this is, by far, the norm, not the exception. Most startups have this outcome. I have advised numerous entrepreneurs, and had to make the very same decisions myself - more than once. It all comes down to market potential. Does the product solve a problem/need that the market demands. After 3 years, if your product is substantively developed, does it solve a problem/need - really, does it? If it doesn't, either pivot to get it there or abandon. If it does, why aren't customers knocking down doors to get it? It is likely due to sales/marketing not working effectively (bad value proposition, pricing, business model, poor sales people, etc.). Either way, the market is speaking loudly right now to you...change asap or abandon. If you would like to discuss your specifics or ask follow on questions, I would be happy to help further.

As in most investing questions, it depends. I have seen many, many variations, but the basic designs are made up of debt instruments and equity instruments, usually with a combination. The decision on how to construct the "deal" is all around risk and yield. The higher the risk, the higher the yield. With a debt instrument, the loan note here, the investor is trying to recover his cash and interest at an exit, for your right to use those funds until that occurs. For consideration of risk and use of their funds, the investor wants equity. It is very common for investors to want a note instead of only a piece of the company. In many cases, conversions can occur at revenue targets, next funding round, etc. In your case, with the loan payout at the exit, it is pretty lenient and that investor is willing to take a lot of risk with you. The faster the investor wants their money back, implies the less risk they are willing to take. Also, in your case, it sounds like the investor wants equity upfront for just setting up the loan note and funds; again, not unreasonable (but it may complicate their tax situation by owning equity outright versus a right to convert later). If you have any other questions, or would like me to review your specific documents and provide advice, please let me know.

I have approached valuation many times, in many different ways, both for my consulting business and when I've raised capital for my startups. The short answer: it is based on the future earnings potential of your business, and in your case, an investors' belief in your vision/potential. Your story to support a valuation, without any revenue, will be built on reasonable projections and analogous evidence, and then discounted by the investor for risk. Every valuation exercise is unique, but the basics remain on how much risk they will assume for an expected return (IRR). If you would like me to help you quickly build a valuation story for your startup, or you have other questions, please give me a call.

I've seen this occur multiple times to my own startups and in my consulting business. Investors come in all shapes and sizes, and at varying times throughout your startup. Whether the first customer or the lady next door, true investors believe in your vision. That being said, no business ever succeeded without customers. I believe your priority should be on exceeding your first customer's wildest expectations. Deliver your product to solve their problem first - and do it well. Investing is secondary and will naturally occur if you succeed on making them a loyal customer. A very common problem for entrepreneurs is to get easily distracted away from building your business and customer base. Capital will always flow to successful businesses. Please call if you would like to discuss this, or anything else, associated with starting your business.