Re:Ask YC: How do you (or how did you), a start-up, get your...
by skmurphy on Friday January 11, 2008 @01:09AM
(#97070)
For a software startup I don't know that you need a "lump of cash" of more than say $5-10K. You don't have that many capital expenditures compared to other industries (e.g. if you are going to design a chip you need at least $1M for the masks and almost that much for the design tools).
In my experience, VC's are asking "do you have customers" because they want to talk to them and double check that the reasons customers purchased and the benefits that the customers believe that they have gained match what you are telling them.
Also, it matters quite a bit if you are profitable in terms of your negotiating position. If you are unprofitable and tell an investor "we'll be out of money in six months" guess when the serious negotiations often start?
I have never heard of 7 employees being a magic number. Or $1M in revenue.
Also, I would gently disagree with your statement:
"Investors know that the failure of a startup isn't necessarily because of the idea, but in not having enough capital to keep afloat while figuring out how to make money."
I think investors value demonstrated results (e.g. happy customers) a team that can execute well together, and the possibility that they are investing in acceleration of the business, not salaries for folks still trying to figure out how to make money.
Consulting and working on the product in parallel has been one approach I've taken, another is keeping my day job and working nights and weekends with a partner. I think if you conceptualize the problem as how to raise 500K to $4M you overlooking the most important risk: market risk (is there a market for your product). Most teams don't fail because they can't build what they set out to build in my experience, most fail because there wasn't a market and they were not willing to adapt, refine, and improve the product until they found a market.
In my experience, VC's are asking "do you have customers" because they want to talk to them and double check that the reasons customers purchased and the benefits that the customers believe that they have gained match what you are telling them.
Also, it matters quite a bit if you are profitable in terms of your negotiating position. If you are unprofitable and tell an investor "we'll be out of money in six months" guess when the serious negotiations often start?
I have never heard of 7 employees being a magic number. Or $1M in revenue.
Also, I would gently disagree with your statement:
"Investors know that the failure of a startup isn't necessarily because of the idea, but in not having enough capital to keep afloat while figuring out how to make money."
I think investors value demonstrated results (e.g. happy customers) a team that can execute well together, and the possibility that they are investing in acceleration of the business, not salaries for folks still trying to figure out how to make money.
Consulting and working on the product in parallel has been one approach I've taken, another is keeping my day job and working nights and weekends with a partner. I think if you conceptualize the problem as how to raise 500K to $4M you overlooking the most important risk: market risk (is there a market for your product). Most teams don't fail because they can't build what they set out to build in my experience, most fail because there wasn't a market and they were not willing to adapt, refine, and improve the product until they found a market.