Because they hire too many people. The more people you hire, the less you get done per unit people. With development, the more people you hire the less you get done period.
Virtually every startup that raises more than $100k is wasting half the money its spending. Most of them don't even realize it.
I love the comment by the guy who said "founders aren't willign to forgoe the $100k job they had" LOL. If your founders wouldn't rather have equity than a salary, then your startup isn't getting their bet... and they have the inside info.
The more money you take, the less equity you have. Thus, if you believe in your idea, you don't want to take any money....logically.
But the reality these days-- especially in "Silicon Valley" where the reality distortion field sets in-- is most startups are just built to flip- they want the big vc money the big burn rate and the quick exit to an acquirer... they aren't started by people who want ot build a business.
This is why SF is not a good place to build a company and why you shouldn't listen to the "spend lots of money" advice you tend to get (eg: you need a lawyer you need lots of employees, you need office space, you need to buy servers, etc.)
oh you are right about the "if you founders wouldnt rather have equity than a salary ...".. absolutely... but I am not sure if its the choice is simple. If you have to feed a family then equity wont pay for it... But yeah sure, a team that is driven by equity rather than money does indicate a good idea (or a very stupid team!)...
Yes, that are also the usual monthly costs we had. Servers could mostly be ignored in our case (below 20$ per month). Usually some one time costs are also needed. Like some hardware or for us the most expensive thing where the software licenses (though open source got us very, very far). I also paid for some legal advice, but it wasn't really worth it's money.
Oh - and in countries like germany don't forget the health insurance, which is the highest monthly cost I have to pay.
>call any investor in the valley and tell them "I'm growing so fast and I need $15,000 to pay for servers and hosting" and you'll have convertible note paperwork signed by the end of the week"
That was one of our biggest fears and the main reason we chose our current provider. He offered unlimited traffic and we are offering a rather large demo (about 25 MB) and some videos. But by now I found out that getting above 500gb (which was a typical limit for other providers) seems not to be possible with our weak vserver so the unlimited doesn't mean much (but maybe I'm just not a good enough admin for that).
We lost a lot of downloads that way, though when I now read how much you had to pay - that sounds really worse.
We did only need a vserver for a start which are not hard to get at that price. Also I won't recommend my provider as we had horrible downtimes for a while and it's still not that good. So while we pay less than $20 per month, I wouldn't recommend it and the main reason we stay is that we have a 1 year contract.
I know the question isn't directed at me, but I found a web host that lets you pay according to how much bandwidth you actually use: https://www.nearlyfreespeech.net/
The bonus is that they support haskell, scheme, common lisp and ocaml web apps :)
Isn't food (and rent) a personal expense, rather than a company expense? So your company has to first pay a wage to yourself (taxed) and then you personally buy the food? Same for rent, unless you're renting an office, right?
Not all founders have the luxury of living with parents at home. Nor are a majority of founders willing to forgo 100K a year in salaries after having tasted the financial benefits of a steady job. Thats just for the "time" put in by the founders.
Now for directly startup related costs - legal issues, servers (hardware in general), hosting costs...
if you are lucky to be in the next stage, how about employees?
Investors like to invest in whatever it will take you to get to break even, or profitability.
If there is a risk someone will leave over money, or something else, they want to make sure it is covered.
Raising money takes months worth of work and can distract you from your product. Investors want you to do this once, and not every 6 months.
From my understanding even if a professional investor only gives you enough for 6 months, they are expecting to put more in if you are making progress when that 6 month mark comes around. in theory each successive round should get cheaper for the entrepreneur to take investment.
Legal fees are a big one, I'd imagine.
Also paying for artwork, servers, and services to monitor the service for if it fails.. Then there's bandwidth, which is always expensive.
> Then there's bandwidth, which is always expensive.
It's not. You can get a TB for about $25-30.
Like others said, biggest expense is almost always the salaries for employees.
Legal fees are a one time fee and unless you're doing a VC round, incorporation and all agreements can be had for under $1K. If you are doing a VC round, well, then you can afford the $50K legal bill.
It depends on if you're bringing it in house, or renting a server someplace.
I've found that if you are renting a dedicated server, you can get insane bandwidth deals, but if you try to bring it in-house, or even colo, you get burned. The dedicated hosts aren't expecting that you actually use the allocated bandwidth- This is why they'll give you 1000GB for the standard cost, but charge $100 extra to bring it to 1200GB.. If you need to bump it, it shows you're actually using it.
Agree with e1ven. Our legal costs are pretty high. Suggestion to any entrepreneurs out there, get a expensive lawyer and a cheap lawyer. Only use the expensive one for important things.
Virtually every startup that raises more than $100k is wasting half the money its spending. Most of them don't even realize it.
I love the comment by the guy who said "founders aren't willign to forgoe the $100k job they had" LOL. If your founders wouldn't rather have equity than a salary, then your startup isn't getting their bet... and they have the inside info.
The more money you take, the less equity you have. Thus, if you believe in your idea, you don't want to take any money....logically.
But the reality these days-- especially in "Silicon Valley" where the reality distortion field sets in-- is most startups are just built to flip- they want the big vc money the big burn rate and the quick exit to an acquirer... they aren't started by people who want ot build a business.
This is why SF is not a good place to build a company and why you shouldn't listen to the "spend lots of money" advice you tend to get (eg: you need a lawyer you need lots of employees, you need office space, you need to buy servers, etc.)