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Ask HN: Early Stage Fund Allocation: What is it Put Towards?
What proportion of money is put toward what types of things in seed/early stage startups? It will obviously vary depending on the company but I would like to see (in a pie chart even better) how much typically goes to marketing, bringing on new employees, servers, etc.
- benologist 15y agoSalaries ... everything else is (usually) tiny by comparison. Conferences can get expensive if you're going to a lot with flying/hotels.
- wallawe 15y agoSo you're saying that an early stage company trying to grow exponentially is spending the majority of its early funding on salaries? I find that hard to believe. Especially for some of the biggest tech players in the industry today. I'm trying to figure out the nuances of spending for these companies in their early stages and how important certain things are relative to others. As a founder, what would you have spent more money on and what less?
- benologist 15y agoPeople cost a lot. We raised a bit of money, and about 80% of our budget is for salaries. We spend a few grand a month on hosting and services, and all of that is less than a single month's pay for someone. Computers and software ... unless you're using some very expensive software it's not even going to add up to 1 month's salary for a person. Office rent etc is negligible compared to the people in that office. It's not even a competition really ... one person can cost you more than your hosting, office space and computers and stuff combined, and you're probably hiring more than 1. You don't even have to go to extremes and hire a ton of people like silverbax88 mentions, if you're hiring 5 people that's 100s of thousands of dollars.
- silverbax88 15y agoYeah, but that's why so many companies in the Valley fail. They hire way too fast (and often they hire too fast because investors are pushing them to hire so it looks like they are growing like crazy). As an example/comparison: I worked for one startup on the East coast in the financial sector that had about $800 million in backing. We were profitable in 4 years and still had less than 100 people on staff. Compare that to Digg, which had well over 100 people on staff, with only $40 million in backing and much less revenue. There's no reason a company like Digg needs 100 people, or even 50 people.
- diolpah 15y agoCounterpoint: my cofounder and I worked for free for the first year. By far, our largest costs were in product and advertising.
- benologist 15y agoSure, before we raised money I was working for nothing for a bit over a year and we dropped some 20 grand on servers, equipment and conferences and whatnot. But you can't rely on free labor past yourselves and even amongst yourselves there's a limit.
- diolpah 15y agoOf course, but the question refers specifically to "early stage", which would presumably cover the year-ish of time during which many startups do have access to a free labor pool.
- benologist 15y agoIf you're talking really early stage before you have any funding ... all our money went to servers, food, and a couple conferences. I didn't really have a specific budget, I had rent or not heh.
- wallawe 15y agoYeah, that's more of what I was looking for. I've got several thousand dollars, and am about to quit my current job to go full with my current project. I want to make sure I spend money where it needs to be spent.