Sorry, I just don't agree. 120k barely makes expenses for 1 FTE. Not only that, but it's also an amount of money that a strong freelancer can generate on top of living expenses in a particularly well-utilized year.
Exactly. move into your mother's house. become a 1099 contractor at $100/hr+. save, save, and save. a year later there's your bootstrap funds + credit cards, excess of 100K. Outsource design/dev if necessary, launch it, raise a large seed round/series A, valuation 4m+
You don't have to give away anything. be an entrepreneur.
I'm confused. What part of working for a year and saving up $100k ruins your chances of starting a company? Am I reading too much between the lines, or do I also need long hair and a full beard like Wozniak?
37signals started that way, for what it's worth. Not by living with their parents, of course; by bootstrapping a consultancy.
PlentyOfFish started that way.
Braintree started that way.
Come to think of it, so did Github.
And didn't Mailchimp bootstrap, too?
I think maybe the impedance mismatch here is that you assume I'm saying companies need to raise more than 120k to start. They don't, if they start out profitable. But that's not the normal YC startup strategy: those companies depend on the ability to run for a year, maybe many years, before generating profits. Against that strategy, 120k is not very meaningful. Which is why 'pg and now 'sama are always at pains to point out that people shouldn't apply "for the money".
If you can you should always bootstrap. I have started several companies over the years and everyone of them was bootstrapped. The process might be slower, but the advantages are so much greater retaining control.
An idea-stage startup should not be paying a FTE 120k. That is lunacy and engineers need to start to understand this. More equity, lower salary until there is money coming in would help more companies survive longer while they look for product-market fit.
I don't doubt that you're right about this, but I'm using the (lowball) estimate of the cost of a single developer as a benchmark for the amount of money we're talking about. Also: I'm not sure what you call someone who takes half salary in exchange for equity. It's probably not "cofounder", but "employee" doesn't fully capture it either.
I have a roommate in SF. He's freelancing, I'm working at a company. He's making more cash than I am, but I'm working on building a company (as an employee) that's shipped multiple iterations of a category-leading product, raised $XX million in VC, and hired almost 100 people.
I'm not disputing that a good freelancer can clear $120k net of taxes and living expenses, just that that's the best path to take, if the end goal is to be an entrepreneur.
Are we sure we're talking about the same thing? I'm not suggesting a freelancer can net $120k in a year. That's easy. I'm suggesting a freelancer can net $120k plus living expenses in a year --- a number perhaps closer to $200k-225k. The reason I think that I that I know a lot of people who do --- many of them outside my (particularly lucrative) specialty.
Practically every established consultancy in the US throws off numbers like that year in year out, as a routine. Which is one reason a lot of consultancies end up spinning up product teams.
You're simply empirically wrong [about the 'amount' of money that represents, whether it is large enough to make a substantial difference], and your anchors[1] are not only irrelevant and misleading in an early-stage context, but extremely toxic.[2] What was Google's first check in the amount of? $100K. It was a ton of money. As Wikipedia points out, "The first funding for Google as a company was secured in August 1998 in the form of a US$100,000 contribution from Andy Bechtolsheim, co-founder of Sun Microsystems, given to a corporation which did not yet exist." They used that to raise "On June 7, 1999, a round of equity funding totalling $25 million", about 10 months later. Pop quiz. Which was more money, the $100K in the first context or the $25M in the second? Well, as I've heard they never did spend much of that $25M, it sat in Google's bank account while they grew and raised further rounds....
But that $100K? That was a ton of money.
Basically, you are wrong that it was not a ton of money, your anchors and comparisons are toxic and misleading, and if he had not cut that check then Larry and Sergey would not have created Google. That is what actual reality shows us.
You simply do an incredible disservice to all early-stage startups by talking in these terms.
I gave you several actual examples of far less than $120K being a ton of money in an early-stage context. As little as $5000 being a ton of money. I also specifically stated that if, say, $20K, weren't a lot of money, then it would make no difference empirically if YCombinator did not actually pay that cash. And YC companies wouldn't have either relied on or even actually spent that cash. But it does make a difference, and they did.
As I specifically point out: your FTE expenses are completely irrelevant, and even part (less than 100%) of the after-tax portion of a single FTE salary is a ton of money. (In an early-stage context.)
To imply otherwise does a huge disservice to all first-time, early-stage founders everywhere. The very idea is toxic and needs to die.
[2] Your figures both about (1) the cost to the company of a fully loaded FTE senior engineer and (2) the amount that a good freelancer can generate above living expenses in a year, are irrelevant and do not need to be argued. I will grant both as irrelevant to the discussion.
Your comment is very emphatic, but you didn't rebut either of my points:
* 120k will barely pay the fully loaded cost of a single engineer
* A good freelancer can generate 120k above living expenses in a year
Your response was "the fully loaded cost of an engineer is irrelevant". That's a weird argument, given that the cost of engineers dominates the expenses of early-stage startups.
That's cool and all, but what matters to a very early stage startup isn't the cost of hiring an engineer, it's covering the founders' living expenses and whatever business expenses arise (which may be very small).
You know this, so I'm not sure why you're off on a tangent about things that don't normally apply in these situations.
There was a long comment here, but I found a better way to make my point:
If I gave you $120k to start a company with 1-2 other people, and you had no other funding commitments, I don't think I'd be changing your odds all that much.
But I have no trouble believing that when YC gives founders $120k, they are changing the odds significantly.
Well, that's a whole lot of repeated assertion, and I respect the effort, but you're not making a great case for yourself.
It would help if you read my comments more carefully. The one you just replied to was particularly simple. Almost the only thing it says is that being a part of YC improves the odds. But the 120k isn't what's doing that.
Right, I just deleted what I could, which I tend to do when I disagree very strongly with the community here on some specific point. I emailed you answers to your remaining questions, happy to continue there.
$100K is a ton of money to a student or someone whose career hasn't really "launched" yet. It's peanuts to anyone working in tech with a track record. You can easily save that much money in 1-2 years working at a 9-5 in a big company, or consulting.
The skills to get that big company job or land those consulting clients are pretty much the same skills you need to make your product company successful. An understanding of what people will pay you money for. Ability to execute on a project. Collaboration and communication. And of course, solid coding skills. The difference is that a product company also requires a fair degree of business strategy, determination, and sheer resourcefulness that you don't need to get a job.
So if you want to found a successful company, you're much better off developing those skills, testing them by getting a job or someone else to pay you money, and then striking off on your own. If you just get the money, chances are you will lose the money pretty soon too.
You say it "was a ton of money," but you haven't provided any reasons that is the case, other than claiming that Google would not exist otherwise, something we don't really know either. Maybe Larry and Sergey didn't really need that 100k either, but took it just in case? And even if it were a lot of money at the time, 1999 was a different time and place. First-time founders were a lot less sophisticated. The seed funding environment that exists today didn't exist. AngelList did not exist. The current market rate for engineers and cost of living is a lot higher than then.
