6 ms·

Always have 18 months of cash in the bank

131 points by bjonathan 15y ago

kls 15y ago
Almost all VCs I know care primarily about the success of their companies and not about extracting every last point of equity. You would be surprised, I have seen some things in my career that are insane and done for the simplest reasons, like ego, megalomania and most of all money. I once was with a start up in which the CFO and the COO got into a fist fight in front of the entire company, over equity. Another time I saw a VP who was running one division give everyone the day off, called in three of his trusted developers, and they all said that the development team was on strike and would not return unless the board appointed him the CEO. He then proceeded to run the company in the ground, while paying himself and his three developers handsomely. And I have seen investors use all manners of leverage against the operations team to dilute their ownership. The stories about being diluted out of ownership are common because it happens all the time. I personally, was diluted out of my ownership in a start up. A 90 million dollar exit and I walked out with less than $100k as the CTO, a tough lesson in finance for me, but it happens all the time. I have come to believe that for people that act like this, it is a game, and the game is not won if they cannot get every penny. It probably bothered them that I walked away from the table with less than 100k, because some how they did not play the game hard enough to get that from me. Somehow they are less of a person, if they don't win and they judge their self-worth based on it. I am not saying that this is all, or even most, VC's, but they are out there, and you only need to cross one of them for it to make an indelible mark.
- swombat 15y ago
  It probably bothered them that I walked away from the table with less than 100k, because some how they did not play the game hard enough to get that from me. And if they read this, they'd be surprised that you're not grateful, since they let you get away with that $100k instead of squeezing everything out. They probably feel they were generous. People, eh.
  - kls 15y ago
    Yes, I am sure that they viewed the salary that I drew as compensation for my efforts, never mind the fact that I rarely put in less than 80 hours a week and was under-compensated for even the first 40 of it. Ah well, You live you, learn if it did not happen, I would not have awesome stories to tell my kids and their buddies when we are hanging out on the porch of our shack in the FL keys. You have to have tales, to be what we call an old salty dog, down there. Half of them are crazy and the other half of them are telling the truth. At least it gives me a good story to tell.
    - marvin 15y ago
      Don't VCs see how incredibly destructive this is to the startup ecosystem? I would _never_ put in 80 hour workweeks if I suspected I could be cheated out of the big winnings (which would be very unlikely in the first place). This is just another story that hammers this point in, only a week after the Zynga debacle. And there have got to be more developers like me out there, who simply are too cauctious and value their own time too highly to risk being conned like this. If you want to be reasonably safe from stuff like this, your only options are to (1) bootstrap, (2) take VC but be so good that you can set your own terms or (3) work for a company that will guarantee you a good salary, benefits and bonuses.
      - kls 15y ago
        Don't VCs see how incredibly destructive this is to the startup ecosystem? I think the answer is somewhere between no and they don't care. The fact is many people including myself, dust themselves off and go for another round so the negative effect of destroying the market is offset by the fact that it can be almost an addiction to be in the market. What they can do though is ruin their name to the point that they become a second rate player. Which is exactly where you run into most of these guys. I got really emotionally involved in the Zynga story because of my history, which is unusual for me. But to me that issue was far more concerning to the industry than the bad VC's because that was most likely the VC's and the operations team working together to deprive other latter entrances for capitalizing on their risk. In this case the very people that generally are on the receiving end of VC dilution, are perpetuating the same victimization. That has the ability to kill the industry, an entrepreneur will, take another swing but a developer who was never going to get as rich as the entrepreneur, getting screwed, is going to leave the industry and become a high paid developer. Then because options are looked at as a bait that can be yanked, developers are going to demand full market rate, plus the options just for passing over more stable gigs with established organizations. It's only going to take one more Zynga for that to happen. If others follow Zynga's example, developers will demand that the industry pay the full price of the developers risk up front, that is going to limit the ideas that get funded, and it will be bad for everyone. But we deserve it if that happens, greed over humanity deserves destruction.
- jpdoctor 15y ago
  > Almost all VCs I know care primarily about the success of their companies and not about extracting every last point of equity. This quote is from someone who has not been around the block.
  - kls 15y ago
    The author did preface it with "i know" which does condition it as their experience. But yes they may have a experience that is the minority to the odds of running across a bad VC and generally once you are in a VC group you tend to use those connections in the future. For example I just had a really good idea the other day, called a good VC that I know and we are working out the details now to start working on it. If I had met her as one of my first contacts, I probably would have not went through the learning process that I did.
  - izak30 15y ago
    In his own words is probably best here: http://cdixon.org/aboutme/ http://cdixon.org/aboutme/
- Tangurena 15y ago
  > I have come to believe that for people that act like this, it is a game, and the game is not won if they cannot get every penny. It probably bothered them that I walked away from the table with less than 100k, because some how they did not play the game hard enough to get that from me. So very true. The thoughts this remark triggers spawn off into 2 separate forks: 0. Robert Ringer wrote a series of books about winning even though the other guys are trying to intimidate the heck out of you. He categorized all business people into 3 types. http://www.word-gems.com/leadership.ringer.intro.html http://www.word-gems.com/leadership.ringer.intro.html http://bookoutlines.pbworks.com/w/page/14422735/Winning%20Through%20Intimidation http://bookoutlines.pbworks.com/w/page/14422735/Winning%20Th... http://www.word-gems.com/leadership.ringer.one.html http://www.word-gems.com/leadership.ringer.one.html http://www.word-gems.com/leadership.ringer.two.html http://www.word-gems.com/leadership.ringer.two.html http://www.word-gems.com/leadership.ringer.three.html http://www.word-gems.com/leadership.ringer.three.html 1. And the other fork is the series of books by Suzette Haden Elgin that have "gentler art of verbal self defense" in the title. In one of her earlier books, she was trying to articulate the difference in communication between men and women; for most women, "sports/game" was a separate category in parallel with other categories. To translate her argument about male communication patterns into a programming one we're familiar with, she said basically that for men, "sports/game" was the base class for all categories. I'm slightly trivializing her argument, but that she was trying to make the point that competitiveness is something you overlook at your peril.
  - Vandy_Travis 15y ago
    Interesting links. I'd never heard of Mr. Ringer, or his theory before this. My simplistic understanding of his 3 types theory is this: "In summation, I realized that no matter how a guy came on, he would, in the final analysis, attempt to grab all of my chips (again with the one exception that I pointed out)." (The exception being the classic "win-win", where the other party benefits from my success, thus aligning incentives.) My reaction to reading that was to think about myself. If the theory is correct, then regardless of my own intentions, I'm going to try to "grab all [his] chips". That actually makes his "Type Number One" guy the most honest and ethical. I don't think I can quite reconcile my own ethics with that analysis, but I'm willing to consider it. It paints a somewhat bleak picture of business ethics. How do you read his theory, if you put yourself in the shoes of the other party in the transaction, rather than his first person?
- einhverfr 15y ago
  that explains why VC's don't like my strategy of cutting costs and funding from operations.....
baddox 15y ago
I initially thought this was referring to personal finances, and thought that 18 months seems a little extreme. I have heard people suggest to keep anywhere from 3 to 6 months of living expenses in the bank.
- absconditus 15y ago
  18 months does not seem extreme for people paid as well as software developers, although "easily accessible" might be better than sitting in a savings account.
  - nlawalker 15y ago
    Just curious, what does pay have to do with how many months of expenses you keep as an emergency fund?
    - chc 15y ago
      It's simple: Savings are the money you have left over after your expenses. It's easier to save money when you're making enough to live comfortably and then some. (And I know people will talk about how you can live below your means with any level of pay, and that's mostly true, but the "Rice and beans again tonight" simplicity you need to save money on a shoestring budget is way harder for most people than the "Resist the urge to buy a yacht" simplicity you need to save money when you're making six figures.)
    - jlarocco 15y ago
      Because after a certain point it's your own fault for not saving a bit. People who make less money have fewer options because you can only cut back so much on food and rent. A person making $20k a year doesn't have much flexibility. They'll have problems just getting by, much less saving 18 months of expenses. On the other hand, a person making $100k a year can always pretend they only make the $20k and save the rest. Or they can live more comfortably and still save some money. Or they can spend with reckless abandon and save nothing.
  - Czarnian 15y ago
westbywest 15y ago
I would think having the ability to raise 18mo of funds to deposit in a bank already puts one in a small (and quite fortunate) group. True, this ability can come from diligence and careful financial planning, but there will always be external factors that could preclude this ability to save up in the first place. Besides that, the more reckless half of myself is reminded of this Oscar Wilde quip: "Anyone who lives within their means suffers from a lack of imagination."
vannevar 15y ago
1) as a rule of thumb it takes 3 months to raise money If you're already connected with multiple VCs that might be true. If you're starting out cold, I wouldn't count on getting funded in 90 days even if you have the greatest thing going on planet Earth.
- suking 15y ago
  Agreed - maybe 3mos just to get a face-to-face.
- mchusma 15y ago
  Agreed. Closing itself takes around 60 days. So 90 days is really tight if you are talking about from "hey let's go get money" to "cash in bank"
dotBen 15y ago
I'm wondering if Chris is talking about Series A+ with this. If you raise anything less than $500k angel it's going to be very tight to make that last 18 months by the time you've hired a few developers, covered expenses, etc - esp in SF/SV
einhverfr 15y ago
That's 18 months worth of expected expenses or 18 months worth of reasonably expected losses? I am confused. If a company has any dependable revenue, I would expect that to count against the money you have to have in the bank. What do others say? I am a big fan of cutting expenses to a min, and funding from operations to the extent one can but have noticed that VC types don't like this (relatively low-risk) strategy. Not entirely sure why.
tzury 15y ago
It depends. If you plan to build a profitable startup, meanings, you are willing to sell the service (for $$) as early as possible, then perhaps, "18 months" is a period of time which within you get to the break-even point. If you are planning to build a cool-and-free-iPhone/android-app and all you care is to get as many users as possible, then perhaps, this is a great advice for you. In the first case, however, it means, you only need raise enough for about 12-18 months.
ilaksh 15y ago
Hello Hacker News. I would LOVE to have 18 months in the bank. In fact, I would love to have 30 days in the bank. And I think I have a really terrific idea and I know for a fact that I can make it a reality, since I have implemented aspects of this before, and have about 27 years of programming experience (started when I was 7). The thing is, it seems quite far-fetched to think that someone would give me 18 months worth of cash to make my vision a reality. Anyway, here is the idea: http://cure.willsave.me/vision http://cure.willsave.me/vision . Basically the goal is to replace WordPress with a platform that has a number of advantages, starting with a CoffeeScript codebase running on Node.js. "The Cure Platform is a component- and plugin- based content and data management framework. The main goal for this platform is increased developer and user productivity. To achieve that the platform will have these features: * WYSIWYG drag-and-drop designer. No source code templates (no mixed markup/source) and limited CSS. * Component (GUI control) -based architecture to enable easier code reuse and faster configuration and integration of modules. * Comprehensive data framework enabling drag-and-drop form creation with corresponding updates to hierarchical models. Transparent data handling. " So my plan is, while I am finishing up my current project, to work on this new platform. I have already started with some of the implementation. I would very much like to avoid getting another "regular job" or gig when my main project is complete, and so I was hoping against hope that somehow I could crank out a simplified version of this new platform and miraculously turn that into my day job immediately. Or perhaps get a few thousand dollars from kickstarter.com or some such.. but most likely not try to raise much money at all, and probably not do any fundifying until I had a prototype of some sort. Anyway, supposing I can live on just $3,000 per month, and I need exactly 1 person to help me who also only needs $3,000 per month. Suppose that includes all of our expenses for servers etc. and we are working out of our homes. 3000 * 18 = 54000 * 2 = $108,000. I'm sure people will tell me I am wrongheaded, doing something wrong, or misinterpreting, but I think that this article is quite clearly saying I should try to get $108,000. This seems completely unrealistic to start going around trying to get $108,000. And actually, once I have a prototype, I still doubt I will even want that much money -- I will probably be happy to try to sell the system for 2 or 3 months, so maybe 3 months would be nice, but after that, I can't see going 5 or 6 months spending someone else's money without significant money coming in, so the $108,000 doesn't even seem prudent. Anyway, if someone reading this wants to give me $108,000, I am sure I can build the system I described.. just not sure if people would be smart enough to adopt it. You can PayPal the money to node@willsave.me (lol)
ColdAsIce 15y ago
s/in the bank/under your bed/g.
skrebbel 15y ago
18 months of cash. That would take me about 180 months to save up. Are you guys all really that disciplined when it comes to saving up? Or simply earning way too much?

131 points by bjonathan 15y ago

kls 15y ago

Almost all VCs I know care primarily about the success of their companies and not about extracting every last point of equity. You would be surprised, I have seen some things in my career that are insane and done for the simplest reasons, like ego, megalomania and most of all money. I once was with a start up in which the CFO and the COO got into a fist fight in front of the entire company, over equity. Another time I saw a VP who was running one division give everyone the day off, called in three of his trusted developers, and they all said that the development team was on strike and would not return unless the board appointed him the CEO. He then proceeded to run the company in the ground, while paying himself and his three developers handsomely. And I have seen investors use all manners of leverage against the operations team to dilute their ownership. The stories about being diluted out of ownership are common because it happens all the time. I personally, was diluted out of my ownership in a start up. A 90 million dollar exit and I walked out with less than $100k as the CTO, a tough lesson in finance for me, but it happens all the time. I have come to believe that for people that act like this, it is a game, and the game is not won if they cannot get every penny. It probably bothered them that I walked away from the table with less than 100k, because some how they did not play the game hard enough to get that from me. Somehow they are less of a person, if they don't win and they judge their self-worth based on it. I am not saying that this is all, or even most, VC's, but they are out there, and you only need to cross one of them for it to make an indelible mark.

swombat 15y ago
It probably bothered them that I walked away from the table with less than 100k, because some how they did not play the game hard enough to get that from me. And if they read this, they'd be surprised that you're not grateful, since they let you get away with that $100k instead of squeezing everything out. They probably feel they were generous. People, eh.
- kls 15y ago
  Yes, I am sure that they viewed the salary that I drew as compensation for my efforts, never mind the fact that I rarely put in less than 80 hours a week and was under-compensated for even the first 40 of it. Ah well, You live you, learn if it did not happen, I would not have awesome stories to tell my kids and their buddies when we are hanging out on the porch of our shack in the FL keys. You have to have tales, to be what we call an old salty dog, down there. Half of them are crazy and the other half of them are telling the truth. At least it gives me a good story to tell.
  - marvin 15y ago
    Don't VCs see how incredibly destructive this is to the startup ecosystem? I would _never_ put in 80 hour workweeks if I suspected I could be cheated out of the big winnings (which would be very unlikely in the first place). This is just another story that hammers this point in, only a week after the Zynga debacle. And there have got to be more developers like me out there, who simply are too cauctious and value their own time too highly to risk being conned like this. If you want to be reasonably safe from stuff like this, your only options are to (1) bootstrap, (2) take VC but be so good that you can set your own terms or (3) work for a company that will guarantee you a good salary, benefits and bonuses.
    - kls 15y ago
      Don't VCs see how incredibly destructive this is to the startup ecosystem? I think the answer is somewhere between no and they don't care. The fact is many people including myself, dust themselves off and go for another round so the negative effect of destroying the market is offset by the fact that it can be almost an addiction to be in the market. What they can do though is ruin their name to the point that they become a second rate player. Which is exactly where you run into most of these guys. I got really emotionally involved in the Zynga story because of my history, which is unusual for me. But to me that issue was far more concerning to the industry than the bad VC's because that was most likely the VC's and the operations team working together to deprive other latter entrances for capitalizing on their risk. In this case the very people that generally are on the receiving end of VC dilution, are perpetuating the same victimization. That has the ability to kill the industry, an entrepreneur will, take another swing but a developer who was never going to get as rich as the entrepreneur, getting screwed, is going to leave the industry and become a high paid developer. Then because options are looked at as a bait that can be yanked, developers are going to demand full market rate, plus the options just for passing over more stable gigs with established organizations. It's only going to take one more Zynga for that to happen. If others follow Zynga's example, developers will demand that the industry pay the full price of the developers risk up front, that is going to limit the ideas that get funded, and it will be bad for everyone. But we deserve it if that happens, greed over humanity deserves destruction.
jpdoctor 15y ago
> Almost all VCs I know care primarily about the success of their companies and not about extracting every last point of equity. This quote is from someone who has not been around the block.
- kls 15y ago
  The author did preface it with "i know" which does condition it as their experience. But yes they may have a experience that is the minority to the odds of running across a bad VC and generally once you are in a VC group you tend to use those connections in the future. For example I just had a really good idea the other day, called a good VC that I know and we are working out the details now to start working on it. If I had met her as one of my first contacts, I probably would have not went through the learning process that I did.
- izak30 15y ago
  In his own words is probably best here: http://cdixon.org/aboutme/ http://cdixon.org/aboutme/
Tangurena 15y ago
> I have come to believe that for people that act like this, it is a game, and the game is not won if they cannot get every penny. It probably bothered them that I walked away from the table with less than 100k, because some how they did not play the game hard enough to get that from me. So very true. The thoughts this remark triggers spawn off into 2 separate forks: 0. Robert Ringer wrote a series of books about winning even though the other guys are trying to intimidate the heck out of you. He categorized all business people into 3 types. http://www.word-gems.com/leadership.ringer.intro.html http://www.word-gems.com/leadership.ringer.intro.html http://bookoutlines.pbworks.com/w/page/14422735/Winning%20Through%20Intimidation http://bookoutlines.pbworks.com/w/page/14422735/Winning%20Th... http://www.word-gems.com/leadership.ringer.one.html http://www.word-gems.com/leadership.ringer.one.html http://www.word-gems.com/leadership.ringer.two.html http://www.word-gems.com/leadership.ringer.two.html http://www.word-gems.com/leadership.ringer.three.html http://www.word-gems.com/leadership.ringer.three.html 1. And the other fork is the series of books by Suzette Haden Elgin that have "gentler art of verbal self defense" in the title. In one of her earlier books, she was trying to articulate the difference in communication between men and women; for most women, "sports/game" was a separate category in parallel with other categories. To translate her argument about male communication patterns into a programming one we're familiar with, she said basically that for men, "sports/game" was the base class for all categories. I'm slightly trivializing her argument, but that she was trying to make the point that competitiveness is something you overlook at your peril.
- Vandy_Travis 15y ago
  Interesting links. I'd never heard of Mr. Ringer, or his theory before this. My simplistic understanding of his 3 types theory is this: "In summation, I realized that no matter how a guy came on, he would, in the final analysis, attempt to grab all of my chips (again with the one exception that I pointed out)." (The exception being the classic "win-win", where the other party benefits from my success, thus aligning incentives.) My reaction to reading that was to think about myself. If the theory is correct, then regardless of my own intentions, I'm going to try to "grab all [his] chips". That actually makes his "Type Number One" guy the most honest and ethical. I don't think I can quite reconcile my own ethics with that analysis, but I'm willing to consider it. It paints a somewhat bleak picture of business ethics. How do you read his theory, if you put yourself in the shoes of the other party in the transaction, rather than his first person?
einhverfr 15y ago
that explains why VC's don't like my strategy of cutting costs and funding from operations.....

baddox 15y ago

I initially thought this was referring to personal finances, and thought that 18 months seems a little extreme. I have heard people suggest to keep anywhere from 3 to 6 months of living expenses in the bank.

absconditus 15y ago
18 months does not seem extreme for people paid as well as software developers, although "easily accessible" might be better than sitting in a savings account.
- nlawalker 15y ago
  Just curious, what does pay have to do with how many months of expenses you keep as an emergency fund?
  - chc 15y ago
    It's simple: Savings are the money you have left over after your expenses. It's easier to save money when you're making enough to live comfortably and then some. (And I know people will talk about how you can live below your means with any level of pay, and that's mostly true, but the "Rice and beans again tonight" simplicity you need to save money on a shoestring budget is way harder for most people than the "Resist the urge to buy a yacht" simplicity you need to save money when you're making six figures.)
  - jlarocco 15y ago
    Because after a certain point it's your own fault for not saving a bit. People who make less money have fewer options because you can only cut back so much on food and rent. A person making $20k a year doesn't have much flexibility. They'll have problems just getting by, much less saving 18 months of expenses. On the other hand, a person making $100k a year can always pretend they only make the $20k and save the rest. Or they can live more comfortably and still save some money. Or they can spend with reckless abandon and save nothing.
- Czarnian 15y ago

westbywest 15y ago

I would think having the ability to raise 18mo of funds to deposit in a bank already puts one in a small (and quite fortunate) group. True, this ability can come from diligence and careful financial planning, but there will always be external factors that could preclude this ability to save up in the first place. Besides that, the more reckless half of myself is reminded of this Oscar Wilde quip: "Anyone who lives within their means suffers from a lack of imagination."

vannevar 15y ago

1) as a rule of thumb it takes 3 months to raise money If you're already connected with multiple VCs that might be true. If you're starting out cold, I wouldn't count on getting funded in 90 days even if you have the greatest thing going on planet Earth.

suking 15y ago
Agreed - maybe 3mos just to get a face-to-face.
mchusma 15y ago
Agreed. Closing itself takes around 60 days. So 90 days is really tight if you are talking about from "hey let's go get money" to "cash in bank"

dotBen 15y ago

I'm wondering if Chris is talking about Series A+ with this. If you raise anything less than $500k angel it's going to be very tight to make that last 18 months by the time you've hired a few developers, covered expenses, etc - esp in SF/SV

einhverfr 15y ago

That's 18 months worth of expected expenses or 18 months worth of reasonably expected losses? I am confused. If a company has any dependable revenue, I would expect that to count against the money you have to have in the bank. What do others say? I am a big fan of cutting expenses to a min, and funding from operations to the extent one can but have noticed that VC types don't like this (relatively low-risk) strategy. Not entirely sure why.

tzury 15y ago

It depends. If you plan to build a profitable startup, meanings, you are willing to sell the service (for $$) as early as possible, then perhaps, "18 months" is a period of time which within you get to the break-even point. If you are planning to build a cool-and-free-iPhone/android-app and all you care is to get as many users as possible, then perhaps, this is a great advice for you. In the first case, however, it means, you only need raise enough for about 12-18 months.

ilaksh 15y ago

Hello Hacker News. I would LOVE to have 18 months in the bank. In fact, I would love to have 30 days in the bank. And I think I have a really terrific idea and I know for a fact that I can make it a reality, since I have implemented aspects of this before, and have about 27 years of programming experience (started when I was 7). The thing is, it seems quite far-fetched to think that someone would give me 18 months worth of cash to make my vision a reality. Anyway, here is the idea: http://cure.willsave.me/vision http://cure.willsave.me/vision . Basically the goal is to replace WordPress with a platform that has a number of advantages, starting with a CoffeeScript codebase running on Node.js. "The Cure Platform is a component- and plugin- based content and data management framework. The main goal for this platform is increased developer and user productivity. To achieve that the platform will have these features: * WYSIWYG drag-and-drop designer. No source code templates (no mixed markup/source) and limited CSS. * Component (GUI control) -based architecture to enable easier code reuse and faster configuration and integration of modules. * Comprehensive data framework enabling drag-and-drop form creation with corresponding updates to hierarchical models. Transparent data handling. " So my plan is, while I am finishing up my current project, to work on this new platform. I have already started with some of the implementation. I would very much like to avoid getting another "regular job" or gig when my main project is complete, and so I was hoping against hope that somehow I could crank out a simplified version of this new platform and miraculously turn that into my day job immediately. Or perhaps get a few thousand dollars from kickstarter.com or some such.. but most likely not try to raise much money at all, and probably not do any fundifying until I had a prototype of some sort. Anyway, supposing I can live on just $3,000 per month, and I need exactly 1 person to help me who also only needs $3,000 per month. Suppose that includes all of our expenses for servers etc. and we are working out of our homes. 3000 * 18 = 54000 * 2 = $108,000. I'm sure people will tell me I am wrongheaded, doing something wrong, or misinterpreting, but I think that this article is quite clearly saying I should try to get $108,000. This seems completely unrealistic to start going around trying to get $108,000. And actually, once I have a prototype, I still doubt I will even want that much money -- I will probably be happy to try to sell the system for 2 or 3 months, so maybe 3 months would be nice, but after that, I can't see going 5 or 6 months spending someone else's money without significant money coming in, so the $108,000 doesn't even seem prudent. Anyway, if someone reading this wants to give me $108,000, I am sure I can build the system I described.. just not sure if people would be smart enough to adopt it. You can PayPal the money to node@willsave.me (lol)

ColdAsIce 15y ago

s/in the bank/under your bed/g.

skrebbel 15y ago

18 months of cash. That would take me about 180 months to save up. Are you guys all really that disciplined when it comes to saving up? Or simply earning way too much?