Expenses are like spending equity 02/08/2011
It's hard to conceptualize the value $500 when you've just raised a couple million from investors. The measly few hundred -- or few thousand -- dollar expenses seem to be too unimportant to even consider. Over time, we've started looking at things in a way that can bring it all in perspective. Consider this: if you've raised $2M at an $8M pre-money valuation, that $2M is worth 20% of your company. Each time you raise money, you are giving up a certain amount of equity to someone else in return for that money. And each time you spend money, you're spending equity in your company. While it might seem like a $20,000 couch isn't an expense to fret over, that couch cost you 0.2% of your company. Likewise, a $250/month expense, while seemingly too insignificant to worry about, represents almost 0.1% of your company over 3 years. The lesson here isn't to be penny wise and pound foolish -- certain expenses pay for themselves many times over -- but rather to carefully consider where you decide to spend your equity. Comments02/08/2011 18:11
Exactly. Also, salary is like double dipping with payroll taxes, income taxes and all the rest. When I first started techcrunch I didn't pay myself anything and ran the company out of my house until we had over 20 people, but I bought the best computers I could afford. I can't even imagine what a $20k couch costs, though. 02/08/2011 18:19
@Mike, 02/08/2011 18:39
Great article, I really couldn't agree more with your contrast and comparison of expenses & equity.... Ben 02/08/2011 18:51
I like to frame all spending like an investment. Is what you're spending on going to grow your company's value? v 02/08/2011 18:55
@Mike 02/08/2011 20:37
@David & Mike, 02/08/2011 21:05
Great post David. We are struggling with that right now. Between opening our office in SF vs virtual, to outsourcing options, and which marketing software to buy there is a lot to consider. The ROI should really be analyzed for any expense at such an early stage post-financing. It appears that the startups that fall into one of the two categories are often imitating the actions of other startups as opposed to considering their unique situation. As a founder, I take the approach that Mike took and feel that it provides a more responsible and self-guided result. Only time will tell. Bottom line: every situation is unique. 02/08/2011 21:14
@stephensebro, 02/08/2011 21:29
Exactly on point, that is why it's also better to run as a bootstrap as long as you can. Every little penny counts and everything is scrutinized. I am going to keep this philosophy even after we raise. Liam Carton 02/09/2011 03:20
Anyone who "sells" 100% of a 20K company for a 20K investment is getting royaly screwed. 02/11/2011 13:55
Seriously, are people really buying 20k couches with investor dollars? @David Unless you spend money on things like $20k couches, nobody will want to work for you. That's the problem with Valley culture. Illiquid companies like Twitter have to spend hundreds of thousands on cool offices because they feel like they won't attract the best talent if their offices aren't cool enough. Sadly, they are correct. And that says something very horrible about the work ethic and value system of this generation--my generation. Carla 03/10/2011 08:14
David, I really enjoyed your blog. It was very enlightening. I will definitely tune in for more. I would love to hear tips on how to survive without paying yourself for an extended period of time. That is what I am struggling with. I read that you are a part-time DJ. I am sure that helps some. I am new to Weebly but lovin it! Thanks! 03/18/2011 04:22
This is a good point and should be thinks about. Expending $20,000 just for a couch? Gina 03/27/2011 17:24
Sorry but you lost me on the $20k couch. I mean I am so far removed that I didn't even know there were $20k couches. so forget me. 05/05/2011 02:44
David where have you gone? It's been three months since you last blogged! Come back! Alex 07/12/2011 23:11
Nice really very nice 07/19/2011 01:54
I agree. Can you pay 20,000 for a couch? I kind of get what you mean over all though. It is all relative to your total worth I guess? Erica 08/29/2011 12:03
Great blog! Jake 08/30/2011 06:45
Lot's of talk about couches and percentages of dollars and who owns what. What I noticed is 2M is actually 25% of the 8M in the example. However, that is neither here nor there and paradoxically unimportant in contrast to the intended message of the the considerably well thought out example. Moreover, this observation is equally as unimportant as my intended message. Obviously as unorthodox as this form of communication may be for this subject matter, I thought it appropriate to contact you. David I wanted to let you know that I'm developing a product which will compliment Weebly. It is an idea I thought of which fills a gap in your market. It will actually promote Weebly. However, I thought I would give you a heads up and perhaps an opportunity to jump on board and broaden your source of revenue, since it is your company that will be involved. I'll leave it at that. Thanks for your time. que que des queso 10/06/2011 19:10
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Wow, dude, it seems the stylesheet lived through a typhoon as your website looks screwed. I feel you wish to take a look at it kazi Hossain 10/16/2011 09:54
David,exactly it's very man to man,some enterprenure offer lavish facilites some not.For startup Business should count every penny and scrutinazed,specially when it's aquestion to rise your fund. 02/15/2012 22:29
Surely, you are right with this point. I think all consumers will not make their criteria become real for shopping since there are lots of choices. 02/20/2012 14:04
Unless you obtain elements like $ 20k couch, no one would want to perform for you. That's the issue with Area lifestyle. fluid organizations like Tweets have to invest tons in the workplace awesome because they experience like they will not appeal to the best ability if their workplace is not freezing enough. Unfortunately, they are appropriate. And that says something dreadful about the perform ethos and value program of this technology - my technology. Leave a Reply |
Author David co-founded Weebly, an incredibly easy to use tool that helps millions of people create a professional web site, blog or online store.
He was named to Forbes' 30 under 30 list, is a part-time DJ and has traveled to over 20 countries. Investments include Greplin and Parse. 
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