Several of my best investments have been from startups raising less than $500k. Justin.tv/Twitch returned 97x my original investment, and Weebly will likely be even more.
The climate has changed in that it's easier for startups to raise more, but even those that do not can still be very successful. Justin.tv or Weebly would not require any more money to start today than they did six years ago -- if anything it's gotten cheaper.
I think one thing that is happening here is that certain types of startups are throwing money at problems that need to be solved in order to grow enough that raising additional funds is easy and/or not required.
An example would be that the founding team isn't skilled enough to get through the product market fit stage, so they hire in order to fill those gaps. Or maybe it's a chicken & egg problem, which often requires lots of time and luck to crack.
With the high salary requirements that engineers and designers have today, especially in Silicon Valley, this means burn-rates get very high very fast, even with only a few employees.
I remember five years ago in most cases you'd take a major salary cut (which was made up for in equity) when joining a startup as a first hire. You took a big risk to be employee number one or two. These days the landscape is so competitive you not only get equity, but a great salary as well.
I wonder if this has something to do with what you're hinting at?
As I get farther along in development I realize the cost and time to becoming profitable and break-even is smaller and smaller than I originally expected. It may slow down development if taking smaller investment, however from my experience so far being forced to move slower has its benefits - perhaps including less dilution.
Probably is easier to be frugal with limited resources. With a lot, is easier to overspend at first and later get burned. Limited resources from the star could help to focus more.
I have never get investment (rarely in my country) but always thinking that I prefer a small push than a huge one.
Will investors let companies do this? Is it going to be OK if you only grow 100% per year because you are living within your means or aiming to become profitable as soon as possible?
Sam, out of curiosity, what is the average raise for a post-demo-day YC company now-a-days? (if it's public).
I wonder this 500K benchmark is still something useful to investors in the valley. My guess would be that there end up being only a few YC companies each batch raising <500K and I doubt the amount raised ends up being a good predictor of success.
If you're trying to maximize your chances of raising a Series A (which may not be the ideal metric), then $600k+ is pretty good and $900k+ is great. (Based on this post: http://tomtunguz.com/seed-followon-rates/)
What effect does this have on your criteria for investment? Or are you saying that raising less might in and of itself make the investment riskier by implying that they've under-estimated how much runway they might need?
I've often heard the advice that "it's not much harder to raise a million than it is to raise $250k, so you might as well raise a million" or some variation thereof. Is that true in your opinion?
Agreed. Here's some data that backs up what you're saying: http://tomtunguz.com/seed-followon-rates/. This is probably the blog post that I share most often with founders I talk to.
