

Question: What exactly do companies do with seed/VC money? - throwaway40

Obvious answers include: pay themselves, pay for servers, etc. Why do companies need so much? Why do they need money at all especially for a web startup?<p>The bigger question I have is what does the VC money earn you, besides taking away more ownership over the company that doesn't make a dime yet (as opposed to a bootstrapped product idea) ?
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mindcrime
_Why do companies need so much?_

How much?

 _Why do they need money at all especially for a web startup?_

Oh, I don't know... maybe the founders want to pay themselves a salary so they
can work on the project full-time and still pay rent/electricity bill/car
payment/mortgage payment/gas bill/car insurance/phone bill/etc. And as cheap
as computing cycles are, they still aren't free. Sure, a small Slicehost or
Linode node for development is dirt cheap... but what if your webapp traffic
starts to grow and you need to scale it out? Or maybe there are expenses for
traveling to trade-shows, conferences, customer sites, etc? Maybe you want to
buy advertising or pay a PR agency for some work? Maybe you want some graphics
designed by a professional graphics designer? There are all sorts of things
that go into running a business that cost money.

 _The bigger question I have is what does the VC money earn you_

Runway and the ability to move faster. If I'm trying to bootstrap something,
the amount of code I can produce in, say, 6 months, is equal to how much code
_I_ personally can write in that time. If I can hire, say, 2 more developers,
we can - in theory, and allowing for Brooks' Law - get a lot more done.
Getting done quicker, maybe getting a certain feature finished in time for a
big-splash product launch at an important trade show, etc.; are places where
being funded would give you an advantage over pure bootstrapping. Obviously
this won't apply to everybody, and not everybody chooses to pursue VC money.
Different strokes and what-not...

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maxbrown
A good answer, though I sense a bit of sarcasm/contempt in there!

Maybe the OP is only familiar with the negative aspects of taking outside
investment, and is perfectly comfortable with bootstrapping (and has a venture
that can be successful with bootstrapping alone). Given that, it seems that it
might be fairly difficult to see why people would take VC money.

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mindcrime
_A good answer, though I sense a bit of sarcasm/contempt in there!_

Yes, I tend to be a bit sarcastic by nature. Too much time spent watching
British television and hanging out with Brits, I suppose. Or maybe it's just
genetic, who can say about such things.

Actually the original post struck me as almost a bit trollish itself, although
maybe I just misread it. So yeah, maybe my response a bit snippier than usual.
<shrug />

FWIW, I'm bootstrapping my own startup at the moment, and am very leery of
taking outside capital. But I'm certainly open to the possibility if the
situation dictates it. The thing that would be nice, would be being able to
work on the project full-time, not just nights and weekends (outside of the
$DAYJOB.) That's the one area - in particular - that makes it very tempting to
start trying to raise money.

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pg
Mostly salaries, sometimes buying customers.

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andrewtbham
what do you mean by buying customers? advertising?

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znt
Advertising, insider/off the shelf deals, wining & dining "influential"
bloggers, charging very low prices to outsell competitors.

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nhangen
The ability to work on a project full-time is worth the equity you give away.

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pcolton
Equity is overrated, success is much better. ;-)

