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Ask HN: Your startup needs money: WHY?

8 points by grep 16y ago

I never quite understood why there's so much money being "given" to so many startups that do pretty much nothing... why do they need so much money? I don't get it..

tlack 16y ago
To pay the salary of the people working on the site?
frossie 16y ago
Did you have a particular example you want to discuss?
- grep 16y ago
  I do not. I'm generalizing, I'm not pointing any names but I'm sure everyone already had this feeling.
- grok2 16y ago
  xobni? They have a interesting and useful product, but in the shareware days, they would be just that -- shareware software. But somehow, they were in the right place, doing the right things and they got something like 10 million (?) in investment?
oceanician 16y ago
I guess some projects need more money than can be feasibly obtained from other projects organic profits, and are too risky for banks to touch, and co-founders credit cards are already maxed out, so they need investors to 'give' money. Maybe they do nothing today, but are in a closed beta with a small circle of users, and will be more public beta tomorrow...?
skbohra 16y ago
Money is needed for living of founders, for paying salary, servers, rent and above all with money you can feel some freedom and take tough decisions, when you know you have those dollars in bank account you can be little relax and work.
shafqat 16y ago
We got to where we are with 250K, and are pretty close to product/market fit. We have paying customers, a great product and a repeatable sales model. However, for us to really step on the accelerator and grow, we need to hire A+ salespeople. We can pay them from cashflow, but that will slow things down. We'd rather raise a small amount of capital (i.e. < 1M) so we can hire a couple of great sales guys and really speed up the growth of our business. Just a tangible example of why our startup needs money!
instakill 16y ago
Your start-up doesn't NEED money, but it is definitely helpful. Most of the start-ups that do receive funding of $1million+ aim to go big, so having that latent capital is certainly a great security for when the time comes to expand. They can use this money to hire the necessary people, purchase the necessary assets (servers, workstations, etc) or secure annual rent. On the other hand, start-ups that have a more modest outlook or vision don't need as much and actually shouldn't accept that much. Having $1million VC money pumped into a start-up that only expects to make $50,000 a month with steady growth will more than likely buckle. The investors will keep pressuring the founders and terms like ROI will be thrown around meetings like crazy. The best thing to do is determine how much you really need (Or create a range for variables), and work from there. There's a bunch of decent (free) spreadsheets you can get from here: http://www.exinfm.com/free_spreadsheets.html http://www.exinfm.com/free_spreadsheets.html That's my 2c.
staunch 16y ago
What is there not to get? Running a business costs money for very obvious reasons: salaries, office space, computers, servers, marketing. Even for a very frugal early stage company that is usually hundreds of thousands of dollars per year. Those costs tend to exist regardless of whether the idea is simple or not.

8 points by grep 16y ago

I never quite understood why there's so much money being "given" to so many startups that do pretty much nothing... why do they need so much money? I don't get it..

tlack 16y ago

To pay the salary of the people working on the site?

frossie 16y ago

Did you have a particular example you want to discuss?

grep 16y ago
I do not. I'm generalizing, I'm not pointing any names but I'm sure everyone already had this feeling.
grok2 16y ago
xobni? They have a interesting and useful product, but in the shareware days, they would be just that -- shareware software. But somehow, they were in the right place, doing the right things and they got something like 10 million (?) in investment?

oceanician 16y ago

I guess some projects need more money than can be feasibly obtained from other projects organic profits, and are too risky for banks to touch, and co-founders credit cards are already maxed out, so they need investors to 'give' money. Maybe they do nothing today, but are in a closed beta with a small circle of users, and will be more public beta tomorrow...?

skbohra 16y ago

Money is needed for living of founders, for paying salary, servers, rent and above all with money you can feel some freedom and take tough decisions, when you know you have those dollars in bank account you can be little relax and work.

shafqat 16y ago

We got to where we are with 250K, and are pretty close to product/market fit. We have paying customers, a great product and a repeatable sales model. However, for us to really step on the accelerator and grow, we need to hire A+ salespeople. We can pay them from cashflow, but that will slow things down. We'd rather raise a small amount of capital (i.e. < 1M) so we can hire a couple of great sales guys and really speed up the growth of our business. Just a tangible example of why our startup needs money!

instakill 16y ago

Your start-up doesn't NEED money, but it is definitely helpful. Most of the start-ups that do receive funding of $1million+ aim to go big, so having that latent capital is certainly a great security for when the time comes to expand. They can use this money to hire the necessary people, purchase the necessary assets (servers, workstations, etc) or secure annual rent. On the other hand, start-ups that have a more modest outlook or vision don't need as much and actually shouldn't accept that much. Having $1million VC money pumped into a start-up that only expects to make $50,000 a month with steady growth will more than likely buckle. The investors will keep pressuring the founders and terms like ROI will be thrown around meetings like crazy. The best thing to do is determine how much you really need (Or create a range for variables), and work from there. There's a bunch of decent (free) spreadsheets you can get from here: http://www.exinfm.com/free_spreadsheets.html http://www.exinfm.com/free_spreadsheets.html That's my 2c.

staunch 16y ago

What is there not to get? Running a business costs money for very obvious reasons: salaries, office space, computers, servers, marketing. Even for a very frugal early stage company that is usually hundreds of thousands of dollars per year. Those costs tend to exist regardless of whether the idea is simple or not.