Having a good working product is definitely important, for one it brings more trust towards the project itself. Members will feel more comfortable with investing in a project that has an physical product. If a working product is not available, then a prototype or a demo is needed that will show how the actual product will work.
I f you ask yourself where would you invest money - in what you can touch or see or in something you can only imagine? The answer is very creal as for me! Projects that has products are more real for people who don't trust new things.