We returned from SPIEL17 with many more leads, that need to be followed up in addition to the earlier India leads. This weekend we have our last planned big marketing event this fall, the Helsinki GameXpo. Welcome to stand 7u130. I will not dive into the ongoing confidential follow-up discussions in this blog entry but will rather take a step back and look at the bigger picture of what challenges and opportunities lie ahead, inviting feedback and cooperation proposals.
As a startup with its first product ready for selling, we are approaching our first Valley of Death, where our initial investments are burning faster than revenue is ramping up. We have been mainly self-funded with a little bit of pre-seed funding from a friendly investor and a small amount of public funding for exploring market entry to English speaking markets. We still have some of this left, but we are still burning money, so Valley of Death is looming ahead.
The chicken and egg situation is that we know we can increase consumer sales with investments to advertising, but we do not have much money to spend on advertising. We also have numerous leads in the education space from the US, UK, and India, which was our target with the partially publicly funded market entry program, but we need more money to follow-up on many of these leads. Follow-ups include school piloting, which requires teacher training and development of localized teacher training programs with partners. Many of these teacher training partners are non-profits, which themselves need funding locally. Co-creation of these teacher training packages takes traveling and workshopping, which cost money, especially when our starting location is Finland, thousands of miles away from the target markets. We are developing online trainings, but they too cost money to develop, and to create a good one which could approach the engagement level of face-to-face trainings will take time.
Our focus right now is ramping up LUPO sales revenue, because the holiday gift buying season is approaching and that is by far the most important season for any game sales. The low-hanging fruit is in Finland, where we can do some selling in person in the Helsinki area. We will of course also make the most of the online selling opportunities that we can do within our budget. However, the Finnish market is small and Amazon is introducing its own share of fires that we must fight on a regular basis, so it is unlikely that we can turn cash-flow positive in the current quarter.
All of this means, that we must find ways to raise money to enable bootstrapping our ecosystem. Once we have enough money for advertising, we can get more online reviews and the conversion of online advertising to sales will improve. Once we have the local teacher training programs in place with local partners, we can ramp up school sales in target markets. Once we have built our community platform, we can engage our customers and partners to create new value that can be monetized within the ecosystem, expanding the ecosystem. The virtuous circle needs a nudge.
So what options do we have?
- We can of course invest more of our own money. The sums would be limited, maybe loans.
- We can also approach angel investors with an interest in education. These sums would also be quite limited at least if we approach only Finnish angel investors. Luckily Slush is coming up in the end of the month, so we’ll have an opportunity to approach also foreign investors. By then we should be able to show some sales traction, albeit still early stage.
- Then there are the public sources. These typically have a national agenda, so Finnish public sources can offer some funding to Finnish companies like ours, but our non-profit partners in target markets will need to find their own public funding. With the India leads, we have some possibility for public funding, because Finland wants to help Finnish companies export EdTech and India’s Atal Innovation Mission wants to help Indian students learn more innovation and entrepreneurship skills and LUPO aligns well with the development of these skills with the focus on creativity, storytelling and problem-solving. It will likely take a couple of months to draft program proposals both in Finland and India, plus some more time after that for processing, so we could expect to see some of this kind of funding possibly later in Q1’18, but certainly not on very short notice.
- Crowdfunding may also be an option. We mentioned Kickstarter and IndieGoGo in an earlier post. These are typically used for funding the development of a consumer product, in our case it could be the next version of LUPO the game. The challenge, as discussed earlier, is the building of a community big enough to reach a significant share of target funding level with the first couple of days in the campaign. With a product priced at 20€, this requires a huge fan base for raising significant funding, and we are not there yet. For example, to raise 150 000€, a typical Finnish seed round, we’d need 7 500 times that 20€.
- Crowd equity is also a possibility via services like Invesdor. This would mean attracting fewer people, who like our story, thanks to bigger sized contributions. Since these are still investors, we do need to provide a line of sight to profitability and return on investment. Our friends at Claned did it successfully a year ago, raising in average 2 522€ per investor for a total of 600 153€, but they were at a more advanced stage than us already at that time. May be a bit early for us still at this stage.
- And then there is blockchain, which promises the technology needed for enabling cutting the middleman in bootstrapping ecosystems. In principle, we would not need private investors looking for a profit to bootstrap a public-private partnership ecosystem in education, where the interest of the public participants would be to improve education and the interest of the private participants would be to create sustainable businesses in the field of education. The question here is, whether the potential ecosystem participants would be ready to use a bleeding edge instrument like this yet. I would certainly volunteer to help get the technology platform developed, if we can find a critical mass of ecosystem participants ready to invest in an ecosystem platform, which would effectively be driven by the ecosystem participants (direct beneficiaries) rather than by outside investors with no direct interest in the quality of the services rendered. This would not be about raising money to LUPO World alone, but rather to the ecosystem in which LUPO World is a contributor, and the benefits would be divided between ecosystem participants in proportion to contributions over time, possibly with early contributors gaining a bigger share by taking more risk.
Looking forward to your feedback and interest these options.
Until next week!
Author: Nouri Mikko Werdi