How much money should my company raise?

http://jessicamah.com/how-much-money-should-my-company-raise

by teej • 15 years ago

108 58 15 years ago

jessicamah.com

Joakal• 15 years ago

Why is it 'crazy' to try to raise as much possible?

pbreit• 15 years ago

Because 1) it can easily lead to sloppiness and 2) it can significantly decrease your exit options.

donw2• 15 years ago

When you've first started out, you haven't generated a lot of value, even if you've got a plan, a great team, and an MVP. Your company just isn't worth very much at this point, which is why early-stage (angel) investors get large amounts of equity for very small amounts of money.

By raising a large amount of money at a low valuation, you limit your options for future financing, as you can only offer a smaller slice of the pie to future investors, and have to do it at a higher valuation in order to keep your initial investment team happy.

ctide2• 15 years ago

Budget at least $80k/employee in payroll, benefits, insurance, and misc costs. (you'll have to budget more if you plan on hiring more experienced talent)

Competent engineers are willing to get hired for what amounts to ~35k / year?

.... What?

kapitti• 15 years ago

Came to post the exact same thing. With 20-30% going to insurance/benefits, taxes, misc costs - that's an amazingly low number....even more so considering they're in SF.

brandall10• 15 years ago

She did say employee, not engineer. Still low but I'd gather the equity share is good.

pagekalisedown• 15 years ago

Maybe she staffs up exclusively with H1Bs?

yid• 15 years ago

I realize your comment reflects economic reality, but that really came across as a little dehumanizing.

davidu• 15 years ago

If that were true, she'd preface it with a 1. H1Bs aren't CHEAPER they are way more expensive.

axiom7• 15 years ago

I think their salaries are 60-65k.

Insurance/benefits for 20 something developers at a startup consists of ramen and free pizza on Mondays.

That's actually a very reasonable salary and keeps out the guys who are looking to collect fat paychecks working 35 hours/week. You want work/life balance and 100k+ per year? fine, go work at Google. If you want the upside that comes with working at a startup you need to be willing to take on some of the risk.

timr• 15 years ago

"That's actually a very reasonable salary and keeps out the guys who are looking to collect fat paychecks working 35 hours/week. You want work/life balance and 100k+ per year? fine, go work at Google. If you want the upside that comes with working at a startup you need to be willing to take on some of the risk."

That's just a steaming pile of horseshit. I'm sorry to be so blunt, but I've been in this world for a while now, and nothing infuriates me more than when entrepreneurs try to delude employees (particularly younger employees) into working for far below market in exchange for promises of fairy farts and equity dreams.

In a city where a one-bedroom apartment costs >$2,000 a month, $100k isn't a "fat" paycheck. It's right about average. And even if you choose to work below market, the <1% equity stake that most funded startups are going to offer you won't make it worth the opportunity cost in anything less than the most exceptional outcome. You say you're working for $60k a year in San Francisco? Yeah, I hope you're getting a founder-level equity, because you're living with roommates and eating ramen.

I suppose the only plus side to this kind of nonsense is that any developer worth her salt will be poached within months by any one of the dozens of local startups that are looking for engineers and willing to pay market wages.

Don't fall for it, kids: you deserve to be fairly paid, and get some equity.

thomasgerbe2• 15 years ago

Well, what percentage of equity would that likely be for an engineer?

ctide2• 15 years ago

That 80k was over 18 months, and you're not including social security tax (which is another 10%) plus a computer, etc. 60-65k / year engineers will affect your burn WAY more than 80k over 18 months.

runT1ME2• 15 years ago

Do you have actual evidence of this? Can you point out a superstar engineer who will work for 65k + options? I can't think of any, and I know quite a lot of developers. I haven't even heard of one working for that little.

daniel-cussen• 15 years ago

But you're right, it does keep out the "guys who are looking to collect a fat paycheck working 35 hours/week." I didn't know that that was a problem, though; I haven't met anyone like this. I have met people who prefer a steady paycheck right now because they're not in a position to do otherwise. They're definitely open to doing so (or founding a company) down the road.

I'd like to point out there were not a lot of people willing to take the leap and join a startup ~4 years ago. There are many more founders around now, both technical and business, and they're not a limiting factor in the startup reaction to the degree they were four years ago.[1] Now I'd say it's leaning toward technical employees, and the employee equity pool may reflect that by growing from 20 to 25, or even 30%.

[1] I'm eyeballing, and judging from hanging out in the valley. Sam Altman said technical founders were the limiting factor in startups about four years ago in startup school.

Aloisius• 15 years ago

I wish I could pay people that. I'm probably above $100k/employee in SF.

sudonim• 15 years ago

I found this statement pretty surprising. Maybe in the next step when it gets doubled, that's a more realistic number. $160k/employee? Either that or the only employee is an office admin?

rdl2• 15 years ago

80k per developer is quite reasonable, exclusive of actual salary.

rdl2• 15 years ago

(To clarify) 80k/yr total overhead for 18mo per employee, counting facilities, health care, direct and indirect costs, etc. You don't necessarily have to spend it, but I think it would be irresponsible to hire someone on a non-founder basis without having that kind of money available to back it up. If someone's willing to take a subsistence or below market salary, fine, but it should be explicit.

I'd also be reluctant to hire any permanent employee without having at least 12mo of salary in the bank to pay him; 6mo might be ok if you disclose this to someone and let him make his own choice. It would suck to have a choice between startup and facebook, take the startup, then get laid off in six months. That is the kind of risk a founder should take, but not regular employees. If you can't cover salary, then contractor status makes more sense I think.

rorrr• 15 years ago

Whenever I see news about some startup raising $400K or something like that, I just can't think of what to do with this amount of money (in USA at least). It's so little. Good developers are expensive. Great developers are very very expensive. $400K can get you maybe 2 good developers + an accountant + crappy office space for a year + all kinds of expenses.

culturestate• 15 years ago

I agree. We're lucky to be building in a desirable but relatively cheap part of Florida (Gainesville, home to the University of Florida and Grooveshark, and in a state with no income tax) and $400k doesn't stretch very far. I can't imagine what it would be like building in the valley or NYC on that.

robryan• 15 years ago

It depends really, if you don't expand and just work as cofounders willing the take just what they need to get by then that kind of money is going to last a long time. You are right if you are looking to hire full time employees though.

angryasian• 15 years ago

if a team consists of technical talent, and hiring a junior developer or two, makes sense.

axiom7• 15 years ago

One of the major reasons some of the funding rounds are so big is that a large chunk of the money is going to buy equity directly from the founders rather than going into the company.

joshu• 15 years ago

Not on the seed or A round they aren't.

axiom7• 15 years ago

I've seen a couple of cases locally where founders took a bunch of money in the A round (specifically I'm thinking of Kik.) I guess I don't have much more than anecdotal evidence though.

enjo• 15 years ago

I had the opportunity to take money off the table on an A round. I was surprised as anyone.

rudiger• 15 years ago

How much capital do you wish to raise?

emrosenf• 15 years ago

Bravo Jessica! I think people here may be missing the crux of the article: building a real business -- rather than an initial product -- is quite expensive.

How much money should my company raise?

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