
Ask HN : Where Does VC Money Really Go? - samirahmed
In the last few years, we We numbers like 81 million for Box.com, 11 million for enterproid etc, 100 million for foursquare.  I have no experience with startups, or operation sides, but I am curious as to where this money goes? Hardware costs for servers? Salaries/wages? Legal fees? Understandably it is different for different startups, but on average what is the breakdown look like for a software startup (web-based).
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patio11
It might differ based on the company, but the #1 cost by a fair margin for
virtually every funded software startup will be the costs associated with
employment: wages, benefits, and taxes. That could be 50~80%+ of expenses.
(One engineer costs you about $15~20k per month.)

Companies with noteworthy other costs include Zynga/Groupon, which both spend
absolutely gobsmacking amounts of money on advertising (and, depending on how
you count revenue/expenses, their revenue share deals with Facebook and
merchants respectively).

Server/hosting expenses tend to be heavily sensitive to what you're actually
doing: Zynga and Dropbox pay a lot relative to their revenues, but at a
37Signals-esque company they're chump change.

Legal fees are typically rounding error. Ball up all administrative overhead
and that's in handful of percent region.

Your physical workspace can be a fair chunk of change, depending on where you
are, how you came by your space, and to what degree you optimize for having a
prestigious address or office space.

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ra
In my experience wages are at least 80% of all costs.

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inmygarage
In the beginning, people costs are where most of your money goes, by far.
Whether you have employees or contractors, human capital will cost you the
most.

For a typical $500K seed round, here is my breakdown for 12 months of
expenses. Feedback welcome.

2 founders + health insurance + taxes = $10k/month

2 engineers + health insurance + taxes = $20k/month

1 p/t designer = $5k/month

...and you've burned through $420,000 of your $500,000 in 12 months.

As for the other $80K?

Legal Fees: $10K (or $800/month); Space: $30K (depending on where...around
$2500/month); Accounting/Finance: $10K ($800/month); Server Costs + Hardware:
$12k ($1k/month); Miscellaneous Expenses including random contractors here and
there, marketing expenses, SWAG, a party if you want, some travel to a few
conferences, food, etc.: $18k ($1500/month)

Hope this helps.

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DanI-S
Is ~50k/yr a typical founder salary? How much does it vary from this kind of
number?

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inmygarage
Founder salaries vary wildly depending on amount raised, whether the company
is profitable or even generating revenue and the stage of the company. Some
people pay themselves $1k/month and some pay themselves $15k/month. I figured
$4k/month was a good benchmark based on a pre-series-A seed-financed tech
startup that is generating minimal revenue and is not profitable.

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nicholasreed
While mocking up salaries with an adviser, he said that we should earmark $60k
for founders "so people think you're stable."

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staunch
Generally employees' salaries are the biggest expense in almost every startup
and at every stage. Hence the saying that "overhead walks on two feet"

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ericboggs
Some of the cash in these mega-rounds never hits the balance sheet and instead
goes directly to founders and early investors.

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Irishsteve
Based on my experiences in the UK, different start-up's get funding of 30
million etc. but the money is over X years as long as Y objectives are met. In
actual fact the company is getting a fraction of that 30 mill each year
therefore far less cash rich than the press release indicates.

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pge
Milestone-based fundings like this are pretty rare in the US and usually in
troubled or very high risk situations. Most vc fundings that you would hear
about are straight up equity deals (cash received at closing).

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PanMan
Try making a simple spreadsheet for a startup, for example for 18-36 months.
Before I ever did that, I always underestimated how far the money would go.
Most will be people. The examples you name have hundreds of people working for
them. That really ads up.

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jwatte
Somewhat depending on the business. Mining is different from social networks
is different from clean tech :-) For software, something like:

1\. Salary/Benefits. 2\. Marketing/PR/Sales. 3\. Rent/Utilities/Facilities.

Everything else is likely a variable cost you can pay with customer money, aka
"revenue." (Anything from direct sales to ad-based monetization) Once you can
in addition pay the above three from revenues, you should probably stop taking
investor money and look for liquidity.

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jdh
For mega-rounds:

\- SaaS companies like box flush it all on customer acquisition. Billboards on
101, google Adwords, telesales teams. See Jive's S1: $60m rev run rate and
losing $2 for every buck of revenue.

\- groupon, living social: customer acquisition also: web ads. Plus salesforce
to call on local businesses

\- four square plus everybody above: "secondary" I.e. into the pockets of
founders, early shareholders and, once in a blue moon, employees.

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goodweeds
Strippers and blow.

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dholowiski
Are you hiring?

~~~
adamzochowski
Are you a stripper?

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rscale
1) People. People are incredibly expensive.

2) Promotion. Especially in winner-take-all markets, where it's especially
important to be the first player to reach scale, and in markets with high
customer lifetime values.

3) Capital expense. Sometimes a business model requires huge warehouses
(amazon) or massive R&D, or some other huge capital expense that serves as a
meaningful investment.

4) Acquisitions. Sometimes it's spent buying other companies to help achieve
goals that they might not otherwise be able to achieve in the required
timeline, using only internal resources.

5) Miscellaneous. Accountants, lawyers, bankers, travel, telecom, that great
domain name, hosting, internal infrastructure, SaaS products, conference
attendance, catering, and other miscellanea.

