SU does send a lot of traffic, but don't let the numbers fool you. SU users are channel surfing, and usually don't stay for more than 2 seconds. Divide the number of users you get from SU by 10 to get it's equivalent in Digg users. And divide that by 10 to get it's equivalent in users coming from a blog post. If you didn't follow that, here is the simple equation:
I'd say I'm at stage similar to what an 'average' YC startup would've been at after about 3 to 5 months. Not hugely populr, and not at a deadend either. It's a consumer, social, Web site. We don't have a lot of users yet, and we don't have revenue, but the concept seems to be a good one, and I think that's how the investor heard of us and approached us.
It may be common but the more important question the investor will have is how soon and for how much you can sell the company (in other words how will you use the funds to create more value / reduce risk in the startup). There will be other terms associated with a funding that will have a significant impact on how much you make when you sell (for a reasonable range of exits). A couple of good sites for background on funding:
you're right, what I should have written is the question in their mind is "how soon and for how much can we create liquidity" with more of a focus on how much than how soon. In other words, how will the funds be used to reduce the risk in the startup. If acquisition is your likely exit (and that's a safe bet for most new startups) then they may ask you to speculate who would buy the firm and for how much. I am not advocating a "built to flip" strategy" as much as trying to understand an investor perspective.
We have a low burn rate, so a $100K should be enough to allow the two of us to continue working on it for another year, including a small marketing budget, and occasionally bringing in a consultant for the things we need help with (graphics, marketing consultations, legal, ..etc).
I'd also shoot for more than a year's expenses. I've found investors like to hear you're aiming for 18-24 months. Consider that you have to essentially start seeking funding 6 months before running dry. If you aim for 1 year's expenses you work 6 months, then start on fundraising. Raise 18 months' expenses and you work for 12 before fundraising again, so you get double the progress for only 50% more money.
And if you can raise $100k, you can almost certainly raise 150.
$100K is not enough to sustain two employees for an year. $50K is less than the annual average living expenses for a person. (Just do the Math, housing, insurance, etc.). I would strongggggggggly recommend to try raising something between 0.75M an 1M. I have noticed a lot of fellow hackers seriously undervaluing the time they spend building a product. Two strong hackers, working for 6 months is eaily $140K expenses(and I am including just the salary an employer would pay). Please, please do not undervalue your time and expertise.
With the oncoming recession and all, you do want to have enough in the bank for at least 1 to 2 years, if you are serious about your startup.
$100k is more than enough to sustain two founders for a year. Especially if the founders happen to be young and unmarried. If they were living together they could probably make it on expenses of $50k for a year while still living relatively comfortably (even at Silicon Valley prices).
Also, I'm not sure what to make of your comment "Two strong hackers, working for 6 months is eaily $140K expenses" How good the hackers is hardly related to the expenses they require. Perhaps 140k is the opportunity cost?
Having enough in the bank for 1-2 years is probably a good idea, but it sounds like they could do that on $250k-$350k.
Also, I agree with matt, focus on the percentage you are giving away rather than the amount you want to take.
At $50K your taxes are going to be pretty low, but just the same try and have the company pay for things instead of buying them with your salary.
If you look around you may find a business partner who could give you some money as part of some kind of deal. Traditional software companies can do this by pre-selling licenses at a discount and web companies looking for ways to get more users may pay you if you find a way to help your users get signed up with them. However I'd caution against spending too much time on this sort of thing yourself as it can easily become a distraction.
It's not easy, but it's doable. Asking for the numbers you're suggesting forces us to seek VC funding (which we might do later), but we're not ready for it yet.
Maybe this is a stupid questions, but aren't there taxes to pay as well? If they use the money to pay a wage to themselves (to use to pay for food and rent and insurance), then they pay income tax on that wage, right? Or does that "$50k" number include income tax?
YC tends to gives about $6K-10K per founder, which needs to last for at least 3 months or until they get more funding, unless they have other funds... and the funded companies seem to make it work...
If you need 100k, why are you looking for VC funding? They will give a horrible valuation and take a large part of your company. First phase funding in the ~100k range I would look for angel investors or get the people involved to contribute the money. Either raise 500k from a VC and have a much more aggressive growth strategy if that is the route you want to go, or raise 50k from friends/angels/yourselves and minimize costs as much as possible.
Be a specialist in one area, and learn enough about the other areas to allow you to judge the quality of the cofounders you join or the contractors you hire.
I always felt that VCs continue to spread the 30% minimum ownership myth to manipulate the expectations of entrepreneurs seeking funding. Good to know that my gut feeling was right.
That's exactly how it works with consumer Internet projects. Consider that even Google didn't realized how valuable what they had was. They tried to sell their search technology in the early days, but only because nobody would buy it, they had to continue running the company on their own.
The forumla seems to be:
1. Build a basic version of something you think people want.
2. Try it.
3. If people don't like it, modify and try again. Do that for a few times, and if it still doesn't work. Go back to step 1.
