
How much should I raise in my angel round? How should I spend it? - ggonweb
http://calacanis.com/2015/01/21/how-much-should-i-raise-in-my-angel-round-how-should-i-spend-it/
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austenallred
This is pretty damn spot on. My company raised $700k, and just hired the
fourth person for our four-person team. I've had a lot of people ask me about
how our expenses work out, so I figure I'll be a little bit transparent in
hopes of helping newer folks out.

Person 1: Business/operations/marketing/CEO stuff (but still likes to get
hands dirty in code when possible). 60k/yr, lots of stock.

Person 2: Brilliant programmer, mostly back-end. 115k/yr, lots of stock
(family + student loans).

Person 3: Good programmer, mostly front-end. 120k/yr, a little stock.

Person 4: Great designer/product/UX. Can write HTML/CSS/JS, but it's usually
faster for him to pass it off to #3. $100k/yr, a little stock.

The salaries are, of course, dependent on our needs and personal
circumstances. The person who makes 60k has practically no expenses, at least
relative to some of the other members of the team. We're also distributed
geographically, so the salaries will change slightly in SF vs. middle-of-
nowhere, but that's the gist of what I consider the classic team.

After taxes, office space, etc. Our burn will last us just more than 18 months
(we're frugal on this stuff - didn't need new computers or many monitors or
other stuff). We also spend about $500/month on various types of software. If
something slows us down even a couple days, it's cheaper for us to buy a
software solution than to pay salaries while everyone works through it
manually.

Everyone has to be a generalist to a certain extent, but we all naturally
gravitate to what we're good at. It took us a long time to hire person #3 - we
thought we would be able to get away without him/her, but adding him/her feels
like it's doubled the rate at which we can ship product. We formerly
compensated for it by having #1 and #4 do his job, and that really slowed
things down.

Now we have every opportunity to do what we need to do. It's all up to us.

Hope that is helpful to someone.

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loceng
Mind sharing where you were at (product wise) prior to the $700k raise?

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austenallred
Launched for one month, 50k "users" and 250k page views in the first month.
Users is in quotes because we only required a username to sign up, so it was
pretty close to measuring active unique visitors.

But most importantly we had a really compelling story and go to market
strategy in a really big market. Over 50% off the investors we talked to
invested, which is absurd, so don't feel like that's the minimum either.

~~~
adambenayoun
I love it when founders will only take what they need and not automatically
adjust their salaries to each other even when their life circumstances are
different.

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joshu
if you have a mostly working product and starting to scale up, $750 is okay-
ish. eg you have a saas that's already starting to grow or whatever.

if you are still figuring out what you are building, it's too little. it will
be very hard to raise again.

all except for one startup i invested in at a lower total raise ($500k) has
died; they had even less runway to figure things out.

~~~
vasilipupkin
I've invested in a bunch that have raised 1mln+ but that extra money just
prolongs the same misery, while creating the illusion that they still have the
funds to figure things out. I recommend maybe 1 mln rather than 750.

~~~
joshu
Yes. Not saying anything guarantees success, but too short a runway can ensure
failure.

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skrebbel
To me, someone who lives in what the author calls "the real world", $750k
sounds like a _humongous_ pile of cash. I have a hard time matching this with
the word "seed".

How far do SV angels expect you to be before they'll put that kind of money on
the table? Idea? Prototype? Users? Ramen profitable? Ramen profitable and 4x
monthly growth? Weekly?

~~~
patio11
It depends, and there are factors which can make the usual rules not apply.
The right team / the right story / the right moment / the right competitive
dynamic among investors / etc means you can raise on, essentially, nothing
else. If you have to ask whether this will apply in your case, it will not.

Anecdotally, the bar for a seed round in software is a) the product exists, b)
real people are using it happily every day, and c) you're collecting proof
points that it is a nascent business. (As distinct from a hobby project.)

If forced to put a number on it, for B2B SaaS, you've got either an LOI or
contract for an anchor enterprise customer paying $50k+ or you've got
thousands a month in low-touch revenue and it is increasing rapidly. Note that
thousands is not tens of thousands. It may have been a while ago.

There are also huge X factors here. Location is one. Ask Matt Wensing about
the frustrations of having the White House Situation Room as a paying client
and being told that that was insufficient grounds to fund them because the TAM
of WHSRs was 1 and, as they already had it, the investor didn't see the growth
story.

~~~
skrebbel
Thanks, just wanted to be sure. No seed investment before
team+product+users/customers+real turnover. Turns out the valley isn't that
different from the real world after all!

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_random_
London: $50-100k USD for 40% (Gaming). Don't come here.

~~~
iamwithnail
Really? I mean, that represents astonishingly bad value for a bunch of
reasons. The first is that that's not SEIS covered, because it vastly reduces
(by 70%) the risk exposure of the capital, and consequently the %. Especially
if you'll include video games tax credits on thus back end that let you
stretch that runway. Beyond that, you've also not used the full SEIS value
-£150k, so again, shot yourself in there foot. This wouldn't be typical of
valuations that I see working with startups, it's far more in the order of
10-17.5% for £150k (with SEIS coverage). Gaming is obviously it's own beast,
but the same rules on making the investment tax efficient for the investor
apply, and I'm surprised anyone gets any investment with ought SEIS any more.

With that in mind - advice is always to raise as high as you can on angel,
because it's covered for the investor, and you can only do it once.

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syllogism
> and have $120k in legal, accounting, and capex spending (your laptops).

So about 100k for legal and accounting? Is that normal?

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jasonmcalacanis
You can have some fees deferred. but $3k per person for computers is $12k...
company formation is $5-10k, convertible note is $5-10k, terms of service, IP
assignment, etc. Patents are $10-50k depending on how far you take them.

$120k is high, but not outrageous.

~~~
vasilipupkin
at that stage, patents are probably a waste of time for a startup, wouldn't
you say ?

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kacperp
I guess it doesn't necessary have to be filing patents, but rather checking
whether you'll be infringing any.

~~~
kazagistar
Isn't that exactly what you don't want to do, since infringement is almost
impossible to avoid, and wilful infringement costs more?

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peterjancelis
$35K per month for a team of 4 seems ridiculous to me. And $500 for a desk,
really?

I live in Vietnam, serviced room in the middle of Ho Chi Minh City, eat out in
restaurants daily and spend about $1000 per month.

~~~
vasilipupkin
and I am sure Vietnam is awesome, but is it awesome for building a startup?
Numbers say no, otherwise most startups would be in Vietnam, not in SF :)

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dude_abides
A useful reminder: Brin and Page raised $100K in their angel round (from Andy
Bechtolsheim). Their company HQ was a friend's garage.

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iolothebard
1990s were a long time ago as well.

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api
Everything else has gotten cheaper, so if it weren't for cost of living you
could probably do it on half that now.

The problem is that while hardware, cloud, bandwidth, etc. has collapsed in
prices since the late 90s, real estate has arguably undergone hyperinflation.
As a result, people can't cope with low salaries as easily unless they're
just-out-of-college types with no footprint.

~~~
pbreit
"Everything else has gotten cheaper"

Except people.

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jv22222
What is a typical % of equity to give away for the $750k?

