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Bootstrapping Your Startup: Do You Really Need Early Investment?

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Re: Bootstrapping Your Startup: Do You Really Need Early Investment?

#21

Post by troels »

juanitod wrote: post #12
troels wrote: post #4

I suppose it depends on who you are. If you have a family and a mortgage, the answer may be yes.

These are the wrong assessments. You should rather say: "I suppose it depends on your type of business. If you are a B2C and you need lot of traction before charging customers, the answer may be yes." Family and Mortgage should not affect your choice for bootstrapping.

Those are relevant factors too, surely. But you have to relate to the reality that you are in. If you have a high burn rate and no way of lowering it considerably, you have to take that into consideration.

Re: Bootstrapping Your Startup: Do You Really Need Early Investment?

#22

Post by cookiecaper »

sytelus wrote: post #9
cookiecaper wrote: post #6

Earlier quoted context omitted.

Many investors are not very kind to founders with families and mortgages. YC itself is a horrible deal for anyone that's not a college dropout. Move out to SF for 3 months, leaving wife, kids, and property behind to fend for themselves, shack up in a tiny apartment with a co-founder, and get paid nothing for $20k and 5-7% of your company ? That's alright man, pg can keep focusing on his college dropouts (of both sexe…

5-7% of your company Where are you getting that number? My impression was that YC had very fair deal with founder equity > 30% (unless they are funding beyond angel). Beyond that it's just risk/reward equation. If you want same income as your stable job then you are not taking risk and hence should not expect reward beyond that. Good founders rarely however expect same income as the stable job they could have gotten…

You're still taking significant risk if you get paid market or near-market rates when you start your company. You've put your name on the line, you've committed yourself to providing a product and running a company, with all the difficulties it entails.

I understand the impulse to have founders prove their commitment by living as paupers, but I just don't think it's a good way to judge the competence of an investment. I think there are other meters for passion that are more accurate than "Yes, I'm willing to take a 50-70% pay cut".

Re: Bootstrapping Your Startup: Do You Really Need Early Investment?

#23

Post by argonaut »

cookiecaper wrote: post #18
argonaut wrote: post #14

Earlier quoted context omitted.

I'm not sure if you don't know what you're talking about or if you're just exaggerating for the sake of argument. 1. Most YC founders are not college dropouts. Quite a few are in every batch of YC, but nowhere near 20%. 2. YC isn't in SF. And most YC companies don't stay in SF during YC. Lots of companies stay in Mountain View, Palo Alto, Menlo Park, etc where you can rent out a 4-6 bedroom with your co-founder(s). H…

1. OK, we can expand it to "recent college graduates". The point is, YC is predominantly young adult males, aged in their early 20s, unlikely to have major external responsibilities. 2. As someone who's not from SV, everything in that area gets lumped into "SF" for me. My apologies if this is considered obtuse. 3. Isn't this kind of part of the point of seeking investment? Aren't you saying, "I can't do this all on m…

1. Yes, that much is true. Though I will claim that is partly a result of the applicant pool. My guess is that most applicants are young adult males.

3. If you're an exec earning $300k at big corp, you are not going to get $300k at a startup, because the startup obviously does not have the revenue or cash of big corp. Ditto for an engineer earning $150k at a tech company. But who said anything about a pittance? It's up to you to set your own salary. You can still pay yourself $100k/year, if that's necessary. The larger point of raising money is not just for paying yourself, but it's for hiring other people.

4. http://ycombinator.com/ycvc.html I made a correction to my post: the amount is now $80k, which is still good considering the assumption is that the money only holds you over until you raise money after Demo Day (say, 6 months). The link is a bit outdated because YC uses SAFEs now. But the notes had no discount and no cap, which are the best possible terms for notes, and that carries over to SAFEs. YC is brokering these. They have their own separate terms, but the terms are available publicly online and are the same for every YC company.

Re: Bootstrapping Your Startup: Do You Really Need Early Investment?

#24

Post by cookiecaper »

juanitod wrote: post #12
troels wrote: post #4

I suppose it depends on who you are. If you have a family and a mortgage, the answer may be yes.

These are the wrong assessments. You should rather say: "I suppose it depends on your type of business. If you are a B2C and you need lot of traction before charging customers, the answer may be yes." Family and Mortgage should not affect your choice for bootstrapping.

If you're a B2C that can't charge customers until you've gained a lot of traction, you should get no investment. How many times does this la-la-land "business" plan of "pay nothing, get everything" have to play out before we recognize it's not a business at all? Facebook is not profitable. Twitter is not profitable. Google's fundamentals are questionable (AdWords is a ripoff), and they lucked out with Google Apps for Business and other sources of direct revenue which similar companies have yet to replicate. And those are the "successful" free products.

Re: Bootstrapping Your Startup: Do You Really Need Early Investment?

#25

Post by cookiecaper »

argonaut wrote: post #17
jnardiello wrote: post #11

Earlier quoted context omitted.

Only someone who doesn't have family could say: "A few months on a very low wage (that is what the $20k is for..), away from your friends and family, living in a tiny apartment is nothing compared to working on something you feel exceptionally passionate about." Do you have small children? If so, can you try to imagine how difficult could be to miss the first words or first steps of your baby? Can you imagine what co…

Why do we always have to assume we're talking about small children? If that's a concern, wait until your children grow up to be teenagers before you leave for 3 months for YC.

Do teenagers not need fathers? I understand what you're saying, but the point is that it's silly to set up a false dichotomy between entrepreneurship and family and attempt to force the entrepreneur to choose. I believe that the startup community is much poorer because of the tendency to do this, and I'm extremely suspicious of anyone who'd advocate it.

Re: Bootstrapping Your Startup: Do You Really Need Early Investment?

#26

Post by argonaut »

cookiecaper wrote: post #19
argonaut wrote: post #16

Earlier quoted context omitted.

Why do you think that's the opposite? Nothing is stopping you from paying yourself a six-figure salary after taking investment.

Many investors will do whatever they can to stop you. I've personally interacted with a few of them, who've instructed me that if I took their money, I should not "take anything more out of the company than what's required to eat, sleep, drink". Of course, their ultimate ability to enforce that may be questionable, but the guys 'round these parts are certainly not shy about their expectation that founders live on pra…

There are good investors and there are bad investors.

Good investors won't take board control after a seed financing and will understand if someone with a family takes a $100k+ salary.

Now, if you're a 20-something who can survive on ramen, a mattress on the floor, and internet, investors will be very suspicious of you taking a $150k salary.

Expectations shift.

Re: Bootstrapping Your Startup: Do You Really Need Early Investment?

#27

Post by cookiecaper »

argonaut wrote: post #26
cookiecaper wrote: post #19

Earlier quoted context omitted.

Many investors will do whatever they can to stop you. I've personally interacted with a few of them, who've instructed me that if I took their money, I should not "take anything more out of the company than what's required to eat, sleep, drink". Of course, their ultimate ability to enforce that may be questionable, but the guys 'round these parts are certainly not shy about their expectation that founders live on pra…

There are good investors and there are bad investors. Good investors won't take board control after a seed financing and will understand if someone with a family takes a $100k+ salary. Now, if you're a 20-something who can survive on ramen, a mattress on the floor, and internet, investors will be very suspicious of you taking a $150k salary. Expectations shift.

Well man, send some of your good investors to Salt Lake. We need them up here.

Re: Bootstrapping Your Startup: Do You Really Need Early Investment?

#28

Post by argonaut »

cookiecaper wrote: post #25
argonaut wrote: post #17

Earlier quoted context omitted.

Why do we always have to assume we're talking about small children? If that's a concern, wait until your children grow up to be teenagers before you leave for 3 months for YC.

Do teenagers not need fathers? I understand what you're saying, but the point is that it's silly to set up a false dichotomy between entrepreneurship and family and attempt to force the entrepreneur to choose. I believe that the startup community is much poorer because of the tendency to do this, and I'm extremely suspicious of anyone who'd advocate it.

Is it so hard to be away for 3 months?

Doing a startup instead of taking a stable job involves tradeoffs, like all choices. How much of a tradeoff you take depends on you. You can move your entire family to the Bay Area, with the tradeoffs that entails (uprooting family, more expensive housing). You can move to the Bay for 3-4 months with the intention of permanently setting up the startup back home, with its own tradeoffs (farther from investors, farther from mentors, 3-4 months away from family). Etc. etc. etc.

There is no false dichotomy. There is no free lunch. Stop making these narrow generalizations.

Re: Bootstrapping Your Startup: Do You Really Need Early Investment?

#29

Post by altreal »

cookiecaper wrote: post #6
troels wrote: post #4

I suppose it depends on who you are. If you have a family and a mortgage, the answer may be yes.

Many investors are not very kind to founders with families and mortgages. YC itself is a horrible deal for anyone that's not a college dropout. Move out to SF for 3 months, leaving wife, kids, and property behind to fend for themselves, shack up in a tiny apartment with a co-founder, and get paid nothing for $20k and 5-7% of your company ? That's alright man, pg can keep focusing on his college dropouts (of both sexe…

It would be hard to appreciate this without thinking like an investor. Let's say you pitched an investor. He has seen your passion and drive 100s of other times before. He decides to give you $200K as seed money so you can keep getting same income as your corporate cushy job. He knows your chance of failure is 90%. Next year very likely investor is going to loose all of that money.

On the other hand, you have no downside. For you, it's pretty much the change of job because you get to keep same income as before. In fact, it's much better than a change of job because now you get to work on stuff you want in your pajamas in your backyard of your 4 bedroom home. Come next year, there is 90% probability that your startup would have failed. But you would have zero loss in any material respect. Instead most likely you are just going to move on with your life and find another corporate cushy job with minor or even major promotion given that now you can brag about having tried your own startup and claim that experience.

So you see, we have a transaction where one party has 90% chance of loosing everything and other party gains 110% always. Anyone fantasizing about such transaction would have to find a great fool or own a casino. This is why you can't expect any competent investor funding your startup so you get to keep your "cushy job" income.

PS: Betting your "name" and "reputation" is meaningless to investors unless you are Evan Williams or Kevin Rose.

PS2: If you think investors are still getting fair deal because they have chance of hitting a jackpot, know this: Average VC fund has less returns than S&P 500. Rate of failures of startup takes away pretty much everything but small slice of big pot.

Re: Bootstrapping Your Startup: Do You Really Need Early Investment?

#30

Post by alien3d »

Before i need some investment,but finding investment quite hard,most wanted stable company and resources.So i'm no choice working normal freelance job rather focussing to be next software in the market.Don't focus getting much customer but focus getting 1 to 10 customer then go big for investment.. 20k if somebody said bellow is so not much and can finish a few month operation..
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