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Sure you can throw together another Snapchat in a weekend. But very soon - if you have real significant user base - you will need to build and maintain apps on all platforms. You will need someone to fix bugs, add new features and scale things better everywhere. You will need people who can create and conduct marketing campaigns (FYI - Techcrunch isn't writing about for you without getting paid and Snapchat didn't become popular without playing tons of marketing tricks). You will need guys who can do business development, accounting & taxes, create partner relationships and so on. You will also need customer support, social media management, metrics measurement, all kind of dashboards and so on. Before you know, you will end up with significant staff, needing office space, doing moral events and likes.

Per head aggregate cost of an engineer these days is upwards of $230K when you add up all health insurance, 401K, signing bonuses, office space and so on. Even if you hire just 50 employees, you can easily expect $1 million burn rate per month. For things like Snapchat, you can't anticipate much income during initial growth period. So this means you need VC for getting ~$10-20M of funding per year until you get sold, IPOed or have ad based income flowing in.

In support of your thesis, there was actually one guy who did plantyoffish.com and managed it through out everything all by himself for many years. But finally things have caught up to him. Now he has more than dozen employees. This is of course outlier case and not a typical scenario where competition will eat you alive if you don't defend your castle aggressively every day by one-uping them. And for that you need employees and bandwidth to work on lot of things at the same time, many of which likely won't work out.

Correct me if I'm wrong, but I remember reading that Snapchat was originally pretty slow to acquire users, and conducted almost no marketing campaigns. According to the founders, they focused on building a great product, and this paid of in the long run as the product gained traction through word of mouth.

Actually using them as an example was a mistake on my part, I remember reading in that same article that Snapchat actually only got VC funding when the server costs were about to become too much to pay. Spiegel, who is the founder and CEO isn't a technical person, but it looks like his cofounder is.

Here is a link: http://techcrunch.com/2012/05/12/snapchat-not-sexting/

>Can somebody explain to me why every startup company(or at least every one that articles are written about) feels the need to raise as much VC as possible ASAP?

>The only reason I would postulate for this trend is an increasing amount of non-technical founders who need to pay for developers to make and maintain their product, but don't want to give these developers significant equity in the company.

I think this is the best explanation. It's not just tougher to find engineers period, but you have to incentivize them away from the big co's who are paying like 120k/engineer. Equity helps, vision helps, but more than anything so does cash. However it is telling if companies need to rely primarily on cash to incentivize rather than the first two.

Maybe this could be a good litmus test for you as a founder: can you get your early engineers to work at half, or less, their market rate? If so, it implies you're putting something together worth working on (or you're really damn good at recruiting). But if not, if you have to pay close to their big co salary, then I think there's a problem.

I think there are a couple of reasons why cash is a major motivator for start ups:

1) People understand the true value of equity which is to say in most cases, really not that much. As someone who was a non-vested dollar millionaire back in 1999 (and if you were working then who wasn't...), this time round I'm just far cannier about what that might be worth.

2) Big companies are getting wise to the vision thing. Maybe not the "put a dent in the universe" stuff, but the vision of what a company should be like and how it should work which is the stuff that impacts you day to day. Casual dress, flexible working, social activities... These aren't the exception any more, you can get them at large multinationals, you don't need to go to a start up for a nice working environment.

Unfortunately, you can't pay your rent or student loans with underwater stock options or "cool company vision". Most companies have something interesting or unique about their vision or product, so that's rarely a differentiator. And, the equity portion of a job offer usually ends up being close to worthless unless you're employee #1-10. So, at the end of the day, cash is king.

If you want the really good engineers from those companies, they're often making more than $120k - they can be making up to $160k.

Speaking as an engineer who has already been pitched at by others working on startups due to my formidable scalable productivity in my domain (while only being in the Bay area for 4 months), I prefer the security of a good salary and a good amount of stock. It would be very hard to convince me to leave without offering some level of immediate financial security.

Note: I work at a startup that raised a Series A round - I was offered $140k + signing bonus & generous stock options. I believe the company has been very happy with my results so far.

I'm a decent engineer; not top 10% necessarily, but maybe in the top 25% and certainly well above the median. I earn almost $160k doing pretty basic/routine software work at a non-software/tech company in the Bay Area. I'm underpaid (as an hourly contractor)--that is, I know for a fact that the hourly rate I'm currently working for is 20%-30% less than what I could get doing something else. Your salary, if you are as good as you claim, is less than what it should be by a good 10%-20% (factoring in benefits and bonuses).

So you didn't accept it for the vision, because it was something worth working on, but for the money? Or maybe a combination?

On the other hand a good litmus test for the worth of the company is whether it can afford to pay market rate (or more), and offer appropriate equity along with that "something worth working on."

This whole industry has a serious problem with compensation and startups are particularly egregious offenders. People are expected to work "for their passion" rather than for fair compensation for giving up quite literally a portion of their lifespan (time). It's absurd.

> Can somebody explain to me why every startup company(or at least every one that articles are written about) feels the need to raise as much VC as possible ASAP?

1. It pays the bills.

2. Raising money is a strong signal of success both from a personal entrepreneur perspective and for the success of the team (whether you disagree with that notion or not, it's simply true). Whether that translate to success is a different story.

3. Raising money means your business exists. Many people (especially B2B) don't want to do business with vendors who aren't going to be around in 6 months.

4. The speed at which tech startups are created, also exists in reverse. Startups close down all of the time.

> Neither of them had to resort to advertising before their companies got big.

> I don't believe its a stretch at all to think that me and a buddy could build something like Snapchat or Instagram in a couple of weeks and throw it up on App Engine.

Heh, if it's that easy then, ummm, go build it? Chucking millions of dollars at these startups isn't necessarily about building the product, it's about supporting their growth to get network effects ASAP. Achieving "the network effect" means you've got a nice big moat around your business, which VCs and entrepreneurs love. You're right, they didn't have to do advertising, but they did have to pay for shit-hot SRE people to make sure 1bil tweets could be sent every week (or whatever).

>Heh, if it's that easy then, ummm, go build it?

I did not mean to say that I could build a product like these to demean or belittle them in any way. The vision, ideas and UX execution behind them were clearly thought up by inspired and talented people. What I mean to say is that from a purely technical standpoint, they would be trivially easy to build, so I don't see why you would need to raise millions to pay for "software engineers" to build and maintain your initial product. They are just simple CRUD apps, a class of system of which there are a deluge of accessible and easy to pick up resources and frameworks available to learn how to work with, and a huge pool of cheap developers available. The technical problems that they solve are not novel in any way. While some of the Silicon Valley brogrammer types like to paint themselves as these renegade code wizards hacking on these super hard to solve problems(probably because it helps them get a paycheck), the truth is the problems imposed by CRUD apps are some of the most already solved around. I don't mean to say that there aren't plenty of code wizards hacking on hard to solve problems, but I bet they sure aren't CRUD related. Hell, I don't think its unreasonable at all that 1 or 2 completely non-technical cofounders could team up and learn Ruby on Rails or Django in a couple of months and put a viable product together. If you use an IaaS/PaaS system, Google or Amazon or whoever handles scalability problems for you - its literally as easy as moving a slider and paying more money. Why pay $230k a year for a "scalability/reliability engineer", when I could pay exponentially less to Google or AWS and not have to worry about anything? Even if those didn't exist, have you ever heard of a user facing web company failing because their tech stack wasn't efficient, because it was built by someone just average at coding who chose an easy to work with system with a fast dev cycle and not a "Full stack Javascript distributed scalability Guru"? No, because by the point where the efficiency of their tech stack became a problem, they would have enough capital to hire 10 engineers to rewrite the whole system in Scala or whatever flavor of the month stack tech bloggers happened to be writing about if they so chose.

If your company required some kind of technology that only someone with specialized skills could work with, I would understand. Robotics software? Sure. Biotech? Sure. Life-critical systems? Sure. But I won't be told that photo sharing and social media apps in this day and age require that much capital to build.

And networking? It seems to be that tech, is one of the fields in which this matters less than others to build a successful company, which is why it attracts so many of the engineer types who hate dealing with bullshit. They don't want to deal with bureaucracies and market analysis, they just want to build awesome stuff. I'm certainly not saying it doesn't matter at all, but I find it hard to believe that people would sell away stakes in their companies just for "networking opportunities".

Google was unlike these companies, in that the product was unique in both idea and technical implementation. The idea was original - organizing search results by relevancy, and the algorithm behind the PageRank implementation required a bit of high level math. The actual engine was implemented in C++, not exactly the easiest language to work with. But like I said, Google was pretty much bootstrapped until they really did need the money. They didn't immediately raise millions prelaunch and headhunt the best engineers in the valley. The founders were bright CS people who built their thing, ran out of a garage, and solved problems on their own for as long as they could. When they received their first investment they hadn't even incorporated yet - they had to go file the papers and wait a week before depositing the money in an account. It would seem that the average founder has gone from being the type who is a tinkerer primarily interested in tech and doing stuff that hasn't been done before(think Sergey and Larry, Bill Gates, Wozniak, Paul Graham, Zuckerberg)- but with a side interest in business, now to the type who is primarily interested in business and sees tech only as a means to an end, and raising as much capital as possible and throwing it at developers and marketing people as a means to achieve that end. I don't mean this to sound condescending or whatever, I'm just trying to come up with reasons here.

> Why pay $230k a year for a "scalability/reliability engineer", when I could pay exponentially less to Google or AWS and not have to worry about anything?

I think you're massively undervaluing the complexity of systems at scale. Let me give you a more concrete example. In Facebook and LinkedIn there is a feature that says "You may know this person". It's a small box in the upper right corner and looks like the smallest feature ever. But the underlying complexity of building such a feature is easily millions of dollars worth of man hours. Just that small feature has probably single-handedly grown those companies by > 1x factor. You don't get that simply by "throwing it at AWS".

I appreciate your enthusiasm for this topic, but I think the lens at which you see the startup world is being blurred by media and survivor bias. There is so much under the tip of the iceberg that 99% of the people here will never see.

I have to disagree with you here. Elasticsearch has a "more like this" feature built into it, which would give you pretty much the desired functionality you're describing that Facebook and LinkedIn have. It's a free and open source technology that I've installed and maintained on my servers. All you have to do is feed it some JSON, which you can modify as you choose to bias it to your exact specifications. Google and AWS offer cloud search and database features which already have this type of functionality implemented for you - all you have to do is wire it to your app. I'm not saying that these problems were trivial to solve in the first place, but THEY HAVE ALREADY BEEN SOLVED BY GOOGLE AND AMAZON AND FACEBOOK AND A MILLION OTHER COMPANIES' ENGINEERS, and made available to you in a nice and easy to use package with a bow on top.

See here: https://cloud.google.com/products/bigquery/ https://cloud.google.com/products/cloud-datastore/ http://aws.amazon.com/cloudsearch/

So, I think it's very reasonable that 1 or 2 completely non-technical cofounders can team up and learn RoR or Django and put a product together on Heroku or AppEngine.

The problem is that they're competing with all the other completely non-technical cofounders who can do the same thing.

Most of the viable large-scale CRUD apps have already been picked clean. Much of what remains is niche software (eg. lifestyle SaaS businesses) or very non-obvious (eg. Facebook - it was technically trivial when it started, but it also wasn't obvious that there was a viable business in social networking until Zuckerburg went and built it). My prediction is that a lot of the startups that succeed over the next few years will involve some key technology that requires technical skill and domain knowledge to produce.

Most startups outside the US grow without VC capital. But in the US, with all the money trees around, you would be crazy to pass up the opportunity for free money.

But it isn't free, free implies that they don't demand anything in return. You sell investors an ownership stake in your company, so it is the same as any other transaction. That means that they get a portion of whatever profit you make, and depending on how large of a stake they own, a say in decision making and executive matters. Forgive me if this is a bleak outlook on businesspeople, but the last thing I would want to do immediately after founding a company is sell a portion of it to some suit with a $400 haircut(smart technical investors like Paul Graham seem to be few and far between) who probably doesn't know or care about the product or technology outside of the possible return on their investment from the profit made from it, and let these people tell me how to run it, or even worse conspire against me and oust me from my own company(see: Steve Jobs).

I'm not denouncing VC as a whole, and I'm sure it is very beneficial when your company is becoming too much to run with your initial resources, and can be a big part of what accelerates big things to huge things. I'm just curious as to why the trend today seems to be to acquire as much early stage VC as possible, some companies even trying to get it before launching their product, through means like accelerators and such. $100k investment for 10% of my company? HELL NO. As I said before, if my web/software company is becoming too much for me to run with my initial group of founders, that probably means it is somewhat successful, and at that point I have more authority to dictate terms to investors. This means that I can get a larger investment from them and give them as small a piece of the company as they will accept for their investment, rather than being completely at their mercy because I haven't even launched my product and have 0 pull. Larry and Sergey as well as Zuckerberg were pretty smart about this. When their companies had users and pull they could afford to be picky about who they accepted funding from, and for good reason - they were control freaks(I mean this in the best way possible), and didn't want anything put out by their company to be not to their specifications. Obviously this worked well for them. This is my very basic understanding of how this stuff works, so once again correct me if I'm wrong.

P.S. here is a fascinating article on Page that was posted here a few months ago if you haven't read it - it brings up some of the points I made about him: http://www.businessinsider.com/larry-page-the-untold-story-2...

Because the founders often don't really believe in their startup's offering/services in terms of profitability. They want to hand over all the risk to investors and coast on other people's capital while they take a paycheck, boost their credentials and hey, maybe we'll get acquired?

There is a whole world of businesses out there, many of them online, that don't raise VC money and don't necessarily get written about on Hacker News and the like. Check out (for example) the Startups for the Rest of Us podcast.