Where is the idiot's guide to financing a web startup?

September 8, 2009 7:55 AM

Where is the idiot's guide to financing a web startup?

I have an idea for a website. I have found a partner, and we have a good handle on the technical/customer/market/revenue issues. What I don't have a good handle on is the equity and financing path over the next 4 years - we will need 2 rounds of funding and I know the approximate amounts.

I also I haven't worked with my partner before, so each of us wants to be protected if our priorities change. Where's the "idiot's guide to financing and the equity structure for a web 2.0 startup?"

posted by nyc_consultant to work & money (8 comments total)

Fred Wilson's blog has a lot about the VC industry, and he occasionally links to stuff that you're asking about. There's also Startup Company Lawyer, which I haven't read and Venture Hacks also seems to have a good archive on the legal/structuring stuff.
posted by delmoi at 8:23 AM on September 8

If you are serious out this, apply to Y Combinator. If you're a first time team and you want money pre-traction, YC or TechStars is pretty much the only way you can get equity financing.

Why, yes, I did learn this the hard way.
posted by sachinag at 8:26 AM on September 8

sachinag: You say you learned the hard way... so ... have you worked with Y Combinator and had success? I've heard varying opinions on how good of an idea it is to work with/through them... I'd love to know your take if you have real world experience...
posted by twiggy at 8:58 AM on September 8

You really need to talk to some other entrepreneurs for advice. You can get some of the basics from books and websites, but there's a lot of nuance and personal experience. Bonus: networking leads to advisors, employees, and investment contacts.

One thing to watch out for.. The old 1999-era VC model was based on companies needing a $10 million series A round for a company that someday would be worth $250 million. For a variety of reasons that model is bad for almost everyone involved and a lot of interesting web companies these days are getting going on much smaller initial investments and working on business plans that make significant revenue early. These days a lot of my friends are getting started with a $1-$2 million initial investment from individual angel investors. Much of the older written advice you'll find won't apply at this scale.

Finally, this blog post about venture capital deal algebra is useful for its clarity in discussing details of valuations. A lot of people get tripped up by how dilution works.
posted by Nelson at 9:45 AM on September 8

Consider bootstrapping.
posted by RikiTikiTavi at 10:10 AM on September 8

Here's a post from today on techcrunch about the top 20 VC blogs - probably can glean some great insights there.
posted by jourman2 at 10:53 AM on September 8

Thanks! Our funding requirements are going to be low (2 rounds of low-6 figures), so that puts us below the radar of most VCs. Lots of good leads here though.
posted by nyc_consultant at 11:45 AM on September 8

Are you asking a question about how to get money, or do you have interested investors and want to know how to structure the deal? I assumed it was second.

YCombinator used to invest $3,000 per employee, their website now says "rarely more than $20,000". TechStars is $18,000. You probably wouldn't have trouble raising that kind of money on your own with credit cards or SBA loans, etc. (I don't know if they do loans for web startups). The real value of those would be the networking you could do. The people mentoring you would be able to find a lot more money later on.
posted by delmoi at 2:01 AM on September 9