Myths about Financing Start-ups that Hurt Entrepreneurs | Hacker News Reader

Myths about Financing Start-ups that Hurt Entrepreneurs

smallbiztrends.com

17 pointsnewacc10 comments

The piece is written completely in reverse, spreading popular myths as opposed to debunking them. Actually it does take a lot of money to start a new business. True, an "average startup" probably "gets going" on 25K or less, but you don't want to head where average startups usually go (oblivion).

And just for the record, 25K is about 3 months of modest living for a team of 3 in SF/NYC/Boston. Then you should start generating ~20K/month of revenue to support yourself. Zero to 20K in 3 months? Good luck with that.

An "average" successful startup goes through several rounds of funding, just look at some recent exits and see how many of them took 25K or less.

About bank financing: the "myth" is true. You won't use it. Banks always tie their loans to either solid revenue history or personal obligations of the founders. It won't be any different from taking a home equity, don't do it.

Tech startups aren't restaurants: they have zero revenue for the first 1..3 years. That's why looking at federal reserve stats for small businesses is pointless. Getting a loan to run a roofing business isn't the same as getting a loan to sit and code for a year.

> 25K is about 3 months of modest living for a team of 3 in SF/NYC/Boston

An excellent reason not to do a startup in one of those cities. They are expensive to live in and full of tempting and expensive distractions. If you're serious about bootstrapping a web startup and can choose where you live, then living in an unglamorous place with a great net connection is one of the easiest ways to stretch the time you have before funds run out.

That is true. That will definitely get you more time to build your app. What you lose out on is the connections to the people that being in a startup hub will get you. Those connections are king for getting talent to help you build and scale your app. The other thing those connections can get you is face time with the media to actually market the app.

None of the above items are essential to building a successful internet startup, but like most things in life there are tradeoffs.

Umm..generating 20K a month in revenue in 3 months isn't hard when you have actual customers and run your startup like a business, not like a hobby. If you're building something people are willing to pay for, 20K is really not that much. If you're building the next revolution in social networking 2.0 webapps and plan to support it with AdSense, 20k may not possible ever.

Not impressed by this article, unless by "startup" you mean "pizza parlor". The stats are bogus and misleading.

Ok, so if I was in bad a mood, I'd make fun of this professor of entrepreneurship, who never enterprised anything? Pontificating about startups from a cushy desk job is one thing. Actually doing it and speaking from experience is another entirely. Sorry about the rant.

Do more than 1 in 4000 people really die from falling in the shower?

Showers or tubs are pretty dangerous, but not for the 18-35 demographic.

I also thought that was kind of misleading. Probably more than 1/4000 people who die are killed in the shower, but that's not really a relevant comparison. When people get old they probably die in the shower fairly regularly. There was definitely an implication that the probability of getting vc money for your startup is less than the probability of you dying in the shower, say, tomorrow.

I also wonder where these figures came from: "Computer hardware and software, semiconductors, communication, and biotechnology account for 81 percent of all venture capital dollars, and 72 percent of the companies that got VC money over the past 15 or so years."

I see a lot of these types of statistics in articles about startup financing. As far as I know, there's no publicly available database of VC transactions.

Anyone know where these numbers could be coming from?

He mentions debt but not security. Most banks won't finance a pre-revenue company without personal guarantees. And if you end-up borrowing against your own assets, you're basically financing yourself.

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