Quote: (12-07-2013 03:35 PM)Fathom Wrote:
YMG, I do remember reading last year that you had relocated to Singapore to work on your startup. I hope all is going well. Now, you mentioned tech startups, and that's something I was just thinking about. Here is something I was wondering.
What are the costs for a tech startup? Let me explain a bit. Firstly, a tech startup won't require manufacturing or creating anything physical (unless it's hardware), so there are no such costs, right? How about the funding part. Do all tech startups basically get together, develop an idea, then go look for funding?
My question, basically, is how much of your own money must you invest in order to launch a tech startup?
The reason I am asking is that you hardly ever hear of some tech entrepreneur talking about how he invested his life savings into some business, unlike say, a business owner type who opened a restaurants/store/retail business, etc.
The costs for a tech startup vary dramatically. It depends on what you are doing, who you are hiring, how smart you are with your money, the amount of Singaporeans you hire vs. foreigners in Singapore vs. building a dev team in Phils/Vietnam.....the list goes on and on.
That's like asking me how much it costs to open a restaurant.
Are you opening a hot dog stand? An Arby's? A fine authentic French Michelin rated restaurant?
If you are a hacker with business experience then you can probably spend close to nothing building something like instagram or snapchat and build your own dev team in the Phils or Vietnam.
If you are a "business guy" then you'll need to onboard a CTO - assuming this is a foreigner living with you in SG then the annual burn increases by at least 48K SGD to 150K SGD, depending on whether you give him equity/options or just a salary.
There are definitely costs in a tech startup. You have to pay overhead for the physical office where you are working. You have employees, particularly engineers and designers and, once you prove your MVP, you have to build a salesforce. Again, this varies dramatically across the board. Are you building a mobile app that will be pushed in the app store? Or are you building a groupon clone in Indonesia? The salesforce you need to hire will be dramatically different in scale and scope.
It goes back to the restaurant analogy. If you are opening a McDonalds you can hire minimum wage people with no education. If you are opening a Michelin rated French restaurant then you need experienced chefs and waiters.
How much of your own money do you have to invest in the startup? You can invest zero dollars if you want but that will affect the opinion of the VCs or angels throwing their cash into the pot. If you have some skin in the game (even as little as 20K) then they will take that as a sign of good faith.
I hear about tech entrepreneurs throwing their money into new startups and businesses all the time. Elon Musk nearly went broke trying to keep Tesla alive. That's the nature of being an entrepreneur.
This life is not glamorous. You guys should watch "Pirates of Silicon Valley" to get an idea. You will work your fingers to the bone for many years with absolutely no guarantee of success while living at a noticeably lower standard of living than your peers (especially if you went to a good university).
Anyway, sorry for that rant and tangent.
The point is that there is no clear cut answer to your question unless you define it more clearly.
My answer is that you should try to spend as little money as possible to first prove your concept....build an initial MVP prototype, get people to pay you money for it, write up a business plan and presentation, then hit the streets looking for capital.
Write up a term sheet that heavily favors you over the investors. Usually VCs and investors approach you with a term sheet. People are also lazy though. If you come to them with a term sheet that heavily favors you then you take the initiative and first step. If you already have an MVP and prototype that works and is making some money, you are arriving with a position of power and leverage.
My advice is that you build something that solves a problem for people and they give you cash to use it. Once you have that you have the ability to control your destiny.
Further Reading:
Rework, 37 signals
Paul Graham's essays at paulgraham.com
The Millionaire Fastlane by MJ Demarco
Work the System - Sam Carpenter
Note - Rework and Paul Graham are pretty diametrically opposed on some important points, particularly regarding raising capital. I've both bootstrapped and raised capital and my thoughts at this point are that they are both a double edged sword. Bootstrapping is much more about trying to not die on the very limited funds you have, but you will be forced to make better decisions with your money.
Raising capital gives you a longer runway to scale up but also a higher liftoff you need to make upon a liquidation event. Also, dealing with VCs can be annoying. Besides the capital and some advice, usually they are more of a time suck than a means of helping you. When you take capital, you have to understand that these people don't care about you and your dreams - they want to make a return and they are fine with the ends justifying the means. Keep that in mind.
Watch "unlearn your MBA" by David Heinemeir Hansson (might have spelled that wrong).
