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The model is a fairly quick development cycle, fast early adopter sales, quick conversion to cash flow positive. Well, that's a lot of things that have to go right all in a row with only $100k to start.... It may be enough to start some kinds of businesses, but many will require significantly more in startu pcapital to brave even an accelerated road to break-even.

As to the model, the question is does it fully factor in the risk level? The idea is lower the goalpost and manage the cash burn more carefully, to ultimately obtain a faster break-even and then ride growth through reinvesting profits, to some point in the future when you can actually start making distributions. The premise, possibly flawed, is that by not shooting for the stars you should be less likely the fail. They don't need to win as big each time, because they will win more often?

Businesses need capital to grow. It's that simple. $100k is a bare minimum startup fund for a sole founder for less than 6 months. It's not a serious amount of money. You can't expect that $100k to buy enough revenue to sustain full-time employees and also be paying out a meaningful dividend.

If the idea is to really, truly, avoid VCs and institutional investors.... I think you need to be able to seed about $2m. For example, structured as a Line of Credit, drawn over 48 months, but with warrants to convert into common stock at some ratio. The conversion ratio in the warrants adjusts to provide anti-dilution as needed.

That would provide a real amount of money for a 2-3 person team to potentially solve a real problem. And that would give the investors a meaningful percentage of the company and choice between a cash payoff or taking shares. That would be a really appealing alternative to VC funding which some strong founding teams might take notice.




$2M just to get started?

If that is what one needs to just seed a company, then entrepreneurship has just become another career path with little risk (still get a decent salary) with a call option on some upside attached.

The reality is that capital is not a requirement for success although we do tend to celebrate it needlessly (1)

There are real tech companies out there (many mentioned in the indie.vc post) that built a solid initial product, sold it, got customer feedback, made improvements, and sold some more. They didn't have the luxury of $2 million or necessarily even $100k.

If you're selling the shoot-for-the-moon, billion dollar IPO, "change the world" dream from day 1, $100k may be immaterial, but I know of many solid tech companies (ours included) that are growing quickly (we're doubling headcount in 2015 from 25 to 50) who grew the old-fashioned way -- by funding out of revenue and who started with no outside capital at all.

(1) Best article about the myth of VC - http://recode.net/2014/09/11/the-myth-of-venture-capital/


$2m seed is definitely on the high end, but if the entire concept is foregoing future VC rounds, then I think that does raise the bar on the size of the initial raise. On the other hand, if you're going to suffer the burden of investors, it's simply not worth it for $100k. That doesn't really meaningfully change the equation or risk profile from the point of view of a founder committing 5 years to a project.

I think the vast majority of companies will fail before break-even with only $100k to start if the founders don't have the personal savings to allow fully sweating equity (a.k.a effectively a 3 person founding team contributing their own $1m over 3 years).

Obviously it depends what you're building, but if you're spending even just 2 work-years (a fairly trivial amount of development) developing the first core product, $100k isn't going to get you very far. Throw in startup costs, maybe a patent filing, a few trade shows, SG&A expenses...

To put it another way, what ROI do you expect from a $100k investment? S&P 500 will get you around 8% ARR. If you're happy getting ~$10k of dividends starting in year 5 on your $100k, I guess that's fine then. To me that's a small percentage of a small business, and the employees will rightly own 95% of that company since they will have effectively paid-in about 10x as much.

At a $100k with the expectation that's your solitary raise, it's barely worth the overhead that comes with it.


At least in Europe we've seen quite many small teams become break-even or profitable with ~$100k. One of the advantages in Europe is the possibility of having full-time employees at a fully loaded cost of $1500-3000 per month. Make $10-20k in MRR per month and you're nicely profitable with a team of 5-10. Grow from there. Most of these sell B2B or other SaaS solutions with 80+% of customers in the US.

You can get there with $100k in many cases in 12-18 months if not sooner. Might not be a huge VC business, but still a sustainable growing SME.

We've raised $200k with Weekdone (https://weekdone.com/) but are taking a similar path currently. 5 persons, around break-even, growing month by month. Not really looking at additional investment for now, but might consider someone like Indie.vs if there's a good fit.

A company I know did annual revenues of 0, 50k, 250k, 750k, 1.2m, 1.8m and over 2m this year. Pays good dividends. No outside investment. Some of the financing in early days was generated by custom software dev work. Have seen quite some similar ones around.


$1500 fully loaded per month? That's barely minimum wage / working at McDonalds level pay in the states. In the states, just the cost for health insurance for a family of 4 is going to run $1500+ per month.

Your 0-50k-250k-750k-1.2m-1.8m-2m+ progression sounds like a great starting point for analysis. If that's a 3 - 4 person founding team, assuming these are top notch employees that could earn $100k/yr on the open market, that's at least $150k fully loaded per employee, 12 person-years before break-even, that's $1.8m for payroll, taxes, and benefits. Throw in another $500k for company expenses at least.

Now, to some extent (ignoring the legal/tax issues) you can ask the founding team to contribute that $1.8m out of their own pocket in the form of foregone salary/benefits and say it's a bootstrapped company with "no outside investment" but in reality it's just the team absorbing that $2m+ of required startup capital.


$1500 cost to the company would be 750 EUR net salary (have deducted the income tax and social and healthcare). At that lower end what you can get is a junior content marketing person, junior inside sales person or someone in customer support and assistance. Probably not anyone in design or engineering. Engineering and design would be starting from $2-2500 for juniors in their 1st/2nd job and of course you can go to thousands from there. Someone working at Skype engineering here would be more like $3-4000 cost to the company.

You must keep in mind though that for $400-500 per month you can rent a luxurious 1-2br apartment and all the services cost also a fracture of what they cost in the US. The spending habits and lifestyle of someone making what seems really low here is much much higher than someone in SF Bay Area.

The argument of what someone would make in the US does not count. Because of the lifestyle and love for your own country most tend to stay in their EU countries. Moving to US and making $120k per year would be a downward spiral for many.

That 1.8m company probably has a headcount of 25-30 people, all world class top notch people, and the company is still hugely profitable and dividend-paying.


For a company that can fully exist in eastern Europe I think this is a highly competitive model. If you can develop and sell SaaS without a U.S. presence whatsoever it changes the economics an order of magnitude exactly as you say.

To the same extent these types of companies succeed the H1B program also becomes less relevant. To your point, coming to the US would be self-defeating since it would change the entire economics of the situation.

I think there are still very large barriers to entry; many industries where you still can't close sales fully remotely and personal networks / connections you miss out when selling to a foreign country. And in case of TFA I think it implies this is finding a US startup so your points are valid and important but perhaps OT.




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