Foursquare spent nine months without any pay, but a reasonable burn is about $50k a month
(Fred Wilson is a VC at Union Square Ventures. This piece is about burn rates for start-ups and why $50,000 a month is probably a reasonable starting point, unless founders are willing to put their own sweat equity in without paying themselves, which happens a lot.)
In last week's MBA Mondays, I wrote about burn rates at three stages of a startup. The first stage is what I called "Building Product Stage" and I suggested that a burn rate of $50k/month was appropriate for that stage.
50k a month?!?!??! maybe it is such in venture world, but if you're a broke ass fool bootstrapping his/her way, try 5k per founder a month until you have paying customers. if you're hardcore (translation: desperate broke ass fool), cut that number in half -- it's definitely possible.
The Kid and everyone else who pushed back on that number in the comments are right. You can build a product for less than $50k/month, particularly if you and your co-founders are deeply technical and if you have at least one founder who has great product and design skills.
I was chatting with Naveen, cofounder of Foursquare, the other night. He told me that the month he and Dennis finally raised money for Foursquare from USV and others was the month his savings had run out. Basically he and Dennis worked for nine months without any pay and built V1 of Foursquare all by themselves for basically no money other than their time which they were not charging the company for.
We see this a lot actually. Many (most??) of our early stage investments are in companies that have bootstrapped in this way. So I feel a bit badly about throwing that $50k/month number out there. But there are companies that are fortunate enough to raise money at the seed stage and use it to build product. And for those, I see $50k/month as a good upper limit.
So I stand by the $50k number, but with a big caveat. If you can do it for less, by all means do that. Bootstrapping is a great thing and leads to great products and great companies.
(For more from Fred, visit his blog.)
Support VatorNews by Donating
Read more from our "Lessons and advice" series
The Importance of the AMI-Jerusalem Center for Biblical Study and ResearchRead more...
Education and Real Estate InvestmentsRead more...