What is the Right Amount of Money to Raise at a Startup?

http://www.bothsidesofthetable.com/2010/03/11/what-is-the-right-amount-of-money-to-raise-at-a-startup/

by rpledge • 16 years ago

26 13 16 years ago

johnm• 16 years ago

Less than you want and more than you think.

holdenc• 16 years ago

As a die-hard boot-strapper I am bothered by those who think seed capital is big a component of a technology business. If you can afford your hosting bill and can build the app what else is there? If you need help paying for hosting then your business is going well enough that you should really think hard about taking money for equity.

aditya2• 16 years ago

build it and they will come?

- you do need money to advertise, unless your app is really viral, and a lot of apps aren't.

- you need money to pay people that have skills that you do not, such as design, or tech, or marketing.

tptacek• 16 years ago

Patrick McKenzie advertises his business and hasn't taken a dime from an outside investor.

Mc_Big_G• 16 years ago

I'm also a die-hard boot-strapper, but your chances for success can be improved by additional people being invested in the business. The idea is to be successful by helping others succeed. For example, the $5-$15k YC provides is not the main benefit of YC.

pchristensen• 16 years ago

There are three hurdles for bootstrapping (http://www.tonywright.com/2008/bootstrappers-beware/ ): covering operations (ie hosting) ramen profitability salary profitability

For a web startup, you should bootstrap or take very small investment (ie YC's $15K) to get to ramen profitability. At that point you can choose whether to grow slowly from revenues (like patio11) or seek growth capital (like DropBox did a few months ago).

With the fall in costs for build web companies, a beta is the new PowerPoint. Any credible angel or VC will want to see a product and traction before giving you money.

axiom• 16 years ago

For me it was a question of time - raising money meant we could get up to speed faster. Sure, we could have bootstrapped, but then we'd be living on ramen for 3 years before we could afford to pay ourselves a living wage (or worse, could have gotten stuck in never-ending consulting purgatory.) Not to mention the difficulty of attracting top developers when all you have to offer is equity and the promise of riches at some indeterminate time in the future.

Anyway, for what it's worth I certainly don't regret dropping 10% in exchange for ~3 years of my life.

johnrob• 16 years ago

The argument is only relevant to startups that have funding options; there are plenty out there that would need to work hard to get funding.

However, if funding is a realistic option, and the investor isn't detrimental in some way, it's a much better deal to give up some equity and take a salary of some sort. Much like selling 100% of the equity would be too extreme, selling 0% is also over aggressive. I know a few people who are pure bootstrapping right now, and the consensus seems to be that it's a better deal (for the founders personally) to have a salary and a little less equity.

ulrich• 16 years ago

Too much money in very early stages is definitly a problem. I am experiencing this at my current job. The company grows very fast and you soon have a lot of people with a lot of different ideas. Problems are solved by getting more employees.

count• 16 years ago

How about for startups that are not building the typical web app? What if you do need capital for manufacturing and prototyping and regulatory approval?

What's a decent 'runway' for that kind of deal? I can't see pushing our product out within 3 years, due to the above, and it will definitely take substantial capital investment.

Is taking as much as possible such a bad thing in that case?

anamax• 16 years ago

> Is taking as much as possible such a bad thing in that case?

Yes.

The right amount is "the minimum that will let you achieve your goals". That amount depends on the biz and goals but it is never "as much as possible".

In other words, the fact that certain biz require $1M to get to viability while others can get there with $10 does not imply that the former should take $100M.

Too much money, like too little money, causes problems. Does your startup need more problems?

pw0ncakes• 16 years ago

Wildly variable. For biotech, a common deal is to raise $40+ million in exchange for 95% equity. This leaves the founders with 5%. On the other hand, 5% of a $40M company, with huge growth potential, is still substantial.

On the other hand, web apps often don't need VC until late in the game.

What is the Right Amount of Money to Raise at a Startup?

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