

Ask HN: Are there ways to raise small capital without huge expected returns? - jakerocheleau

I have a few friends who have plenty of high-quality ideas for websites and media apps. They wouldn't require a lot of startup (if any) but wouldn't be able to raise a large amount of money, either. I have been looking at them as great projects to make a comfortable living off and not return 8-10 figures.<p>I always read about VCs and Angels looking to invest into the next big app, help it go public, then earn 10x their investment in 5 years. This is well and good for those who have such large ideas, but what about the smaller guys? What if a web app only pulls in $350k/yr? That's certainly not chump change, but it's not high-yield VC returns, either. Is there a market for this aside from bootstrapping?
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ABrandt
There's plenty of VC money like you describe available--Visa Card money that
is ;)

All jokes aside, theoretically there is a capital market for any combination
of risk and return--as long as the latter outweighs the former to some degree.
At $350k/yr (revenue?) you're just not talking about a sustainable return. An
investor would likely want more equity from your startup than you'd be willing
to fork over in this type of situation.

Luckily there's another capital structure you can turn to--debt. There's a
much larger number of people who would be willing to hand you over $20k so
long as there's relative certainty you'll pay them back (eventually). These
are the family, friends, and fools who get you going. You'll probably still
have to sell them on your business a bit, but these people inherently believe
in you (the most important part). Pay them back and everyone wins; don't pay
them back and risk damaging a personal relationship.

Hope this helps.

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LeBlanc
Why raise money at all? To deploy a web app all you really need is a virtual
server like SliceHost, Linode, etc. This costs $20-40 per month and should
have enough resources for a regular web app until you get really big (in which
case you should have some revenue to help cover costs).

Watch Tom Preston-Werner's (the founder of GitHub) speech at Start-up School
for inspiration: <http://www.justin.tv/startupschool/b/272178966>

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ig1
Angels are looking for a 10x return because startups are incredibly high risk,
even aiming for a 10x return the average angel only gets back 2.5x, so it's
really not worth their while to invest in low return startups.

(A talk about this here: [http://blog.awesomezombie.com/2010/10/low-
valuations-on-drag...](http://blog.awesomezombie.com/2010/10/low-valuations-
on-dragons-den.html))

If you're willing to give up significant percentage of equity (40-50%) you
could probably raise $50k for a company that'll make 350k/year.

The other main alternative is by obtaining a bank loan, but this would have to
be personally secured and you'd still be liable for the debt if the company
failed.

If your company is going to be serving a few big customers as opposed to lots
of small customers, another possibility would be to approach your customers
for investment, as their interest will primarily in the product rather than
the ROI.

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ryanlchan
Don't forget about your future customers (You do plan on having customers,
right?). They are often the people who want you to succeed most while
demanding nothing but product in return.

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nl
Plenty of people have built a business on credit cards. Atlassian is one that
many are familiar with.

It's not as stupid as it sounds, either. If you have consulting business
bringing in regular income it's pretty easy to service the debt on the cards.

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barrydahlberg
_They wouldn't require a lot of startup (if any) but wouldn't be able to raise
a large amount of money, either._

I think you just said everything is OK.

