Getting Start-ups Funded

I found this from Paul Graham on how to keep your start-up alive. From there I followed a link to a page on his YCombinator company that supposedly funds start-ups. I then found this page where he details what they do as far as actually funding companies.

It says that they usually start people off with $5,000 plus an extra $5,000 per founder, in exchange for 2% to 10% of the company. Take a company with 4 founders, they will get $25,000. The site says that this should be enough to cover 4 months of living expenses. Maybe in Iowa it is, but certainly not in NY and not in the Bay Area. You would be lucky to find a closet in SF or NYC for $1,000 a month and that would leave you with $250 a month for food, utilities, and other expenses.

And in exchange for this pittance you give up up to 10% of your company (the say the median is 6%). Maybe I should get into this racket because any company that succeeds is going to be worth a lot more than the $250,000 to $1,250,000 you are being initially valued at (the median is $417,000) for a company with four founders. For one founder you would be valued at $100,000 to $500,000 with a median of $167,000. Unfortunately I don't have enough money saved up to fund more than 1 company which is not a very good risk vs reward scenario.

For that I would rather just bankroll it myself and keep that 10%. If it's an idea I believe in you would be silly to give up 2-10% of it for one month's pay working at an average job. You could easily take out a bank loan for more than that amount at under 10% a year. Instead of giving up 10% of your company you could pay 10% interest. Sounds like a no brainer to me.