$15,000 in revenue in the first month is impressive. I wonder how many business dev and customer support people they need to want the 250K. It seems that the business is healthy enough to hire based on revenue, which is what I would do instead of getting funding. The hosting cost seems almost negligible at this point, too.
If $15k/mo (180k/yr) is "ramen profitable" it doesn't leave much room for growth/reinvestment. Maybe that's two people and various operating costs. Maybe three. Probably no more -- it's not cheap to live in or around New York.
If they raise 250k and spend it just on salaries for a year, think one bizdev guy and three salesguys who also get commission. Something in that neighborhood. Maybe one less guy and increase the marketing budget. You could cover a lot of territory with a team like that.
I mean, $15K is just their first month, who knows how much their revenues have grown since then. I feel that with the manpower they currently have and their traction, they can scale much higher (and in turn spend profits on new hires) on organic revenue growth instead of seed funding. But hey, what do I know? Many times things look too easy to those who don't know what they're talking about or are on the outside.
I do agree that living in NYC isn't cheap. But neither is Silicon Valley, where many YC start-ups are based and are probably struggling to make $15K in their first three months after launch. Rent, which is most likely their biggest cost, could possibly be scaled down if they do live in the true spirit of being "ramen profitable."
Organic growth vs investment is an interesting question.
To play devil's advocate a bit, think about their competition. What if a competitor with a slightly inferior but "good enough" service invests a lot of money into sales, marketing and business development, then eats their market whole? What if a large real estate firm with deep pockets more or less copies the service? What if craigslist suddenly decides to redo their apartment listings? As an entrepreneur, you need to count on your competitors being absolutely ruthless.
Having already taken Y Combinator money, they're now obligated to steward that investment. That implies a couple of things -- growing fast enough not to get outpaced, paying for some benefits for yourself (what happens to YC's investment if these guys get really sick?), and building some cash reserves to weather variations in the market.
They're lucky to be faced with the dilemma to be sure. And for whatever combination of reasons they've decided to go for the investment. It's a pretty modest size, and they'll be able to retain control.
If you look hard enough, you can get rent down to $400-500 a month. If you have a kitchen, food isn't expensive (rice and beans). And thanks to the good public transport, you can do without a car (unless you have to go to Sand Hill Road every day).
$15,000 in revenue in the first month is impressive.
Unless they made that up.
However, even if it's a fabricated figure (and I'm not saying that it is), they would not be the first company to lie to the press to generate some hype. I also don't believe it would be against the law, except perhaps if someone were to rely solely upon that information to make a decision about whether to invest in the company.
i wouldn't call RentHop a 'web startup' ... they're a business that operates very much in the real world ... the web is simply their interface for doing meatspace business. i usually think of web startups as existing purely in cyberspace (wow that's a 90's term heh), where end-users are less likely to want to pay for services. in the real world of apartment hunters, brokers, landlords, etc., people are used to paying money immediately for goods & services.
I think I heard him say they are transitioning into lead-gen for brokers? Isn't that kind of anathema to the no-fee idea? I suppose you could try to do lead-gen only for so-called "no-fee brokers," but that seems hard to enforce. This seems like a complete shift away from their original philosophy.
I heard him say he's adding this, not transitioning to it. Why not do both? Then you've still got revenue coming in from landlords listing direct, and people who want to search for-fee listings can see those as well. As long as they're transparent and respectful about it, there's no downside.
Lead-gen makes a lot of sense as a secondary revenue stream. If you can't make the transaction, you can still sell a qualified lead. Once you hit big volume, this becomes a significant source of income.
