8 ms·

$2M just to get started? If that is what one needs to just seed a company, then entrepreneurship has just become another career path with little risk (still ge

by asanwal 12y ago

$2M just to get started? If that is what one needs to just seed a company, then entrepreneurship has just become another career path with little risk (still get a decent salary) with a call option on some upside attached. The reality is that capital is not a requirement for success although we do tend to celebrate it needlessly (1) There are real tech companies out there (many mentioned in the indie.vc post) that built a solid initial product, sold it, got customer feedback, made improvements, and sold some more. They didn't have the luxury of $2 million or necessarily even $100k. If you're selling the shoot-for-the-moon, billion dollar IPO, "change the world" dream from day 1, $100k may be immaterial, but I know of many solid tech companies (ours included) that are growing quickly (we're doubling headcount in 2015 from 25 to 50) who grew the old-fashioned way -- by funding out of revenue and who started with no outside capital at all. (1) Best article about the myth of VC - http://recode.net/2014/09/11/the-myth-of-venture-capital/ http://recode.net/2014/09/11/the-myth-of-venture-capital/

zaroth 12y ago
$2m seed is definitely on the high end, but if the entire concept is foregoing future VC rounds, then I think that does raise the bar on the size of the initial raise. On the other hand, if you're going to suffer the burden of investors, it's simply not worth it for $100k. That doesn't really meaningfully change the equation or risk profile from the point of view of a founder committing 5 years to a project. I think the vast majority of companies will fail before break-even with only $100k to start if the founders don't have the personal savings to allow fully sweating equity (a.k.a effectively a 3 person founding team contributing their own $1m over 3 years). Obviously it depends what you're building, but if you're spending even just 2 work-years (a fairly trivial amount of development) developing the first core product, $100k isn't going to get you very far. Throw in startup costs, maybe a patent filing, a few trade shows, SG&A expenses... To put it another way, what ROI do you expect from a $100k investment? S&P 500 will get you around 8% ARR. If you're happy getting ~$10k of dividends starting in year 5 on your $100k, I guess that's fine then. To me that's a small percentage of a small business, and the employees will rightly own 95% of that company since they will have effectively paid-in about 10x as much. At a $100k with the expectation that's your solitary raise, it's barely worth the overhead that comes with it.

by asanwal 12y ago

zaroth 12y ago

$2m seed is definitely on the high end, but if the entire concept is foregoing future VC rounds, then I think that does raise the bar on the size of the initial raise. On the other hand, if you're going to suffer the burden of investors, it's simply not worth it for $100k. That doesn't really meaningfully change the equation or risk profile from the point of view of a founder committing 5 years to a project. I think the vast majority of companies will fail before break-even with only $100k to start if the founders don't have the personal savings to allow fully sweating equity (a.k.a effectively a 3 person founding team contributing their own $1m over 3 years). Obviously it depends what you're building, but if you're spending even just 2 work-years (a fairly trivial amount of development) developing the first core product, $100k isn't going to get you very far. Throw in startup costs, maybe a patent filing, a few trade shows, SG&A expenses... To put it another way, what ROI do you expect from a $100k investment? S&P 500 will get you around 8% ARR. If you're happy getting ~$10k of dividends starting in year 5 on your $100k, I guess that's fine then. To me that's a small percentage of a small business, and the employees will rightly own 95% of that company since they will have effectively paid-in about 10x as much. At a $100k with the expectation that's your solitary raise, it's barely worth the overhead that comes with it.