Someone else agrees with me that VCs these days are not making very good investments and they are still living in 1999. It seems like the easy money web 2.0 bubble may be coming to a close, though not as disastrous a close as the last bubble. Hedge funds and Private Equity firms are not doing so well this year and valuations are going up without revenues to justify them.
I don't think we are going to have a crash but I think this round of easy money being available to any entrepreneur with a half-baked idea is coming to a close. Which is unfortunate because I have a lot of half-baked ideas and haven't raised any money yet.
Showing posts with label private equity. Show all posts
Showing posts with label private equity. Show all posts
Wednesday, October 03, 2007
Friday, August 31, 2007
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.
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.
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