VC not needed? What am I missing from these costs?


2

My roommate and I are partners and only employees in a startup focused on a single web application (for now). We discussed VC, but based on the costs we thought of it seemed unnecessary. Here are the monthly costs we could think of:

  • $1500 - Survival (food, rent, etc.)
  • $400 - Dedicated server with SSL
  • $20 - Bank business account
  • $400 - Amazon CDN

We're finding it hard to estimate CDN costs this early on, so the number is filler until we do more research. We're only beginning, so we have a lot of research and refinement to do (for example, I know little to nothing about dedicated servers), but naively the total comes to a monthly cost of $2320.

We're afraid that there is something painfully expensive that we're leaving out. I imagine that office space and employees take up a lot, though at the moment that's unnecessary for us. That said, are there any additional costs that we are missing?

Startup Costs Venture Capital Cost

asked Jan 20 '12 at 12:14
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Mirov
384 points
Get up to $750K in working capital to finance your business: Clarify Capital Business Loans
  • Marketing - adwords - $0 - $1000? – Matt 9 years ago
  • use Amazon Web Services instead of a dedicated server, you're already using CDN, so why not? – Paul Cezanne 9 years ago
  • @PaulCezanne I'll have to look into it. Based on a bit of research, I've heard it can get significantly more costly than a dedicated server. Again though, I know little of it, so I'll look into it. Thanks. – Mirov 9 years ago
  • Protip: With Amazon AWS you pay for what you use. If you purchase hardware you pay whether you use it or not, and you have to purchase enough hardware to handle spikes. – Mike Nereson 9 years ago
  • I might add that building software is easy and ubiquitous. *Customer*, not user, acquisition and retention is hard. – Mike Nereson 9 years ago

4 Answers


5

The major cost in a startup is salaries. So if you are willing to not pay yourself and don't hire anyone, then yes, a startup doesn't need much cash at all to operate.

After salaries, the next expense is usually marketing & sales. How do you intend to reach customers? Word of mouth and virality doesn't usually happen by itself, unlike what you may hear.

Spreading the word, having tables at many events, pitching journalists, reaching customers through ads... it all takes time and money.

answered Jan 20 '12 at 14:56
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Alain Raynaud
10,927 points

1

While it is easy to think of ways you could spends lots more money such as:

Attending trade shows all over the world.
Running lots of ads.
Hosting launch events etc.

The real point is you have a choice. If you get VC funding it is obviously not free, you will have to give up something, perhaps a lot. On the other hand if you can get your startup to the point where you have a minimum viable product and perhaps a few users before you go for VC funding then you should get a much better deal.

Ideally you will get to a point where you do business with investors because they can bring something to the table like contacts, expertize, experience and business opportunities; not just money to pay the rent.

answered Jan 20 '12 at 14:28
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Jonny Boats
4,848 points

1

  • Internet service (cable, DSL, etc) ... did you include this in "survival"?
  • graphic design
  • promotion

  • computers
  • wireless phones and service
answered Jan 20 '12 at 16:19
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Bneely
575 points

0

Marketing.

There is a Dilbert cartoon where he tells his date he is building an app to get rich. She hands him a lottery ticket and tells him she has just doubled his chances.

It has been a crowded market place for a long time now, so marketing is what makes the difference, not technical competence. As you didn't mention it, I'll guess you have no experience, meaning you need a 3rd partner who does. Add +$750 for them, and then $800 for advertising, graphic design (of promotional materials), etc. I simply chose $800 as it equals your tech budget, but it might be +/- an order of magnitude.

You can ignore the above if you already know who your customers will be and already have relationships with them.

P.S. VC money is a dangerous thing, but VC advice/incubation/introductions/synergy can be very valuable, if you get lucky.

answered Jan 22 '12 at 13:28
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Darren Cook
179 points
  • I'm curious why you wrote "VC money is a dangerous thing"? – Chelonian 8 years ago
  • @Chelonian You give away not just a share of the profits to a venture capitalist (or any investor), but also a share of the control of the future direction of the company. If your visions and priorities are not the same then you have discord at the top of the company instead of harmony. (As a concrete examples, VCs are normally interested in each of their companies taking risks to grow rapidly, rather than slow, steady organic growth; they don't care if an individual company fails, as long as at least one of their companies gets super-rich.) – Darren Cook 8 years ago
  • Great expansion, thanks. – Chelonian 8 years ago

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