Last night was the Internet People Christmas Party. I talked to a number of start-ups, but generally felt like the Grinch spoiling an otherwise perfect Christmas pitch with my perennial “Where’s the revenue?” question.
In all fairness, there is one other metric that drives investor interest in a pre-revenue business: Traction.
Nic highlighted his thoughts on pre-revenue companies, which in turn reflects Ben Holmes of Index’s thoughts:
… if there is no revenue model then the only way you can invest is if customer acquisition costs are zero, or very close to. That way you only need to be able to make a small amount per user to make the business model work, and it is pretty safe to bet you can get that from somewhere.
An older, must read post is Fred Wilson’s post on Traction.
I am a user of (some) Web 2.0 services (Flickr in particular, and I pay my 24 peanuts per year for that service). Even as a seed investor, I won’t put money into a software company unless I see some customers. I certainly wouldn’t consider a pre-launch business- there are endless posts on how cheap it is to build web applications- there is also a tried and true method of offering consultancy services and using that to fund the build- i.e. getting a customer to pay for the application.