by Bryan Brewer, Founder of Funding Quest  

In this short video I explain the concept of the Minimum Fundable Company, and give you some tips on how this concept can help you raise money for your startup, and also help make it happen sooner.

Over the past fifteen years or so, I have helped many startups on their way to funding … helped them with their investor pitches, business plans, funding strategy, and so forth. I’ve helped hundreds of startups. I’ve probably seen upwards of a thousand investor pitches. And I’ve helped my clients raise tens of millions of dollars in investment for their startups.

The Fundability Curve

Over this time I’ve noticed that companies fall into three different categories along the Fundability Curve.

Up here at the high end of this curve are the highly fundable companies. These are the ones where the CEO has a track record, where they already have connections with investors, and they usually have no trouble getting funded.

Down here on the lower end of the curve, are where most companies are that are seeking funding, and they’re just not fundable. They’re just not fundable … yet. They don’t have enough of the right stuff to attract attention from investors, or perhaps they have some glaring red flags that are going to kill their deal regardless of fundable the company seems.

However, many of these unfundable companies grow and improve over time. They build their product, they flesh out their management team, they structure a deal for investors, and they move up this curve into the area of the potentially fundable companies. They cross that threshold where investors will now pay attention to them, and they become what I call a “Minimum Fundable Company.”

This is similar to the Minimum Viable Product (MVP) concept, which is designed to help startups get feedback from the marketplace sooner rather than later. Just like that, the MFC concept helps you get in front of investors sooner rather than later.

The MFC Test™ is Coming Soon

So how do you know if you have a Minimum Fundable Company? It’s a question that clients and other startups have asked me over the years, so I developed a test. It’s basically a 20-question “fundability scorecard,” which is what I called it before, and it asks the basic questions about everything that investors are interested in your company, and you rate yourself on this scale. I have dubbed it the Minimum Fundable Company® Test, or MFC Test™ for short.

The MFC Test is structured around what I call the Five Factors of Fundability.

The first factor is startup viability. This has to do with how well your solution matches the problem that you’re trying to solve, and what kind of market validation you’ve got so far, and what is your business stage? Are you all the way up to having customers already … or not?

The second factor of fundability is your business model. This is things around your revenue model, your gross margins, the size of the market that you’re going after, and how fast that market is growing.

The third factor of fundability is market strategy. This is basically, how do you get customers? And what’s your cost of customer acquisition? What kind of partnerships or other deals do you have in place that will help you enter the market well. And what about your competitive strategy? What kind of competitive advantages – in terms of intellectual property or other aspects – do you have that will allow you to compete effectively in the marketplace?

The fourth factor is the management team. Here you rate yourself according to the experience of the CEO or other cofounders, the breadth and depth of your management team, as well as a board of advisors.

The fifth and final factor of fundability is the deal. What does your profitability look like? What are your financial projections? How fast are you going to grow? What’s the percentage of ownership for your deal? What’s your exit strategy? How soon can investors expect to get their money back and at what rate of return?

I give each of these five factors equal weight and suggest that you need to score pretty close to 50% in each of these five factors in order to consider yourself a minimum fundable company so that you can go out there and start raising money.

Benefits of Using the MFC Test

The MFC Test is designed to work for startups that are the typical high-growth company, where the investors expect to get their money back when there’s a liquidity event, typically an acquisition. It will also work for cash flow businesses, where the investors receive quarterly dividends or distributions from the company that will be a part of what their return is all about.

It’s also designed to work for companies that are seeking money from angel investors as well as the new equity crowdfunding that’s just starting to happen these days.

There are three key benefits to taking the Minimum Fundable Company Test. First, you can find out where you need to improve your fundability. This is probably the most important. If you take this test, figure out where your deficiencies are, and what you need to do to improve, so that you can get across that MFC threshold and get in the game of raising money from investors.

The second benefit is that you will get a sense of any of these red flags that might pop up that will kill your deal regardless of how fundable your company is.

And finally, the benefit is that you take this test and improve your fundability, and get in the marketplace sooner and get in front of investors to start that process of raising money.

Two quick points about the MFC Test.

If you take the MFC Test, and I hope that you do … (It’s free, just sign up and create an account so you can come back and view your results later or take another test) … First, answer honestly. There’s no point in inflating your own score just to see if you can get a higher number. If you give honest answers, this test is designed to help you see where you can improve your fundability so that you can actually move up that fundability curve and get in the game of pitching for investor dollars sooner rather than later.

Second, also understand the test is necessarily imprecise. I’ve tested this tool with hundreds of entrepreneurs and a number of investors. I’ve gotten feedback and refined it. And most people who have tried this already generally agree: It gives you a pretty good idea of what your fundability is.

Get Notified When the MFC Test Launches

As founder of Funding Quest, I’m dedicated to helping entrepreneurs like you accelerate your path to startup funding.

The MFC Test is scheduled for launch in the fall of 2014. But today you can go to www.mfctest.com and sign up with your email so that you can be notified as soon as the test becomes available and be one of the first ones to try it out.

I wish you all the best in your quest for funding. Thanks.

Bryan Brewer
Founder, Funding Quest
Seattle WA
@fundingquest #mfctest

Minimum Fundable Company is a registered trademark of Funding Quest, LLC.
Funding Quest and MFC Test are trademarks of Funding Quest, LLC.