If you're building something that your prospects want and your demo is so compelling, then smart people will crawl over each other to get their deposit in first. I've even had propects beg me to leave my laptop after a demo so they could play with it while I built it out.
10 people saying they'll buy it is a good start, but a deposit check separates the talkers from the doers.
Sometime I think investors should require 10 deposits prior to pitching. Imagine what a difference that would make.
In the past I've done something similar where I asked potential customers to pay me to build a product and learned, before I wrote a line of code, nobody wanted what I was selling.
On the other hand, I've run into a situation recently where this didn't work as I expected. My current project is sold to businesses. When I asked a few of the businesses I was talking to if they would pay me the price I was going to charge for the service to actually make the product, something strange happened. Even though the amount of money I was asking for was quite small this request still went through the entire purchasing apparatus of the business. I figured the manager I was talking to could just write me a check, but I was wrong. Long story short they wanted to own a part of the business if they payed me money to make it, so I opted to not take their check.
I figured this was good enough validation and I'm plowing ahead on development even though I am a tad worried about what my sales cycle is going to look like. But I never would have learned this if I hadn't straight up asked for money before I even built it.
I've had success going the other way--having a meeting about making software for a company and then figuring out it makes more sense if I retain ownership and sell it multiple times. They save money up front and I can get paid while still having something to sell down the line. Everyone wins.
It's all above board--I wouldn't do this without having them fully aware. It's a good way to get into SaaS too, a lot of companies have an easier time justifying monthly fees than up front.
With the recent announcements about God's number (for the Rubik cube) and the possibility of advances, perhaps even a solution, of P vs NP, there's even more to talk about!
depends on what you're pitching. 10 deposits on a $5/mo service might not carry much weight to a VC. but 10 letters of intent on a more expensive b2b service is golden.
You'll be hard pressed to find a V.C. willing to invest in a company at this early stage anyways.
I would argue that finding folks willing to give you $5 is as valuable as LOI's. The point is to validate your model. It's never enough to simply ask people "would you be willing to buy this?" You have to figure out how to validate that when push comes to shove that they'll actually take action to do it.
Talk is cheap after all. So if you can find a handful of folks to throw $5 your way, or at the very least enter into the purchase process for a $5/month subscription... well then you probably have something. Just as a LOI for a larger ticket product shows commitment from those larger companies.
Both show that you have a product your target market is willing to actually pay for. That's huge.
A startup from my area that I wasn't involved with basically did this tactic. They found a number of people interested in the product they wanted to build. They requested that the interested parties sign up at about $10/mo to be the first customers, and then the startup started building their product.
Once they came around to launch time, the customers had already played around with the 'beta' product and given feedback, and nearly all of them have retained their subscription at $10/mo, where as new customers have to pay significantly more.
I think its a reasonable trade off to give a discount to them, especially when they helped work through some of the bugs of the early phase. They may not be the customers that will make them rich by throwing them money, but they certainly helped get the startup to the position they are now.
Paul Bucheit said something similar on Startup School 2008 (http://www.youtube.com/watch?v=EZxP0i9ah8E): "You should aim for 100 happy users". And he mentions that being happy is quite hard to accomplish, as happy users will not put up with any unevenness they see. I find this more useful for startups that are still looking for a business model (mostly consumer oriented startups).
a) the shear scale of their email operation = large costs
b) poor conversion on those ads as users are not in the "search" mindset when reading emails where as they are more likely to click on an ad when searching
This is from someone I know who works in/around GMail team at Google. I have also seen research from the perspective of advertisers as to the performance of their ads on SERP pages verses appearing in GMail - I can dig that out if you are interested, let me know.
Better yet: find 10 people to write you a check.
If you're building something that your prospects want and your demo is so compelling, then smart people will crawl over each other to get their deposit in first. I've even had propects beg me to leave my laptop after a demo so they could play with it while I built it out.
10 people saying they'll buy it is a good start, but a deposit check separates the talkers from the doers.
Sometime I think investors should require 10 deposits prior to pitching. Imagine what a difference that would make.