Why do startups need all that funding money? It is just for advertising?

https://news.ycombinator.com/item?id=82547

by Fuca • 19 years ago

8 23 19 years ago

news.ycombinator.com

Just curious to find out what is the typical pie chart of the spending of a bussiness that requires mostly a laptop.

boucher• 19 years ago

Well, for people doing it full time try rent and food. Plus servers.

coffeeaddicted3• 19 years ago

Yes, that are also the usual monthly costs we had. Servers could mostly be ignored in our case (below 20$ per month). Usually some one time costs are also needed. Like some hardware or for us the most expensive thing where the software licenses (though open source got us very, very far). I also paid for some legal advice, but it wasn't really worth it's money.

Oh - and in countries like germany don't forget the health insurance, which is the highest monthly cost I have to pay.

cperciva2• 19 years ago

Where do you get servers for less than $20/month?

zaidf• 19 years ago

Some of us are less lucky. Our last month's bandwidth cost was around 4k--all pushed to our credit cards.

wlievens• 19 years ago

Isn't food (and rent) a personal expense, rather than a company expense? So your company has to first pay a wage to yourself (taxed) and then you personally buy the food? Same for rent, unless you're renting an office, right?

rms2• 19 years ago

That's what I thought, but anyone feel free to pipe up if you're managing to buy all of your food as a company expense.

e1ven2• 19 years ago

Legal fees are a big one, I'd imagine. Also paying for artwork, servers, and services to monitor the service for if it fails.. Then there's bandwidth, which is always expensive.

nickb• 19 years ago

> Then there's bandwidth, which is always expensive.

It's not. You can get a TB for about $25-30.

Like others said, biggest expense is almost always the salaries for employees.

Legal fees are a one time fee and unless you're doing a VC round, incorporation and all agreements can be had for under $1K. If you are doing a VC round, well, then you can afford the $50K legal bill.

e1ven2• 19 years ago

It depends on if you're bringing it in house, or renting a server someplace.

I've found that if you are renting a dedicated server, you can get insane bandwidth deals, but if you try to bring it in-house, or even colo, you get burned. The dedicated hosts aren't expecting that you actually use the allocated bandwidth- This is why they'll give you 1000GB for the standard cost, but charge $100 extra to bring it to 1200GB.. If you need to bump it, it shows you're actually using it.

ALee• 19 years ago

Agree with e1ven. Our legal costs are pretty high. Suggestion to any entrepreneurs out there, get a expensive lawyer and a cheap lawyer. Only use the expensive one for important things.

About the general pie chart- check out http://blog.guykawasaki.com/2007/10/financial-model.html. Redfin lays out two years of startups costs.

flashgordon2• 19 years ago

Not all founders have the luxury of living with parents at home. Nor are a majority of founders willing to forgo 100K a year in salaries after having tasted the financial benefits of a steady job. Thats just for the "time" put in by the founders.

Now for directly startup related costs - legal issues, servers (hardware in general), hosting costs...

if you are lucky to be in the next stage, how about employees?

jdavid• 19 years ago

Investors like to invest in whatever it will take you to get to break even, or profitability.

If there is a risk someone will leave over money, or something else, they want to make sure it is covered.

Raising money takes months worth of work and can distract you from your product. Investors want you to do this once, and not every 6 months.

From my understanding even if a professional investor only gives you enough for 6 months, they are expecting to put more in if you are making progress when that 6 month mark comes around. in theory each successive round should get cheaper for the entrepreneur to take investment.

BitGeek• 19 years ago

Because they hire too many people. The more people you hire, the less you get done per unit people. With development, the more people you hire the less you get done period.

Virtually every startup that raises more than $100k is wasting half the money its spending. Most of them don't even realize it.

I love the comment by the guy who said "founders aren't willign to forgoe the $100k job they had" LOL. If your founders wouldn't rather have equity than a salary, then your startup isn't getting their bet... and they have the inside info.

The more money you take, the less equity you have. Thus, if you believe in your idea, you don't want to take any money....logically.

But the reality these days-- especially in "Silicon Valley" where the reality distortion field sets in-- is most startups are just built to flip- they want the big vc money the big burn rate and the quick exit to an acquirer... they aren't started by people who want ot build a business.

This is why SF is not a good place to build a company and why you shouldn't listen to the "spend lots of money" advice you tend to get (eg: you need a lawyer you need lots of employees, you need office space, you need to buy servers, etc.)

aswanson• 19 years ago

If your founders wouldn't rather have equity than a salary, then your startup isn't getting their bet... and they have the inside info.

What a way to put it. Genius.

flashgordon2• 19 years ago

oh you are right about the "if you founders wouldnt rather have equity than a salary ...".. absolutely... but I am not sure if its the choice is simple. If you have to feed a family then equity wont pay for it... But yeah sure, a team that is driven by equity rather than money does indicate a good idea (or a very stupid team!)...

mattmaroon• 19 years ago

Hookers and blow. And Aerons. Lots of Aerons.

cellis• 19 years ago

Who was that again?

Why do startups need all that funding money? It is just for advertising?

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