How much funding do Startups need?

[OVOvince]

Or better yet, why do some Startups require SO MUCH funding?

I was researching some cloud communication tech startups and they have over 200 million dollars worth of funding.

Between splitting the equity among the cofounders and possible others (not even including the investors), im sure the founders dont even have a sexy amount of equity left.

And Im sure with that much funding it takes another pie, which then puts a lot of startups in a position to sell quicker.

I am part of a startup company's founding team in the Energy industry, and we are going to try to get funding, but are we going to really need tens of millions or even hundreds of millions if we are just providing software based solutions?

 

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[BigBrianC]

Because they produce products that no one wants so they don't make any revenue, so they need seed funding to stay alive.

Or they have a product that needs marketing/servers/high cost infrastructure to get off the ground, so they get that through seed funding.

There are some companies that have billion dollar valuations that have never produced a dollar in profit. Each case is different, but basically there's a tech bubble that starts with VC due to low interest rates, so we get these insane evaluations you hear about. Of course there are some legit start-ups that need money out there though.

 

[Darius]

Or better yet, why do some Startups require SO MUCH funding?

Those CEO salaries won't pay themselves

I'd imagine that it's because they have negative cashflow from trying to grow quickly with no real monetization strategy in place.

Then once their user base hits the calculated number *poof*, they implement the monetization strategy and start bringing in the $$$

 

[Aidan]

How much funding to Startups need?

Enough to make your first sale.

Or better yet, why do some Startups require SO MUCH funding?

Complexity of product + Process

Also, capital used properly at certain stages of growth can certainly accelerate business. It isn't like they would spend all 200m right away (if they are smart). Their investors must have a lot of faith in said (potential) business to throw the Founders that amount of money down.

 

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[OVOvince]

Hmmm, thanks for the input guys.

So take, for example, the following article:

http://www.businessinsider.com/why-...for-20-million-instead-of-200-million-2014-10

• Bleacher Report sold to Turner for a little more than $200 million five years after it was founded. But between four founders and more than $40 million raised, each was diluted to 5-10% stakes. That means each founder walked away with about $10 million after the sale.
• Arianna Huffington, Ken Lerer and Jonah Peretti also sold their startup, The Huffington Post, to AOL six years after it was founded. Their price was a lofty $315 million. Each owned different percentages, with Ken Lerer earning significantly more than Huffington. Huffington reportedly owned less than 14% of the company and took home an estimated $18 million.

Read more: http://www.businessinsider.com/why-...-instead-of-200-million-2014-10#ixzz3dZUhIrb8

What do you think made bleacher report need that much funding, that diluted the stakes?

 

[Nick314]

If it's software, most of it goes to server infrastructure and developer salaries, with another big chunk going to marketing. Quite often (at least in the startups I've been involved with) the founders don't draw much of a salary at all--just living expenses (if even that). They take an equity stake and work for little or nothing until after launch when they pass the break-even point (if they get there--some don't).

 

[OVOvince]

If it's software, most of it goes to server infrastructure and developer salaries, with another big chunk going to marketing. Quite often (at least in the startups I've been involved with) the founders don't draw much of a salary at all--just living expenses (if even that). They take an equity stake and work for little or nothing until after launch when they pass the break-even point (if they get there--some don't).

yeah we dont plan on taking salary much, very little if we do. we are just going to ride it out until traction, and wont even quit jobs until traction.

it just gets me curious how bleacher report and huffington post needed so much funding.

i guess every startup is different

 

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