Why do startups need all that funding money? It is just for advertising?
Just curious to find out what is the typical pie chart of the spending of a bussiness that requires mostly a laptop.
Virtually every startup that raises more than $100k is wasting half the money its spending. Most of them don't even realize it.
I love the comment by the guy who said "founders aren't willign to forgoe the $100k job they had" LOL. If your founders wouldn't rather have equity than a salary, then your startup isn't getting their bet... and they have the inside info.
The more money you take, the less equity you have. Thus, if you believe in your idea, you don't want to take any money....logically.
But the reality these days-- especially in "Silicon Valley" where the reality distortion field sets in-- is most startups are just built to flip- they want the big vc money the big burn rate and the quick exit to an acquirer... they aren't started by people who want ot build a business.
This is why SF is not a good place to build a company and why you shouldn't listen to the "spend lots of money" advice you tend to get (eg: you need a lawyer you need lots of employees, you need office space, you need to buy servers, etc.)
What a way to put it. Genius.
Oh - and in countries like germany don't forget the health insurance, which is the highest monthly cost I have to pay.
>call any investor in the valley and tell them "I'm growing so fast and I need $15,000 to pay for servers and hosting" and you'll have convertible note paperwork signed by the end of the week"
http://david.weebly.com/1/post/2007/07/why-you-wont-run-out-...
We lost a lot of downloads that way, though when I now read how much you had to pay - that sounds really worse.
Ok, that more or less matches what I thought -- that it's possible to get a VPS for less than $20, but not necessarily a very good idea.
The bonus is that they support haskell, scheme, common lisp and ocaml web apps :)
Now for directly startup related costs - legal issues, servers (hardware in general), hosting costs...
if you are lucky to be in the next stage, how about employees?
If there is a risk someone will leave over money, or something else, they want to make sure it is covered.
Raising money takes months worth of work and can distract you from your product. Investors want you to do this once, and not every 6 months.
From my understanding even if a professional investor only gives you enough for 6 months, they are expecting to put more in if you are making progress when that 6 month mark comes around. in theory each successive round should get cheaper for the entrepreneur to take investment.
It's not. You can get a TB for about $25-30.
Like others said, biggest expense is almost always the salaries for employees.
Legal fees are a one time fee and unless you're doing a VC round, incorporation and all agreements can be had for under $1K. If you are doing a VC round, well, then you can afford the $50K legal bill.
I've found that if you are renting a dedicated server, you can get insane bandwidth deals, but if you try to bring it in-house, or even colo, you get burned. The dedicated hosts aren't expecting that you actually use the allocated bandwidth- This is why they'll give you 1000GB for the standard cost, but charge $100 extra to bring it to 1200GB.. If you need to bump it, it shows you're actually using it.
About the general pie chart- check out http://blog.guykawasaki.com/2007/10/financial-model.html. Redfin lays out two years of startups costs.