Gimme Three Steps
| Oct 07, 09 in Entrepreneurship, Startups |  5 Comments |
I know a little about startups and have written quite a bit about the various stages of a startup on FoG. I was pretty darn proud of myself. Not anymore.
Christine Herron of First Round Capital has a simply brilliant summary based on the wildly successful MINT.
All I can do is write about it. Some excerpts.
Why should you raise money, and how much?
- Step 1: When you're ready with an Idea: Raise $100K from friends and family, and use it to build a prototype.
- Step 2: Once the prototype is done: Raise < $1M in seed capital, and get into market with an alpha launch.
- Step 3: After that initial launch has traction: Raise $5-10M, and use it to prove/scale the model.
How the $100k was spent:
- Founders: $30K/year living expenses
- Engineering 1st hires: $30-50K/year
- Office: $400/cube/month
- Tech: $10K
- Legal: Deferred payments for 0.50 - 0.75% of company
Roughly, 2 founders + 1 engineer/contractor = $150K/year burn.
The $750k seed round:
- Salaries: $50 - 90K/year ($450K/year for 5 people)
- Overhead: +20% ($100K/year)
- Legal: $25K + $2K/month ($50K/year)
Which gave them 12 months to get to their first venture round. Which looked like this:
- Salaries + Overhead: $200K/year/person
- COGS: Varies, but even one-time expenses magically add up to $150K/month
- Legal: $10-50K/month
Total burn for a 30-person team: $6M/year.
Go read Christine's entire article. Great stuff!
What bothers me is that Mint's early expenses essentially all went to salaries. If that's the case, why raise outside capital? Why give up precious equity? Why give up control?
The Mint founders could have kept 100% of the equity up to the Series A stage.
BTW, expecting an investor (or worse, your friends and family) to pay your salary while you build your product, is just plain wrong. Develop your product at nights, on weekends, during lunch break, around consulting work, whatever it takes.