4 ms·

(naive) Question: What do web startups need $20mm for? (linked from the article: http://www.avc.com/a_vc/2010/07/some-thoughts-on-the-seed-fund-phenomenon.html

by 10ren 16y ago

(naive) Question: What do web startups need $20mm for? (linked from the article: http://www.avc.com/a_vc/2010/07/some-thoughts-on-the-seed-fund-phenomenon.html http://www.avc.com/a_vc/2010/07/some-thoughts-on-the-seed-fu...) I mean, what can they spend it on? I can think of servers and bandwidth (but they're pretty cheap these days, except for youtube-content intensive), and staff (but what would they do?) and perhaps advertising and publicity in general can absorb as much money as you can throw. I guess a professional sales force would be expensive.

starkfist 16y ago
Servers are not as cheap as everyone says. You need the staff to keep the servers working.
- csbartus 16y ago
  There are platforms as service like Heroku emerging with no need for staff at all
  - starkfist 16y ago
    Platforms as service don't work as well as advertised once you get past a certain point.
    - csbartus 16y ago
      Ok, but spending millions on infrastructure?
      - starkfist 16y ago
        Well you gotta do what you gotta do. In my experience if you are really doing serious traffic, you have to do a lot of custom stuff. The platform-as-service vendors are not prepared to really help you. Or if they say they are, they will charge you so much money that it is cheaper to do it yourself. In fact... I actually worked at one of those platform-as-service places, back in the day before they were called such. This is how it works: You are a big whale of a client, like twitter. Nobody at twitter likes systems engineering or sysadmins, so they call up the platform-as-service place. The platform-as-service place doesn't really know how to do it either... but they are thinking "fuck... this is TWITTER... we NEED this account." So they say they can do it. Then when they get twitter, they are totally in over their head and are scrambling to hire people who can fix twitter's shit. So essentially you are not just outsourcing your infrastructure, you are outsourcing the hiring of the sysadmins. You could just bypass this altogether and hire your own systems engineers in the first place. However lately it seems like the story has to include 7 months of half-assed "platform as service" with ultimate failure before realizing this on your own.
        mmt 16y ago
        I almost replied to your terse OC to disagree [1], but I think this explanation is extremely insightful and worthy of attention and upvotes[2]. I call it the myth of the commodity server, and it's particularly prevalent among software engineers, since the natural inclination is to approach every problem as though it can be solved in software. Perhaps ironically, this often excludes the kind of software sysadmins write, which is deployment and configuration. Far more importantly (from my POV), such an approach ignores the importance to cheap, reliable scaling of being able to customize the arrangement of the hardware [3]. Pretend that all servers are the lowest common denominator, and scaling gets expensive fast. Often the end result is more/earlier customization of software (e.g. writing a distributed DBMS from scratch, which takes on a life of its own, not getting any cheaper), and I can't imagine that's cheaper than hiring a sysadmin to customize configuration and deployment cheap hardware (which does get cheaper) to get mind-blowing I/O. [1] I still do, in the sense that I feel it implies that the server hardware or its operation is anywhere near as expensive as employees. I'd be quite surprised if any startup spends more than one tenth on servers as it does on people. However, your point that some people are required when one has enough serious traffic is one with which I do agree and one that is often missed. [2] Bias disclosure: I'm a sysadmin [3] Which effective customization requires knowledge of and experience with
      - stonemetal 16y ago
        If you are 5 to 10 years away from profitability. Amazon incorporated in 94 didn't show its first profit until 2002, 8 years later. If you pay your sysadmin an average of 100K that is almost a million just for the one sysadmin(Some how I doubt amazon had just one sysadmin in 02). Sure they weren't purely a web business, what with the need to warehouse and ship all of that stuff, but as they say it takes a long time to be an overnight success.
        mmt 16y ago
        It's probably also important to note that Amazon was a pioneer and that it's 16 years later, so perhaps their model isn't as relevant today. More importantly, I'm confident they showed their first revenue well before '02, so it wasn't just VC money paying for sysadmins (and other employees) the whole 8 years.
csbartus 16y ago
(naive) Answer: VCs and investors are institutions, per se, they apply to the Clay Shirky principle. "The Shirky Principle declares that complex solutions (like a company, or an industry) can become so dedicated to the problem they are the solution to, that often they inadvertently perpetuate the problem." Their job is to spend (invest) money, so they must, are forced to find a way to do it. They probably are taking a company to a 'next level' with unnecessary costs like excess in staffing, office etc. There are many examples when a company hit large profits without VC money by staying lean instead following the Fat model advocated by large VCs like Andreessen & Horowitz
electrum 16y ago
Engineers aren't cheap, especially top-tier engineers in the valley. A reasonable estimate for an FTE (full time employee) is $200k per year, once you add in equipment, office space, management overhead, HR, recruiting costs, etc. Sure, you can be somewhat cheaper when you're a three person company, but this doesn't last forever.
- mmt 16y ago
  This strikes me as being an exaggeration or something that has also gotten cheaper, perhaps by convention. PEOs have solved the problem of most of the HR drudgery, for a mere $200/mo per FTE, if that. Even the most extravagant startups I've seen don't spend more than $10k per employee on equipment, and that lasts more than a single year. Similarly, if a high-end engineer pulls $150k/yr, a 20% recruiter commission is only $30k. Arguably, management overhead is a liability both in cost and productivity that a startup cannot afford. Class A office space (also an extravagance for a startup) is, at most, $3 per square foot and a quick scan of craigslist suggests its easily available for $2 or less. 100 square feet per FTE, and you're just paying again what a PEO costs (a pittance compared to the salary). That, plus $3k of benefits, plus employer-side taxes adds up to $210k for the first year and about $170k each additional, for a pretty senior employee. I'd expect that could be halved for someone junior.
barnaby 16y ago
$1mm for software development, and servers, and bandwidth, and all that $9mm for marketing $10mm for sales and business development

by 10ren 16y ago

starkfist 16y ago

Servers are not as cheap as everyone says. You need the staff to keep the servers working.

csbartus 16y ago
There are platforms as service like Heroku emerging with no need for staff at all
- starkfist 16y ago
  Platforms as service don't work as well as advertised once you get past a certain point.
  - csbartus 16y ago
    Ok, but spending millions on infrastructure?
    - starkfist 16y ago
      Well you gotta do what you gotta do. In my experience if you are really doing serious traffic, you have to do a lot of custom stuff. The platform-as-service vendors are not prepared to really help you. Or if they say they are, they will charge you so much money that it is cheaper to do it yourself. In fact... I actually worked at one of those platform-as-service places, back in the day before they were called such. This is how it works: You are a big whale of a client, like twitter. Nobody at twitter likes systems engineering or sysadmins, so they call up the platform-as-service place. The platform-as-service place doesn't really know how to do it either... but they are thinking "fuck... this is TWITTER... we NEED this account." So they say they can do it. Then when they get twitter, they are totally in over their head and are scrambling to hire people who can fix twitter's shit. So essentially you are not just outsourcing your infrastructure, you are outsourcing the hiring of the sysadmins. You could just bypass this altogether and hire your own systems engineers in the first place. However lately it seems like the story has to include 7 months of half-assed "platform as service" with ultimate failure before realizing this on your own.
      - mmt 16y ago
        I almost replied to your terse OC to disagree [1], but I think this explanation is extremely insightful and worthy of attention and upvotes[2]. I call it the myth of the commodity server, and it's particularly prevalent among software engineers, since the natural inclination is to approach every problem as though it can be solved in software. Perhaps ironically, this often excludes the kind of software sysadmins write, which is deployment and configuration. Far more importantly (from my POV), such an approach ignores the importance to cheap, reliable scaling of being able to customize the arrangement of the hardware [3]. Pretend that all servers are the lowest common denominator, and scaling gets expensive fast. Often the end result is more/earlier customization of software (e.g. writing a distributed DBMS from scratch, which takes on a life of its own, not getting any cheaper), and I can't imagine that's cheaper than hiring a sysadmin to customize configuration and deployment cheap hardware (which does get cheaper) to get mind-blowing I/O. [1] I still do, in the sense that I feel it implies that the server hardware or its operation is anywhere near as expensive as employees. I'd be quite surprised if any startup spends more than one tenth on servers as it does on people. However, your point that some people are required when one has enough serious traffic is one with which I do agree and one that is often missed. [2] Bias disclosure: I'm a sysadmin [3] Which effective customization requires knowledge of and experience with
    - stonemetal 16y ago
      If you are 5 to 10 years away from profitability. Amazon incorporated in 94 didn't show its first profit until 2002, 8 years later. If you pay your sysadmin an average of 100K that is almost a million just for the one sysadmin(Some how I doubt amazon had just one sysadmin in 02). Sure they weren't purely a web business, what with the need to warehouse and ship all of that stuff, but as they say it takes a long time to be an overnight success.
      - mmt 16y ago
        It's probably also important to note that Amazon was a pioneer and that it's 16 years later, so perhaps their model isn't as relevant today. More importantly, I'm confident they showed their first revenue well before '02, so it wasn't just VC money paying for sysadmins (and other employees) the whole 8 years.

csbartus 16y ago

(naive) Answer: VCs and investors are institutions, per se, they apply to the Clay Shirky principle. "The Shirky Principle declares that complex solutions (like a company, or an industry) can become so dedicated to the problem they are the solution to, that often they inadvertently perpetuate the problem." Their job is to spend (invest) money, so they must, are forced to find a way to do it. They probably are taking a company to a 'next level' with unnecessary costs like excess in staffing, office etc. There are many examples when a company hit large profits without VC money by staying lean instead following the Fat model advocated by large VCs like Andreessen & Horowitz

electrum 16y ago

Engineers aren't cheap, especially top-tier engineers in the valley. A reasonable estimate for an FTE (full time employee) is $200k per year, once you add in equipment, office space, management overhead, HR, recruiting costs, etc. Sure, you can be somewhat cheaper when you're a three person company, but this doesn't last forever.

mmt 16y ago
This strikes me as being an exaggeration or something that has also gotten cheaper, perhaps by convention. PEOs have solved the problem of most of the HR drudgery, for a mere $200/mo per FTE, if that. Even the most extravagant startups I've seen don't spend more than $10k per employee on equipment, and that lasts more than a single year. Similarly, if a high-end engineer pulls $150k/yr, a 20% recruiter commission is only $30k. Arguably, management overhead is a liability both in cost and productivity that a startup cannot afford. Class A office space (also an extravagance for a startup) is, at most, $3 per square foot and a quick scan of craigslist suggests its easily available for $2 or less. 100 square feet per FTE, and you're just paying again what a PEO costs (a pittance compared to the salary). That, plus $3k of benefits, plus employer-side taxes adds up to $210k for the first year and about $170k each additional, for a pretty senior employee. I'd expect that could be halved for someone junior.

barnaby 16y ago

$1mm for software development, and servers, and bandwidth, and all that $9mm for marketing $10mm for sales and business development