Ask HN: I need help 'guessing' initial startup cost
Imagine you're putting together a startup for a new magical product/service. You know you will need experienced 3 engineers (lets say 5 years experience covering web, mobile apps, backend), 1 designer. Add 1 for business dev/marketing/ceo'ish responsibilities. Assume that these people are highly qualified.
Now we need to factor in medical, dental, 401K, office space, admin, laptops/desktops/devices/licenses, server space, business card, legal, expected travel expenses and such... I know there's more I've left out...
Presumably it would need funding for at least 1 year (aim for 3?)? Also assume that the into toon is to launch a service/product within the first 9 to 12 months which marks the beginning of a revenue stream.
Bearing in mind I only need an estimate and I recognize that there are a million things that factor into the true and final cost and I won't hold anyone to this...
How much funding would you need?
Figure 200k/person for the first year including equipment, overhead of hiring, etc. You'll need to allocate at least 20% of your company's equity for stock options.
Server space is cheap and competent engineers will set you up with something on a "pay as you need it" basis. That said add $2000/month for kicks and giggles.
Legal is a black box. Are you doing a new kind of game? Around 50k for trademarks, etc. Going after the music companies? One trillion dollars.
Office: where are you? San Francisco? $1500-2k/month. Kansas City? They'll pay you to take the space if you throw in a little dance routine on Friday afternoons.
Travel - Are you sending your sales guy to Europe twice a month? Having board meetings in Aruba? I guess you can do a Kayak search as well as we can.
So if you're going to hire everyone and start building toward the Big Release, which is not recommended by the way, figure 1.5 million for the first year. If you read Steve Blank and Eric Reis' stuff you could probably do it on $200k with higher odds of success, but you'd miss out on hiring a bizdev/marketing guy, shopping for dental plans, etc.
That said, you can calculate a rough monthly burn rate by adding together the estimated monthly salaries of the employees you referenced in your post and increase that number by 130-150%. This roughly accounts for all the operating expenses. If you need guidance on salaries try checking out resources like salary.com.
You'd probably want at least 18 months of cash in the bank. This gives you a year to execute and six months to focus on sustainable profitability and/or additional later stage financing.
So, monthly burn rate x target number of months of cash in the bank is your target financing amount.
Hope this helps.
for example, we have a core team of four with five additional interns at the moment. our cost? zero. we're as bootstrapped as it gets, and nobody has taken any pay to date...but we're based in athens, ga where the cost of living is minor.
i would recommend considering 100% of a pie and how much each member you described would be worth. from there, be flexible & generous with your equity as you're filling out the team. equity is your biggest asset at the stage you're at. hope that helps!
So I'm asking for help and not cynicism.
I cannot elaborate on the product.
It reads like a joke because of the above list. Those are luxuries. You presumably already have a personal laptop, and a linode instance is quite affordable. Start there.
If you haven't already read pg's bit about ramen profitability, you should: http://www.paulgraham.com/ramenprofitable.html
I'm not talking about 3 guys sleeping rough in a studio, coding to all hours.
I realize many/most startups don't start with the needs I am describing.
Also, I'm also just looking for a completely rough-guess answer.
If you think it's $1 million then fine, if you think it's $500 million or 2 shekels, great too. Just add a little insight into your quote and it would be appreciated.