Building a Tech firm - My view - Please advise
I'm in the beginning stage of building a tech firm I believe to make sense.
The fundamentals behind the actual tech product:
The product would be a Business to Consumer type product.
The core product would cost $40k to build + $X for the actual software.
Thus I'm assuming around $70K of capital to get it started, for which I plan on using my personal capital to do so.
$70K broken down:
Product (excluding software) - $40K
Consultant fee, lawyer fee, Patenting, and other biz setup related fees = $5 - $15K
Marketing and Sales - $12-$24K
- The current market is insanely fragmented to the point where there's not even 1 publicly traded firm in this space. A LOT of mom-&-pop owners operate this product.
- The market serves the general mass and is a semi-essential product. Thus, even in COVID people will need this service done.
- The tech will create a cheaper, faster, transparent way of doing the job that is currently being done the old way since the 1800s.
The industry maintains a median profit margin of 6%-8%
From my analysis, the tech product can be profitable after the first 3 months and would maintain around 15% margins.
Worst , Median, and Best Case:
In my fundamental research so far I see:
Note: I used comparable firms in similar industries to come with this values
a) At the very least the biz would stagnate around a $10m valuation (profitable) after 3-5 yrs of working on it.
b) Median case is: I think this platform can reach $100m valuation (profitable) in 5yrs
c) Best case is well... the Unicorn level in <10yrs.
I am not a super risky guy, for me to believe in something I need to do enough research and have enough fundamental understanding on it. Which is why my plan below would take 1-6 months to complete.
- I'm currently a PE and RE Investor and Broker.
My cash account is currently $250K
Age - 24
I am thinking of building it out like this:
a) Speak to 100 - 250 potential customers and find out if there's demand for my product.
Currently spoke to about 10 ppl (7 of them want the product).
b) Speak to biz consultants and pay their fee to help me establish a working model and viability of the product.
Costs around $5k
Why this? Because although I should be getting 10% of the population for an accurate statistical conclusion, I can't call 1 million ppl...
Part 2: Speak to potential partners. People from Consulting, PE, or ex-CEO's who have at least 2-4 yrs of experience.
Part 3: Hang out, work on other projects (non business related) to test the relationship
Part 4: Once we established a relationship, we enter into a partnership.
Part 5: Rework the business model, speak to suppliers, get pricing quotes, and speak to software engineers
Part 6: Hang with the engineer till we establish a relationship and then partner up.
Part 7: Once all 3 have established a partnership, we start to create the product and a strong MVP.
Part 8: We continue gaining customers (via marketing and etc) while improving the product.
Part 9: After about 6 mons to 1yr we'll re-evaluate the business model to see if its worth pursing even more and if so, we start raising VC funds.
Part 10: Go from here and see what happens.
Am I missing something? Any inputs would be much appreciated
What kind of equity should I expect? I'm assuming somewhere around 40% ???