Where to get venture capital?

[greedy4chips]

I am a computer programmer student, graduating May 17th and I am writing a program for one of our Nursing Program professors who works at a clinic in town.

Without disclosing the concept of the program other than it is a medical program and is an unbelievable concept that I cannot believe is not already in use. She has hired a patent search attorney who has found only one similar patent that is very standard in my opinion versus our program.

How do we look for investors/venture capital and still protect the concept from being copied? I think we are in a chicken and egg scenario along with a huge lack of knowledge and experience.

Anyhow we are not experts at getting a business off the ground and it is somewhat overwhelming for her to investigate and devise a plan to get things off the ground.

Our current situation is this.
1. She has very little money to invest in the concept or equipment.
2. I have money, but I am unwilling to bank the house on this program unless I have much more to gain in the deal.
3. Doctors are very interested in this product (potential investors!)
4. I am writing the prototype for free and if a successful product (albeit modest compared to final product) can be created and marketed to a couple clinics we would have some startup capital.
5. I have accepted a job offer which starts on May 7th pending background check. This will substantially cut into my available time to work on the program, but hopefully gain some insight to make the program better. I wouldn't take the job if I could somehow get paid to do this instead.

So our questions are as follows:
1. How do we make this a business and should we do a corporation vs sole propreitorship?

2. Should we produce the product, then patent it or submit a patent on the concept and hope it covers your product and no one steals your concept before you have a working program?

3. How can we find investors willing to invest enough to keep us afloat for 1 year? I figure I would need $60k/year to cover my living expenses and self employment taxes or the company would need it to pay me. Equipment is $10k or so to get off the ground and make a working prototype to begin selling it to local clinics who are already asking for the product. Yes word has spread like a wildfire of her concept, which is scaring her on the patent side.

4. How do you set a price for the program and equipment? The equipment for each clinic/hospital is no more than $2k for a clinic and $10k for a hospital. The program is where the value lies. I cannot overstate the feedback she is getting from doctors, clinics, including her own Hospital clinic. Our belief is we have the potential to sell this to one clinic for around $50k because of its benefits.

5. Should we sell the program concept to the highest bidder and walk away with a winning lottery ticket and let someone reap the rewards?

My partner is friends with the owners of a software company that makes software for schools. She met with them about 6 months ago to see if they were interested and they told her that they only do school software and at this point in time are up to their eyes in just trying to handle everything they have going. They did however believe her concept is so unbelievable that she should pursue it. They also gave her input as to the potential selling price based on the concept and its value in the medical field.

Sorry I am bouncing around so much. I think you get a feel for our unfamiliarity with starting a business from scratch.

Our plan as it stands now:
I create the modest program and sell it to 2-3 small clinics which are run by friends of my partner. As we get feedback from them as to bugs or upgrades needed we improve the program. After 3 months of testing (less hopefully) we are planning a demonstration at a local hotel and inviting doctors and our state's clinics to view the product and hopefully sell it if all goes well. Our current feedback is incredible just based on the concept. As we get financially off the ground we would have money to hire a team of programmers to improve the program closer to the final concept. Then we would need a salesteam (commissioned), installers, support personnel, etc. Our guesstimate is around 1-2 million would be needed in the first year, this does not include revenue from sales. There is potential to not need the extra money, but only if we hit the ground running with a perfect program.

I look forward to responses and everyone's insight!

[tinapbeana]

congrats on the opportunity, greedy4chips!

one of you might want to check out the copyright law a little bit, as computer software is considered a created work and should be covered by copyright even if there isn't a patent. with that said, if the idea is unique enough you might be able to get a patent but don't feel bad if it doesn't go through: copyright is your friend. make backups of all your versioned files and work off of copies, that way you have a "paper trail" of dates should you need them.

as someone who works for a small tech company, here's how we sell some of the software we develop:
1. come up with a great idea
2. flesh it out and mock it up with screen shots, maybe a 1/3 functioning prototype
3. find a few clients in the industry, pitch based on the prototype and offer them an in on the ground floor. sell them a license for the software for an upfront cost of $Y that includes installation and setup AND an agreement for ongoing support for $X per month. sometimes agreements include just support, sometimes they allow for ongoing software customization.
4. once an agreement is signed, build out the software to a functioning level and install.
5. take ideas that come from existing clients re: customization and consider adding them in as modules for the complete product or leave them as pay-per add on modules.
6. rinse, repeat, and work off of the money coming in from the monthly agreements.

FWIW, our company started out in a similar boat as your, only with supply chain software, a hard one to break into. eventually they locked in liz claiborn, fuji, gerber, and just now midas.

in your situation, i would make a list of interested clients and pitch them on the idea. have them foot the bill for the needed equipment and DEFINITELY get them signing some sort of monthly support agreement. ours is usually calculated at $150 an hour for X hours per calendar month (so you can see the potential for raising capital). if a client signs up for a 10 hr support agreement that's only 2.5 hours per week on average, but still $1500 in for the month. 4 like this = 10 hrs of commited work per week but $6k income for the month, which is still pretty do-able as an on the side gig since chances are you can work in a medial setting outside of normal biz hours to keep out of the patient flow.

once you have 4-5 clients signed up in this fashion, let it rid for a couple of months. do surveys of before and after (so you'll want your nurse friend to come up with an applicable survey before places start using the software) so you'll get good hard numbers on how this has helped effeciency, the bottom line, what-have you.

at that point, you could probably be in a position to hold a conference to sales pitch other organizations. if done in this fashion (building slowly with income from the beginning) you like wouldn't need VCs, although that's always an option if this doesn't work.

again, congrats and keep us posted!

[greedy4chips]

Great information Tinapbeana!!! I knew someone here had experience and would share. But with actual software experience I never imagined to find a quick responder.

congrats on the opportunity, greedy4chips!

one of you might want to check out the copyright law a little bit, as computer software is considered a created work and should be covered by copyright even if there isn't a patent. with that said, if the idea is unique enough you might be able to get a patent but don't feel bad if it doesn't go through: copyright is your friend. make backups of all your versioned files and work off of copies, that way you have a "paper trail" of dates should you need them.

So copyrighting her concept is more important than attempting to get a patent on the idea for now?

as someone who works for a small tech company, here's how we sell some of the software we develop:
1. come up with a great idea
2. flesh it out and mock it up with screen shots, maybe a 1/3 functioning prototype
3. find a few clients in the industry, pitch based on the prototype and offer them an in on the ground floor. sell them a license for the software for an upfront cost of $Y that includes installation and setup AND an agreement for ongoing support for $X per month. sometimes agreements include just support, sometimes they allow for ongoing software customization.
4. once an agreement is signed, build out the software to a functioning level and install.
5. take ideas that come from existing clients re: customization and consider adding them in as modules for the complete product or leave them as pay-per add on modules.
6. rinse, repeat, and work off of the money coming in from the monthly agreements.

I'll address each one...
1. Done
2. Our prototype is 90% done (at least our initial plan) future program will encompass many more facets that are needed to eventually market fully.
3. This is our biggest sticking point. We have many interested parties, but I believe my partner is anxious about asking friends to invest in her idea and possibly lose their investment/purchase. I however believe that this program in its simplest form is still a very valuable asset to any medical facility and can be used without future updates at its present development level.
4. Almost done with the functioning portion. I have run several tests with fake data and now it is just a matter of importing real data and getting a working model out in the field for live testing. Unfortunately and fortunately there is no actual data to compare ours against. Our program has no currently implement solution that we are solving. Our concept is completely unique.
5. This is my plan exactly versus having a fully built system. You cannot predict the exact needs of the customers in this situation since they are not asking us to build it for them. We are asking them to buy our idea without knowing what their exact needs/wants are.
6. rinse, lather up, repeat! Cry, cheer, cringe, and create over and over.

in your situation, i would make a list of interested clients and pitch them on the idea. have them foot the bill for the needed equipment and DEFINITELY get them signing some sort of monthly support agreement. ours is usually calculated at $150 an hour for X hours per calendar month (so you can see the potential for raising capital). if a client signs up for a 10 hr support agreement that's only 2.5 hours per week on average, but still $1500 in for the month. 4 like this = 10 hrs of commited work per week but $6k income for the month, which is still pretty do-able as an on the side gig since chances are you can work in a medial setting outside of normal biz hours to keep out of the patient flow.

once you have 4-5 clients signed up in this fashion, let it rid for a couple of months. do surveys of before and after (so you'll want your nurse friend to come up with an applicable survey before places start using the software) so you'll get good hard numbers on how this has helped effeciency, the bottom line, what-have you.

at that point, you could probably be in a position to hold a conference to sales pitch other organizations. if done in this fashion (building slowly with income from the beginning) you like wouldn't need VCs, although that's always an option if this doesn't work.

again, congrats and keep us posted!

What do you promise them for the $150/hr, 10 hrs/month?

I would love to call you and talk this out if you would be so kind. I really need a mentor on how to walk without stumbling on this one! PM me your phone number if you want and I will call. Just let me know when you are available to talk for a few hours...lol

[tinapbeana]

well, copyright would apply to the actual code and the software itself, like it would to a written article or a work of art. the idea/process/concept may still require a patent, but i'm not that familiar w/ the patent process.

our model (whether you follow it or not) doesn't have clients as investors. we bypassed investors altogether by signing up clients as customers right out of the box. when we sell a software package that we've designed there's an initial cost to the customer of, for example, 5k. that's a licensing fee, installation, setup, etc for this software that we created. if they want it customized from the beginning, the cost goes up.

customers can leave it at that if they want to, but most sign some sort of partner agreement with us. what is included depends on what type of agreement they sign.

for instance, some clients might want only technical support and a monthly/weekly preventative maintenance check (what we call a PM) where we check the software, shell in and check the server logs, backup stats, etc. in that case, they would probably sign an agreement for 5 hours per month of work for $500, and any overages would be billed at $150 an hour. if a customer with this type of agreement requested a programmatic enhancement to the software, that would be created and billed as a new project.

other clients of ours want to include support PLUS the possibility of ongoing development in their partner agreement. some of our biggies pay a couple thousand per month for their partner agreement. this comes with tech support, PMs, plus a certain amount of ongoing develoment hours per month. in this instance, if execs want us to add new funtionality to their software, they have hours built into their agreement to do so. if it's a major change or one that would go over their hours for the month, it's again created and billed as a separate project.

this works if you have software that's pretty much built (which it seems you do) rather than having just an idea that needs say a year of dedicated programming to pull together. in the latter case, yeah VCs would be the way to go.

i'd be happy to talk w/ you further on this, but i'm MIA most of the weekend for my anniversary. PM me your email addy if you'd like and we can chat some more.