

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

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

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aswanson
_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.

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

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coffeeaddicted
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.

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

~~~
rms
David Rusenko:

>call any investor in the valley and tell them "I'm growing so fast and I need
$15,000 to pay for servers and hosting" and you'll have convertible note
paperwork signed by the end of the week"

[http://david.weebly.com/1/post/2007/07/why-you-wont-run-
out-...](http://david.weebly.com/1/post/2007/07/why-you-wont-run-out-of-
money.html)

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flashgordon
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?

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jdavid
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.

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e1ven
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.

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nickb
> 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.

~~~
e1ven
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.

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ALee
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.

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mattmaroon
Hookers and blow. And Aerons. Lots of Aerons.

~~~
cellis
Who was that again?

