Pitching your early-stage startup
stripe.com
stripe.com
The bigger concern I would have with applying to YC in your case is the existential question, "Should I take VC money or not?" What I don't see above is an understanding of the why behind financing. How will financing accelerate your business? If I give you $1M, what will you do that makes it worth $10M in X timeframe? While not necessarily a deal breaker for a lot of seed funds, I think anytime one is looking at taking on multiple hundreds of thousands of dollars of investment, they should have some basic answer to that question.
So it goes back to my earlier point about a baseline for getting accepted which my application would not cut since I don't have hard data to show CAC, LTV and other relevant metrics. It's certainly not set in stone as a small number of very early stage companies do get accepted, but in general products have to be much further along to have a serious chance of acceptance, or at least that's the impression I get.
Your solving a big problem: having commenting that protects user privacy. We are happy to pay if the product works in our use case.
Totally off the parent topic, but you do seem to be building something that is incredibly useful, at least for us.
This is the kind of reaction you want to see in your customers.
Most of Patrick's excellent advice can be lumped into these three buckets. Specifically:
1) You have to establish the credibility of the team: you've done impressive things before; you have a deep understanding of what you're working on now; you can read your audience and know how to communicate effectively; you can get a strong intro (nice-to-have); etc.
2) You have to establish the viability of the market: it's big; it has a real problem; the existing competitors are not doing a good job in a clear way; etc.
3) You have to establish the quality of the idea/product: you have a unique insight or approach relative to competitors; the prototype/early validation is strong; etc.
A lot of the pitches become mediocre when founders are handwavy in one or more of these areas. For example, if the founder spends a lot of time talking about the market and the product idea, but not enough time explaining why the team is uniquely/extremely qualified to succeed. Or the founder has good answers to product/team/market questions, but their answers show they don't know how to read the audience or explain their idea. (Example of not reading the audience: the investor is non-technical and the founder, who is productizing their PhD thesis, spends 90% of the pitch geeking out about technical details.)
Also, I'll add a few tips:
- Don't exaggerate or mislead. An investor will pass if they doubt one of your statements ("silverware is a $150 billion dollar market!") or realize that you're spinning facts (e.g. you say Dropbox is a customer, but later it turns out you meant that one of your free users has an @dropbox.com email). If it turns out that one statement you made is false, then investors will assume there might be more.
- Understanding risks is better than sweeping them under the rug. If your competitor landscape is missing key companies (mentioned in Patrick's post) or you dismiss some $1b+ company as a competitor without any rationale, your audience will become very skeptical. Admitting something is a problem and explaining how you will address is it much more compelling.
- Really know the ins and outs of everything about your company -- at least relative to the audience. If I ask a question or make a product suggestion that the founder hasn't considered, that's a yellow flag. Someone who has been living and breathing their startup for several months should have a much, much deeper knowledge of their domain than an investor who is hearing about it for the first time.
I've also worked in VC and would add that you really need to understand the motivation of the potential investors you are pitching.
Early stage Founders often waste a lot of time by pitching anyone who says they make investments.
This will save you a lot of time and energy focusing on funds that you believe can add more than money to your business.
Also, funds with a proven track record are important. I've witnessed outright fraud from a VC fund that claimed to have $50MM to invest and signed contracts to invest over $11MM when in reality they had no money at all.
Don't start hiring or otherwise committing your company to expenses just because a VC fund signed some paperwork.
Wait till the money is actually wired over to your account.
You want to vet your investors as much as they are vetting you.
The OP is significantly about applying to YC: From what I've heard, YC doesn't much like sole, solo founder startups!
Why should no VC need call? For my startup, a PC server from $1500 in parts kept on average half busy 24 x 7 should generate well over $200,000 a month in revenue. Thus there would be plenty of cash for more PCs at $1500 each. Even $10,000 a month in revenue would yield plenty of cash for more servers.
SUSA Ventures claims to want "technical founders". Alas, it doesn't look like the SUSA partners are very technical!
"Warm introductions"? SUSA and many want "warm introductions": But VCs and I do not have associates in common. So, I can't get a "warm introduction" to a VC, and no VC can get such an introduction to me. E.g., I might be able to get a "warm introduction" from one of my Ph.D. dissertation advisers, at one time President of one of the world's best known research universities especially famous for their STEM field graduate programs, including computer science and AI. However I doubt that that person knows any information technology VCs. E.g., recently Tom Magnanti, Dean of Science at MIT, gave a technical lecture on the foundation of the Internet at a lecture series named for Professor X. Well, Professor X was the Chair of my Ph.D. orals committee; maybe I could get a warm introduction from him; but likely he knows no information technology VCs. Net, my background is technical, but VCs are not qualified to be my technical colleagues or associates -- VCs don't measure up.
For the people I know, the best form of an introduction is a good peer-reviewed paper of original research in a STEM field, preferably applied math complete with significant theorems and proofs. It appears that there are few or no such information technology VCs anywhere in the US and similarly few who could accurately evaluate such a paper.
SUSA Ventures claims:
"We seek out highly defensible companies that leverage data, economies of scale, or network effects to build value and achieve longevity."
"Seek out"? My experience is that SUSA ignores such things even when they land in their e-mail inbox.
IMHO, for the OP again, all the advice on pitching information technology VCs is noise and filler and useless except just one word, "traction", preferably in the form of after-tax earnings significantly high and growing rapidly. But for a sole, solo founder startup, by the time the business has traction enough for a VC to write a check, the founder likely will no longer accept such a check.
1) $10k/mo is not even close to enough for most US companies that want to grow quickly. If it were enough, then way fewer founders would want to fundraise.
2) I'm a partner at Susa and I'm technical. And even if I weren't, being technical has little to do with being a good partner to technical founders. Most basketball coaches can't dunk, but they are still good coaches. Furthermore, if a founder is technical, then a non-technical VC/advisor/mentor/friend that can help in other areas can be more useful than someone who is technical. Most technical founders I work with have no problem with building tech, but many struggle with the business side.
3) Our website says we prefer warm intros. We don't require them, we just prefer them. I reply to cold emails frequently and often meet people after they cold email me. But the cold emails should be good/well-targeted, and unfortunately most are not.
4) Traction is not the only thing that matters. For example, I just did a quick calculation, and over half of our investments in the last 12 months had $0 revenue when we invested. Many of those investments hadn't even launched yet.
Source: personal experience
My experience is that VCs just ignore unsolicted e-mail. I've sent several hundred that got totally ignored. I've never had a VC give a meaningful response to anything I sent them. Again, IMHO, the VCs want traction, significant and growing rapidly, and they want to hear about the company from some solid source other than the founders, say, from an article in Tech Crunch or some such. From all my data, that's what it looks like to me. Besides, I'm a sole, solo founder and want to keep it that way, and VCs and YC don't like solo founders.
So, by the time my startup has traction, really revenue, enough to get a VC to write a check, I, as a solo founder with a startup just dirt cheap to run, will no longer want and will not accept such a check. And I will have plenty of cash for very rapid growth.
So, that's my response to the OP.
There is a time for long, flowing prose. Cold emails to people whose time is worth a lot of money isn't one of them.
For nearly all the 800 or so, I started with something very short, e.g., an executive summary or an elevator pitch. I gave a sample below at
https://news.ycombinator.com/item?id=15283099
and will repeat it for you here:
--- Executive Summary, Elevator Pitch ---
There are about 3 billion Internet users in the world. There is a problem (I can explain very quickly but won't explain in public yet but have explained to lots of VCs) that is pressing for essentially all those users but so far solved at best poorly. I have developed an excellent, and the first good, solution, now in software about ready to go live. Ballpark, good users will visit my Web site solution a few times a week, and from simple arithmetic the company should relatively soon be worth ballpark $1 T.
That pitch or anything like it, just that, or with more below, as text in e-mail or in a nicely done PDF foil deck, revised dozens of times, polished, etc. is a non-starter. No VC in the country will touch it with a pole 5 miles long.
My other posts to this tread today have some guesses just why.
When I first considered VC funding, I had some projects that needed some equity funding. No VC wanted to fund those projects.
So, I cooked up my present project with planning that I could take the project to live on the Web, good revenue, plenty of revenue for rapid growth, with that growth plenty of revenue for much more rapid growth, ..., all the way to a very successful company and, maybe exit and lots of financial security for myself and my family, all as 100% owner with no equity funding at all. Well, I'm nicely on track for just that, with the software in alpha test and essentially ready to go live.
I just didn't want to depend on VCs or report to a BoD.
I still have some interest in VCs as, say, backup in case of some financial emergency or just as sources of feedback.
But I've found that VCs essentially, it's easy to conclude, just really hate everything about my work! Everything! Really hate!
I wasted a LOT of time contacting VCs, for all the projects I've tried including the present one. My view is that VCs have Web sites that mislead entrepreneurs, get the entrepreneurs to contact, often strain to contact, VCs, and then the VCs, finally apparently with perverse pleasure, just ignore the entrepreneurs. The claims on the VC Web sites are 90+% total BS.
So, I didn't get pissed -- I got way beyond pissed.
But I've mostly gotten over being pissed -- I just accept that VCs are a bunch of losers that, on average, actually are not making much money.
So, here on HN, in response to the OP, I am responding to warn other HN entrepreneurs that mostly VCs are just a waste of time. Even if you get their check, you have to put up with them on your BoD, and that's not going be a picnic either.
> Ballpark, good users will visit my Web site solution a few times a week, and from simple arithmetic the company should relatively soon be worth ballpark $1 T.
VCs almost certainly hear this kind of claim multiple times a week and are thoroughly experienced in how frequently this turns out to be true (practically zero) - hence without some kind of demonstration or hook they can anchor themselves to, it's going to go straight in the bin.
Then the question is how the heck to solve the problem, and why I have a solution and no one else does. The answer there is my original applied math. Sorry 'bout that, but I'm fully capable of doing such math, have done good original math back to high school, and have a Ph.D. from a world class research university and peer-reviewed publications as evidence. For the e-mail I sent SUSA, I included a PDF of one of my papers that clearly shows good math ability; I included the PDF and also the reference to the paper on the shelves of the research libraries. The journal for the paper? Information Sciences, an Elsevier journal. Fully serious stuff.
Exceptionally good projects are what the VCs need, e.g., "another Google", and that's what I write them about.
To take my claims seriously, sure, the VCs and I would have to communicate further. E.g., one poster here says that my pitch should be about five words on one, line, short enough to be just the subject line of an e-mail. I've done that, too, e.g.,
$1 T Quickly
or some such with the e-mail body with an elevator pitch of just 2-3 sentences. That gets ignored, too.
IMHO, a lesson for HN people if they want is what I did or didn't write is just irrelevant. Instead, nearly no VC will ever read an unsolicited e-mail. They all go "straight to the bin".
For the really solid evidence of "demonstration or hook," that would be when I have $2 million a month in revenue, right? Then they can give me a call, and I will look up when I wrote them and told them what I was doing that they ignored. So, I'm at $2 million a month, and they want to buy 30% of my company for a seed round of $1 million? And I should be thrilled by that?
> VCs almost certainly hear this kind of claim multiple times a week and are thoroughly experienced in how frequently this turns out to be true (practically zero)
Right. So, they'd be a lot happier if I projected only 1 million good users instead of 1 billion, a company worth $1 B instead of $1 T? I'd be just the same: Again, once again, the VCs ignore unsolicited e-mail messages, no matter how short, long, rough, polished, etc. The VCs believe that any entrepreneur who sends anything to info@BigVC.com is a fool. Maybe so. But, who is the fool, the entrepreneur or the VC who invites entrepreneurs to send to a black hole?
E.g., as elsewhere in this thread, SUSA claims to "seek out" good startups. Well, they don't "seek" very far if they ignore their e-mail.
The US is awash in people and institutions that can do really accurate evaluations of projects described just on paper. In fact, they insist on descriptions on paper, and projects that pass such evaluations are high payoff and low risk. Examples include GPS, Keyhole, the H-bomb, stealth, and much more. High end engineering projects are done that way -- on paper. There is hardly a single VC in the country qualified to evaluate such papers. For the organizations, e.g., NSF, DARPA, ONR, Army Durham, Air Force Cambridge, CIA, NSA, etc. hardly a single VC in the country is qualified for such a job. The core technology comes from the best US research universities, and hardly a single VC in the country is qualified for a faculty slot at such a place. For commercial work, the IBM Watson lab is comparable, and I've been a research scientist there on an AI project, wrote and gave a paper at an AAAI IAAI conference at Stanford, etc. There's hardly a single VC in the country qualified to do that.
There are not very many projects good enough to be "another Google", and the ones that are the VCs can't evaluate.
So, I have a lesson for HN readers: The VCs are not good partners in a technology project and won't read their e-mail. For warm introductions, they don't know the right people.
How? You haven't given them anything to -verify-! All you've done is say "It'll be worth $1T because lots of people will give me lots of money. Trust me."
> it is obvious that the problem is pressing to nearly every Internet user in the world
I should imagine the VCs hear that every week too.
> $1 T Quickly
Apple is the world's most valuable company (worth ~$830bn). No-one seeing your claim that your company will be worth more than Apple "quickly" will take it seriously. There just isn't any path for that to happen in reality. Sorry.
Sure there is. I can give a good argument, with solid, original applied math in PDF from Knuth's TeX (not LaTeX) and with running code.
Even if I'm wrong, or get run over by a truck tomorrow, for you to be correct means that forever no company will achieve my claim. Forever is a long time!
As I give a good explaination, soon it gets totally obvious. I wouldn't be doing this project or saying this otherwise.
Do lots of people see the opportunity? Nope. With a little explanation, everyone on HN will see the problem right away. In a sense, they see the problem now. But they ignore or reject the problem because, like death and taxes, they see no solution. Like you, you see no possibility. Even if I blurt out the problem here on HN, essentially no one will see the possibility of a solution. So, now, when they see the problem, since they see no possibility of a solution, they ignore the problem.
But the solution is not trivial. I don't see a solution without my applied math. The core of the math is some solid, significant theorems and proofs. The main prerequisites are some advanced pure math topics. The prerequisites are totally, fully, beautifully written up and on the shelves of the research libraries, but the material is not popular in the US. Fewer than 10% of US math profs know this material. Some of what that material says is amazing, and nearly no one would think of it on their own -- apparently no one ever has. I got the material from a prof a star student of a prof at Princeton, and I got it from some books by some star students of a prof at Berkeley. It's solid stuff.
For the $1 T, see some of my other posts to this thread. How to do that? First, start with the idea that essentially everyone on the Internet has the problem and currently it is solved at best poorly. That there could be such a problem is not surprising -- the Internet doesn't yet do everything people want! You will see this problem and how people have ignored it as I announce my beta test on HN. The alpha test is in progress now.
For a little more, so, as you know, there are ballpark 3 billion people on the Internet, if we include smartphones, which for my solution we should. But for good ad rates, I intend to count only users in the more developed countries. There my gross, ballpark figure of number of users is, in round numbers, 1 billion. If you have a better number, then let me know.
Okay, when you see the problem and my solution, you will maybe willing to swallow that, early on users will come to my Web site once a month, then, after some weeks, once a week, then as they start to really like the results, see how to use them in their life, in their family, with friends, for work, etc., they may come to my site, rough, guess, ballpark, average 3 times a week.
Really, that's about enough for $1 T: If can get 1 billion people to come to a Web site 3 times a week for nearly anything, should be able to monetize that to biggie numbers. Add in some more ballpark details, and get to $1 T.
For some more details and the actual arithmetic, see
https://news.ycombinator.com/item?id=15287990
> > it is obvious that the problem is pressing to nearly every Internet user in the world
> I should imagine the VCs hear that every week too.
"Hearing" it is not the point. A claim, like essentially all significant claims, is worthless. In math terms, that's just the statement of the theorem. To be taken seriously, there must follow a proof. Same in law, finance, engineering, etc. -- need evidence.
Lots of people here at HN have advised me to get my descriptions of my project much shorter, including down to just a few words on just one line. In that case, the description is just, say,
$1 T Quickly
So, that omits all the evidence. Some people want evidence; some people want just the bottom line. IMHO, VCs mostly want a product they can play with or better, still, traction, in particular revenue, better still, earnings, and for all of those, significantly high and growing rapidly.
An entrepreneur who starts has none of those. So, there should be ways to know long before earnings significantly high and growing rapidly. And, in nearly all of applied science and engineering, there is. For just one example, there is GPS: It was funded long before the satellites were on the rockets and on their way into orbit. It was funded off paper, just paper. And, given the paper, the project was, really, low risk.
I've explained my project to VCs. They don't want to read. I can explain on paper in lots of detail, but they won't read it. Indeed, they won't read anything from a guy like me because they won't read unsolicited e-mail.
The bottom line of this situation is that by the time I have what the VCs want to write a check, I will no longer need, want, or accept their check. I can do this because I'm a sole, solo founder with tiny burn rate, opex, and capex so that any revenue of $10,000 a month or more gives me and my project all I should need to go for the $1 T.
My main point here was to respond to the OP and warn HN readers.
-Shakespeare
* It needs to be specific on what you are building. The Stripe blog post talks about that and gives good examples.
* Avoid flowery prose like your first sentence, and "BTW speak" such as inside the parentheses.
* Avoid talking about or implying the need for an NDA such as inside the parentheses. That is the fastest way to get ignored.
* Avoid unrealistic claims like the company being worth $1T. In fact, avoid talk about company worth all together however saying my market is X and the market is worth Y is good as long as the numbers are based on research.
Why not make any difference? (1) They will nearly never pay any attention at all to unsolicited e-mail. (2) If they do read anything, they will essentially always look for something about traction and not seeing that will junk the e-mail.
The reactions about traction are so uniform that I have to conclude that they all have a common source, and that would be VCs agreeing (required to agree) with their LPs, and the LPs coming together to agree on traction, etc.
I don't write such involved prose to VCs with, e.g., lots of details in parentheses. I accept that VCs want to zip through text at about the fourth grade reading level.
I've never mentioned an NDA to a VC, and I doubt that a VC would want to look at my core math or have it reviewed outside -- my guess is that VCs just don't do that. I mention the math because without it there's no way known to accomplish what my work does.
For the $1 T, that's easy enough to justify at the back of the envelope level: Assume 1 billion people connect for a few sessions a week with each session from a few minutes to 30 minutes or so. On average, each session shows them about 5 ads per page for about 20 pages, 100 ads. Assume the Mary Meeker $2 per 1000 ads displayed. Assume a reasonable P/E. Multiply it out for yourself. If assume more, especially better ad targeting, which my data and math permits, then can get several times $1 T. For a back of the envelope estimate, the $1 T is fine. Look, it's simple: My work is an excellent, the first good, solution, so far with the best solutions poor, for a pressing problem for essentially every user of the Internet in the world. We're not talking niche here, or just teenagers, or just dog lovers, cooks, restaurant fans, etc. For the more advanced countries, get maybe as a standard Internet application 1 billion people. Then multiply that out. There's nothing outrageous about the $1 T.
Okay, I'll do the back of the envelope arithmetic for you:
Assume 1 billion users from the more developed countries. On average each connects to the site 3 times a week. Each connection lasts on average 30 minutes where they see an average of 5 standard sized ads per Web page and see 20 Web pages. The revenue is KPCB Mary Meeker's $2 per 1000 ads displayed. So revenue is
12 * 1 * 10**9 * 5 * 20* 3 * 4 * 2 /
1000 = 28,800,000,000
Assume have 40:1 P/E (I'm ignoring tax details here) for a market capitalization of
40 * 12 * 1 * 10**9 * 5 * 20* 3 * 4 * 2
/ 1000 = 1,152,000,000,000
With the good data from the users and some more math of mine, I should be able to do better ad targeting and get, maybe, $6 per 1000 ads displayed for market capitalization of
40 * 12 * 1 * 10**9 * 5 * 20* 3 * 4 * 6
/ 1000 = 3,456,000,000,000
There are some options for some virality that should raise the 3 visits a week to 6 for
40 * 12 * 1 * 10**9 * 5 * 20 * 6 * 4 * 6
/ 1000 = 6,912,000,000,000
Gee, it's just simple arithmetic.
With some resulting changes in culture, such as we've seen often enough in information technology in the last 10-20 years, the numbers could go several times higher, but I'll omit that.
Okay, I only get 500 million users and only $3.5 T.
Lots of people see the problem; they don't say anything about it because they see it as like death and taxes, something that can't be fixed. They assume the problem can't be solved because they don't have even as much as a weak little hollow hint of a tiny clue about how to solve the problem. That's common, standard: E.g., Henry Ford said "If I'd asked people what they wanted, they would have said a faster horse." Well, they didn't believe in a faster horse and had no clue about a car. So, they didn't say anything. It's that way on the Internet now; people don't see a solution so don't say anything. Same for the Internet itself before the Internet.
Uh, some original applied math processing some good data can be some good stuff. The US DoD has known that for a long time; so has the NSF; VCs have yet to learn this lesson.
At one time a VC could have had 20% of my company for $500,000. Not now!
That would have been
0.20 * 3.5 * 10**12 / 500,000 =
1,400,000
Lesson to HN readers: VCs are low quality people, losers; don't waste time with them.
I'm no longer looking for VC funding; it's hopeless. I don't really need VC funding. So, my point here is to do a big favor for HN readers and push back against a lot in the OP.
The H-bomb sounded crazy.
Nearly everything we have in our daily lives now sounded crazy 200 years ago.
But, with clear details on paper, both GPS and the H-bomb projects were high payoff, low risk and not crazy at all.
"Sounds crazy" is, uh, a crazy way to evaluate projects.
Now, imagine what your priors are as a VC. Do you (a) believe this person's claim that he's capable of making a trillion dollar company soon, or (b) think he's a supreme bullshit artist, delete the email, and never think about it again?
I know this "prior" stuff, Bayesian stuff, has a lot of respect here on HN, but it never did make much sense.
So, I should send the VCs some information that indicates I'm serious and credible. For a technology project, I do have credentials, far above those of hardly any VC in the country -- especially now that Chris Sacca retired, and I did complete my Ph.D. and Chris didn't complete his.
E.g., for credibility, SUSA says that they like to see some surprising accomplishments, big things done quickly. Well, I posted a list, (A)-(I) or some such here, and included some of those when I wrote VCs.
Here's my point for HN readers who want it: VCs don't read unsolicited e-mail messages. Since they junk such messages, it doesn't matter what is in them. VCs like warm introductions, but we don't know the same people. By the time my project looks good to VCs, since I'm a solo founder (they don't like that, either) with meager opex, I will have plenty of cash for rapid growth. E.g., if my company really is growing, then $1500 in server parts can generate ballpark $200,000 in revenue a month. Just multiply it out assuming 400,000 bits per Web page, 5 ads per page, $2 per 1000 ads displayed (from the Mary Meeker reports), much more with good ad targeting of good demographics, etc.
How many long, unsolicited, rambling emails that don't get to the point do you bother reading?
http://www.kauffman.org/newsroom/2012/07/institutional-limit...
on average the VCs have not been making much money.
My typing here is long enough to provide evidence enough to make my points. Just short assertions with no evidence are not meaningful.
VCs are commonly treated as heroes, the smartest people in the room; maybe you are upset to discover they are not.
I feel that may need to be rectified
Uh, my purpose here is to respond to the OP, not to raise funds from VCs.
I gave the elevator pitch just as an example of what, with what you want that is missing in what I gave here, VCs totally ignore.
I also gave my best argument for why they ignore: They refuse to read unsolicited e-mail messages. They insist on traction. Nearly all applied science and engineering are funded just from paper evidence, but VCs don't do this. Why? My guess is that their limited partners (LPs) don't so permit. Or, the LPs want something closer to a tangible asset that has market fit and not just paper. Okay.
The OP did not make this point clear, and to me for information technology VC funding that is the most central point of all.
But for a sole, solo founder with a good project and tiny opex, by the time a VC is ready to write a check, such a founder will no longer need, want, or accept it.
My purpose here is to respond to the OP and warn HN readers.
I got the $10,000 a month from the OP.
I'm a sole, solo founder. So, right, my startup doesn't have five founders, each with credit cards maxed out, each with a pregnant wife about due.
And, right, my startup has no co-founder disputes. And since I'm 100% owner, I have no BoD disputes and spend no time reporting to a BoD.
Since I'm technical, I have no need to search for a technical co-founder.
To me, $10,000 a month revenue is a LOT of money for growth.
E.g., for my startup, the main opex is just my monthly ISP bill. From my ISP, my upload data rate is 20+ million bits per second (Mbps), which for my startup is a LOT (if on average half filled would amount to ballpark $4 million a month in revenue), and when I go live the only difference will be a static IP address instead of a dynamic one (from DHCP or some such). The ISP bill is less than $100 a month.
For now and well into a quite successful business, my main capex is just servers, and there, again, for my startup $1500 in parts for a server kept half busy 24 x 7 should generate $200,000+ a month in revenue.
My first server will go at my left knee. When that fills up, I will be awash ($200,000+ a month) in revenue for more and I can put a second one beside the first one. Then I can start putting servers and higher end Cisco boxes (LAN and/or router with whatever network security Cisco recommends) on shelves and/or standard racks in any of three empty bedrooms. If I fill up those servers in all three bedrooms, then it's millions a month in revenue, all still from just one employee, me. Then, sure, go rent some space, say, much of a closed factory, warehouse, or shopping mall, and start slowly hiring, first, a good office manager to interface with the lawyers, accountants, auditors, bankers, real estate people, security guard company, janitorial company, business insurance agency, payroll firm, HR consulting company, interior renovation contractor, ..., etc.
I'm "technical"? I saw the market need, designed the first good solution, an excellent one, did the crucial, core, technological advantage, barrier to entry, proprietary original applied math research, designed, wrote, ran, timed, documented, and debugged the code. Some of the AI people would call my applied math AI; to me, calling my applied math AI would be a gross insult.
To the users, the solution is just a Web site. I used Microsoft's .NET with ASP.NET (for building Web pages) and ADO.NET (for access to SQL Server). I wrote the code in Visual Basic .NET (as far as I can tell, compared with C#, essentially a nicer form of syntactic sugar and otherwise close enough to apparently Microsoft's most important language C#).
I've done serious software, mostly scientific and engineering, for a long time, but this is my first Web site. My first code for my startup is also my first production code (no throwaway prototype code), and, from the user interface to the back end servers, it all looks fine -- no need for refactoring. The code as is should be good for a major business, but then I should likely put in some code for good real time system monitoring, sharding, etc. The server farm and software architecture were designed to be scalable, e.g., via simple sharding, and some of the sharding logic is running in the code now. If the site gets north of, say, 10,000 users a second, then likely will need some more work on architecture and some more code. Then maybe, as a good Microsoft customer (Windows Server, SQL Server), I'll call Microsoft for some high end consulting -- Microsoft has lots of people who long since have been there and done that.
The code is only 24,000 programming language statements in 100,000 lines of typing (lots of in-line documentation). I wrote the code with just a good text editor (KEdit), and there have a lot of macros that help the work. E.g., in my code, at a use of something tricky from, say, ASP.NET, one keystroke opens the relevant Microsoft MSDN Web page of documentation (from pages on my disks). And the code has lots of other references to my documentation outside the code. And the code has cross-references in the code -- for a key of such a reference, I use just time and date; since I'm the only one typing the code, those keys are unique. Then I have some macros that, given a key, will go to the location with that key. Simple. So, I never used Visual Studio or any other integrated development environment. I didn't need on-line debugging -- my bugs were too few and too simple.
The server farm architecture has a Web server (sure, using Microsoft's IIS), a Web session state server (my own code, TCP/IP sockets, object instance de/serialization, and two instances of a standard, likely at most O(n ln(n)), collection class), soon to have (instead of Microsoft's solution I'm using now) a Web log server, SQL Server, and two specialized applied math servers.
All the communications among the servers are just simple TCP/IP sockets. Right, each of these servers is just software and, thus, can run on anything from one to several physical servers or virtual machines. So, sure, will get to do some load balancing and resource allocation. Likely just use the bottleneck principle: Find the main bottleneck and open up that one. Else could do some applied math optimization, likely not necessary.
All the four servers from my coding are single threaded, and the queuing is just from the TCP/IP stack -- if occasionally that doesn't work, say, from just TCP/IP input queue stack overflow or a dropped packet from a TCP error, then I'll see the evidence in the Web site log file and tweak the logic a little.
In production the main data will be read as fast as possible but written only once a week or so so can make great use of the solid state disk (SSD) drives. Originally my back of the envelope arithmetic indicated that I could provide a mature solution for the work for the world with about 150 TB of such data, and now that much data can be in maybe just one server. Then one nice, easy, simple approach to scaling is just to have multiple copies of the 150 TB.
Business experience? Done that at GE, two small companies near DC, FedEx, IBM, and some consulting. Been a B-school prof -- so, can claim to have taught business.
The problem I'm solving? Pressing for nearly every user of the Internet in the world. Fully safe for work. Squeaky clean. Culturally uplifting. Can contribute significantly to better government, alleviation of human suffering, and world peace.
Initial users, likely the Chablis-Brie, BMW, opera-going, ski challet set. So, right, good ad demographics. Later may do own especially effective ad targeting (from the unique data from the site and some of my original applied math).
For the problem, currently there is no good solution deployed. My guess is that my first good, really, excellent, solution will be a "must have", for nearly everyone on the Internet -- smartphone, ..., desktop, workstation.
For the revenue, initially all just from ads just in standard sizes, initially likely just from ad networks, I'm starting with focus just on the US. Eventually I'll go international but, to get good ad rates, likely only in the more advanced countries.
So, sure, get good usage from a large fraction of all the Internet users in the world and will have a company worth from a few old peanuts up to $1 T or so, somewhere in there.
Users need only a Web browser up to date as of, say, 10 years ago. For JavaScript, I have yet to write a single line of it; Microsoft's ASP.NET writes a few lines of JavaScript for me apparently for some usage I've made of ASP.NET; but users need not have JavaScript enabled. My site has only two main Web pages, and they send for about 400,000 bits each (with the JavaScript). The page layouts are simple -- just tables with everything positioned to the last pixel -- so, no HTML div tags. The pages use just a few, standard HTML controls and are easy to read from large fonts and high contrast. Some of the colors have been borrowed from some famous, very successful Web sites. So, the pages load very quickly and don't jump around during loading. A user doesn't need a fast connection to the Internet. The pages are simple with no icons, pull-downs, pop-ups, roll-overs, or overlays. Simple.
My site makes no use of cookies, and there are no user IDs, passwords, or logins. User privacy is very well protected.
Net, for users, it's simple, dirt simple. It's so simple a child of about seven who knows no English should be able to learn to use the only version of the site, in English, in about three minutes of tutoring or just figure it out in about 15 minutes.
But, from all I've seen, VCs and YC don't like solo founders. And by the time my traction is $10,000 a month, no way will I get a Delaware C-corporation, a BoD, a term sheet, and an equity check.
By $10,000 a month, my startup is already well up in the air and climbing rapidly when it's too late to buy a ticket.
Besides, when I wrote SUSA all this stuff in an e-mail message, it was totally ignored.
I have to conclude, VCs including SUSA (A) ignore their e-mail and (B) really want to see traction, i.e., notice the startup from the traction, not a contact from the startup.
The OP mentions accomplishments: Sure, I've got a bunch. E.g., I can literally claim to have saved FedEx from going out of business twice, once from some software with a little math and once from some math with just some calculator arithmetic. Yes, my office was next to that of FedEx founder, COB, CEO, F. Smith who remembers me; but I doubt that now he knows any VCs!
Do big stuff really fast? Been there, done that lots of times: (A) In grad school, I took a one semester reading course to study a question; in two weeks I had a solid answer to the question, with some nice, new results, that I later published. One of my results solved a problem in the famous Arrow, Hurwicz, Uzawa paper in mathematical economics -- of course, Arrow won his prize long ago and Hurwicz got his a few years ago. IIRC Uzawa has yet to win his! So, one semester, in two weeks, and didn't just study the problem but solved it with a publishable solution. Strictly, my solution would have been a Ph.D. dissertation -- two weeks, no faculty direction, maybe a record? (B) Some engineers for the US Navy were processing some ocean wave data and were confused about some points in stochastic processes. So, I got out Blackman and Tukey, got smart in a day or two, and for the rest of the week wrote illustrative software. On Friday evening I called in one of the engineers, ..., presto, bingo, our software house got sole-source on a nice development project. (C) The Navy wanted an evaluation of the survivability of the US SSBN fleet under a special scenario of global nuclear war but limited to sea, in two weeks. I saw a continuous time Markov process subordinated to a Poisson process, designed, wrote, and ran the code, had my code pass technical review by a famous prof, and the Navy got their results on time. Ah, that prof likely doesn't know any VCs either! (D) I've learned and used calculus and advanced calculus, taught calculus in a university, and published peer-reviewed original research that used calculus, but I never took freshman calculus and, instead, taught it to myself. (E) For my Ph.D. dissertation, I identified the problem before I went to grad school and worked out an intuitive solution in my head on an airplane flight. I did the solid, original applied math independently in my first summer in grad school. Then I designed, wrote, debugged, ran, and carefully timed the software -- with some stuff I did to make the software fast, it ran in about 100 seconds instead of about 64 years; otherwise I'd still be in grad school. I never really had any faculty dissertation direction. I wrote the software in two months, heavily during Christmas at my wife's family farm, and wrote and typed the dissertation in six weeks. I stood for my oral exam, and graduated. (F) As a ugrad math major, I wanted to learn general topology, got the leading book, advanced, not easy, got a reading course, taught the material to myself, and gave lectures to a prof. One week I covered a chapter, and the next week, the exercises. The prof taught me nothing. (G) From doing such math as an ugrad, my math GRE score was 800. (H) I've taught computer science to ugrads at Georgetown U and to grad students at Ohio State, but I never really took a course in computer science. (I) A computer sciences prof had written a statistics package but during testing got poor accuracy from his polynomial curve fitting code. Well, he was using the normal equations which for polynomial curve fitting are numerically unstable. So, I wrote some code using orthogonal polynomials that gave very accurate results.
Do those accomplishments count?
I still have some interest in communicating with VCs if only to get their feedback. But the main feedback I get is just silence. Again, I don't have $10,000 a month in revenue, and, again, when I do it will be too late for me to accept an equity check.
Again, I wrote something like the above to SUSA, and it was all just ignored. Totally ignored. Sorry for no "warm introduction" -- we don't know the same people.
Instead try to look at your cold email like a pitch. If you apply the advice from OP, I'm sure this post will be much shorter and actually explain the product you are building and who the customers are.
Also, a pitch is two minutes. This post took me forever to read.
I've never explained the problem I'm solving in public -- not yet. When I have an open beta, then it will be obvious, but I want to keep that much detail non-public until my beta and going live.
Sometimes I stop there. Sometimes I include some more of what I gave above. I never include as much technical information as above -- that is for an HN audience.
I wrote the above for the HN audience to explain what I can that HN could understand.
For the list of "accomplishments", some VCs, including SUSA, claim that they like to see such.
My main point is, in conflict with the OP and with SUSA's remarks on their Web site and in this thread, VCs including SUSA don't respond anything like they claim to. I wasted HUGE time contacting VCs, sent them dozens of highly polished e-mail messages, e.g., including very carefully written PDF foil decks, some with only 10 or so foils and only 250 words in total, and the response was essentially always the same -- silence. Could call, get an assistant, give her (always a female) a heads up about the e-mail, could leave phone messages, could send e-mail follow ups, etc., and in all cases, nothing significant.
My conclusions: Flatly, VCs essentially never take unsolicited e-mail messages seriously, no matter what the content, short, medium, long, highly polished, formal, informal, technical, non-technical, etc. Nothing, not even zip, zilch, zero -- phone calls, e-mail -- unsolicited counts.
Point: Don't waste your time. About all that counts is traction and publicity enough that VCs hear about the company NOT from the company. Maybe "warm introductions" count, but an entrepreneur like me just doesn't know the same people as VCs. We just don't know the same people. I know some very high up people that know me well, but those people don't know VCs.
The "warm introduction" idea is a bad joke on the VCs because the people they would really like to meet don't have the same associates as VCs.
To VCs, everything from the company unsolicited is "from over the transom" and regarded with contempt.
Now with the much lower prices of computing and Internet data rate and lots of free infrastructure software, etc., it's a new day: A sole, solo founder can bring the company to good traction alone. Then a solo founder can have such a low burn rate that by the time a VC firm wants to write a check, the founder will no longer need or want the check -- because such a check has the BoD with all the power in the company and has the founder essentially again an at-will employee.
I can rewrite my pitch anyway I want, and I can promise you that from the 100 top US information technology VCs, an unsolicited, "over the transom" e-mail contact will get a significant response from at most 2 firms but very likely none. It's just an unspoken secret of Sand Hill Road: VCs ignore unsolicited e-mail messages, no matter what is in them.
Sorry, you need to wind down your monologue and be more concise
--- Executive Summary, Elevator Pitch ---
There are about 3 billion Internet users in the world. There is a problem (I can explain very quickly but won't explain in public yet but have explained to lots of VCs) that is pressing for essentially all those users but so far solved at best poorly. I have developed an excellent, and the first good, solution, now in software about ready to go live. Ballpark, good users will visit my Web site solution a few times a week, and from simple arithmetic the company should relatively soon be worth ballpark $1 T.
Short enough?
Ballpark, there's not a single VC in the US who will touch that with a pole five miles long.
"Innovative, leading edge, disruptive, high value, low risk, low cost to start, good barriers to entry" -- has all those but no VC in the country will take even 10 seconds to look at it.
Why not? Educated guesses: (1) Most important, the VCs want traction, significant and growing rapidly. (2) The VCs hate the idea of a solo founder. (3) The key to such astounding value is some crucial, core, original applied math, and VCs have never seen a successful startup based on math, know that they don't know the math, and really hate that some math might be relevant to an information technology startup. Instead, the VCs' idea of technology is some routine C++ software or some such. (4) No one has yet built a company worth $1 T, so the VCs just reject that possibility. (5) The VCs have total contempt for anything they receive via unsolicited e-mail. For a good startup, the VCs want to hear about the company from some solid source other than the company. The VCs are totally convinced that that source of information will be plenty soon enough for their investing. (6) The VCs believe, solidly, that if my startup starts to be successful, then I will come crawling back to them, desperate for equity funding for "the big build out," the "big staff up," the "big go to market push," "the explosively rapid growth," for the necessary high rate of growth to capture the market before others do (the VCs assume that anything one startup could do other startups could easily duplicate or equal, i.e., the VCs have never yet seen anything like crucial, core, proprietary technology genuinely ahead and difficult to duplicate or equal; the VCs believe that what is crucial is just the market and any relevant technology will be routine -- false!) for their help with marketing, staffing, business acumen, more funding rounds, exit strategy, etc. Nope.
The idea that my work can get me to $10,000 a month in revenue, maybe $200,000+ a month, then that revenue could let me scale to $2 million a month, then that revenue should let me scale to $20 million a month, then that revenue should let me get a lot of office space and hire a lot of people and grow to $100 million a month, ..., to a company worth $1 T is just to be laughed at, ignored, scorned, junked, etc.
VCs are necessarily chasing things that are really exceptional, but when they hear about such a thing they reject it without even a glance because it is not what they are used to!
Maybe the VCs are jealous, already making money enough, want desperate, subordinate entrepreneurs, etc.
But they don't want me, and my startup has such low burn rate and my checkbook is still thick enough that I don't need the VCs and should be able to get to revenue of $10,000 a month at which time "no VC need call".
My Point: I wasted a LOT of time pitching to VCs, and I want to warn HN readers that VCs can be really tough to communicate with. E.g., some VCs claim that they "seek out" some really good stuff, but when send them e-mail outlining just such stuff they just ignore the e-mail.
Warning: It's a big secret in information technology VC that they take great pride in ignoring unsolicited e-mail. So, don't waste time writing them.
If you really want them, then get some traction and publicity and let them call you. Of course, if you are a solo founder with tiny opex, you may not want to talk with them!
Not even close. WTF do you do???
Slack: makes team chat and IM easy
Tesla: Makes electric cars that don't suck
Dropbox: Makes it easy to share and sync files with colleagues
You: I have no damn idea.
It's crucial to remember that any VC (really, any person) you're talking to is listening to BS 90% of the time. You MUST convince them QUICKLY that you're not bullshitting them. Your intro, which I worry you think is engaging, sounds like scammy BS ("I can solve this problem and make a trillion dollars but I won't tell you what the problem is unless you read my rambling wall of text below!!").
Your point is well taken, and I thought of that. But my concern is that if I explain the market opportunity, then some big companies or big VCs will rush to do something that looks like that. If my project is a flying car on two AA batteries, then they will come out with a flying car with a small engine that charges a 200 pound battery pack and can fly maybe two miles, publicize the heck out of it, and make my effort just ignored, no matter how much better it is.
Besides, as I've explained here, I've explained to lots of VCs the problem I'm solving. They don't care. They won't pay attention to any explanations. That's why here I focus on traction -- VCs won't touch my work with a pole 5 miles long, and about the only thing I don't have now is traction. So, we know the truth: What they really care about, about all they care about, is traction.
Maybe in the past that was good for their businesses, but now it's so cheap to start a company that by the time there is that old traction, a solo founder (they hate solo founders) with meager opex won't want, need, or accept a term sheet and BoD.
I admit that there are not yet very many such startups, but the door is now wide open to a golden road of just such successes. E.g., can get a 64 bit, x86 processor with 8 cores and a 4.0 GHz clock for less than $150. Can put it on a $100 motherboard in a $50 case. Can get main memory for about $9 a GB. Can get nearly all the Microsoft server side software for free in their BizSpark program.
But my point here is to do a big favor for HN readers, to push back against the OP, to explain that VCs just don't read their e-mail messages, want warm introductions but don't know the best people, etc. I've given up on VCs, e.g., have insulted them here. So, I'm pushing back against the OP as a favor to the HN audience.
Guys, save your time. Write VCs anything you want as in the OP, and the VCs will just ignore it, usually not even open the e-mail. I've just done you a big favor.
(And why do you need VC at all if you can get this going that cheaply?)
My work is not "suspect"; instead, my e-mail messages are nearly all just totally ignored, short, long, technical or not, etc. Clearly, bluntly VCs just don't read unsolicited e-mail.
VCs are so consistent on this point that I have to suspect that mostly their LPs insist on it. The LPs want to think a lot like commercial bankers, want something fairly tangible as an asset. To them, paper plans, running software, analysis, explanations, etc. don't count. The LPs don't want to trust their VCs and, instead, want to trust the market, e.g., via traction. The LPs are convinced that a startup that has traction significant and growing rapidly will soon come crawling to some VCs looking for equity funding for the big, explosive growth, go to market, scale up, build out, put 100 people on it right away, etc. Maybe that idea used to be fairly solid; it's not now.
You are correct: I don't need equity funding. In the past, $100,000 after BoD, legal, accounting, etc. expenses would have helped, but it hasn't been essential. Now a check could be good to have just as an umbrella for a rainy day. Also I've wanted to get some VC feedback, but they won't do that.
But I gave up on VCs. Here I'm pushing back against the OP -- my experience is really strong, write VCs anything you want from the OP, and it will just be ignored if only because VCs refuse to read unsolicited e-mail. For a warm introduction, if you have some of the best, then VCs won't know them. If you are a solo founder and have the traction the VCs want, then likely you don't need the VCs or their check and very much don't want their vesting schedule or to report to a BoD with them controlling it.
Uh, lots of main street businesses, e.g., pizza carryouts, never get equity funding. Well, my startup is much cheaper to start in capex than a pizza carryout, auto repair, auto body repair, dentist's office, lumber yard, McDonald's, grass mowing service, well drilling company, etc. So a Web startup can be one heck of an advantage and good business opportunity.
VCs are just waiting for traction and, really, hearing about the company from just common sources but other than the company. That filter may have worked for them in the past, but it's not in the OP!
But now, it can be so cheap to start a company, e.g., with a sole founder who does all the work, that the traction filter fails: By the time a solo founder gets such traction, they won't want, need, or accept a term sheet, vesting schedule (to get back over four years some of the stock in the company they own 100% of now), and BoD (a big sink for time, money, and effort -- uh, guess who pays the travel expenses for the BoD members?).
My point here is just to push back against the OP: That description tells entrepreneurs lots of stuff that won't work simply because (A) VCs won't read unsolicited e-mail, no matter what it says and (B) want traction, so much that a solo founder with a good project and that much traction won't take the check.
I'm doing the HN audience a big favor: Don't waste your time.
If your idea is as good as you say, it should be simple. There's plenty of people reading this that could help you.
And I do think it is suspect you won't tell people here what you are doing. (We are not asking how. We don't want the magic / secret sauce.)
I intend to announce my beta test on HN. Then HN people will be able to see the problem I'm solving.
As for the partner / angel problems, can you elaborate about what worries you? Would VCs have the same issues?
Some of what worries me is what I've experienced with VCs so far -- we're not even on the same planet.
E.g., if the business goes well, then soon I will come to the Board with a project for some ad targeting that makes crucial use of the data only we have. The targeting has a shot at being better than what is in the industry now, primarily because the data is different (unique) and we can have better applied math for processing it (uh, my applied math might not apply well to the data, say, our ad networks have).
Why better data? Uh, as above, the data is from those on average 20 Web pages each user sees and the data they enter in response. For more, that data is from the moment and focused, actually usually uniquely well focused. E.g., I may not know what the heck the user had for lunch, but I've discovered that that he's just dreaming of breakfast with apple-cinnamon oatmeal tomorrow, just tomorrow. Presto, bingo, slam, bam, thank you Ma'am, the user gets an ad from General Mills. But it only works just then, and is useless in 24 hours.
So, I come before the BoD with this new project. For the quarterly budget, the BoD will have to approve the project. I'll direct the project but only loosely since I'm still busy being CEO. So, I'll have to hire, basically some good applied mathematicians. There will be some math, maybe some new math, but also a lot of data handling, e.g., digging into the many terabytes of the Web site log files. Might have to write some one-shot code.
The project will likely go for several quarters. The project in total can blow $1 million, more than once. Like most Ph.D. dissertations, it won't be clear just how well it will go or just when it will be done.
But, since the BoD has to approve the budget, they will have to approve the $1 million, some number of times, for some number of quarters. I have in mind roughly how to do it now, but I won't be able to stop my CEO work and will have to hire for 99% of the work.
So, I try to explain to the BoD how the project will go.
Tilt. Halt. Alarms go off. The BoD doesn't like it. They have a fiduciary responsibility to the stockholders, including themselves. No way do they want to spend $1 million at a time, at a pop.
I saw such BoD resistance at FedEx. It was about to kill FedEx. I was the guy who did some computing with a little math that turned the BoD around. Founder, COB, CEO F. Smith said at a senior staff meeting that my work "solved the most important problem facing" the company. Yup, I saved the company from going out of business, literally.
But to me, the FedEx BoD was just bonkers; there was no good reason for their resistance. They were foolish. They couldn't see rationally as far as their hand in front of their face. It was worse than trying to teach the family kitty cat to use the toilet in the garage workshop.
So, on my startup now, as CEO, trying to teach the BoD, I take out full time for half a week, put together a good tutorial dog and pony show, and try to explain what the opportunity is and how the math will go.
There's no way I can explain the math itself directly. Even among Ph.D. math profs, fewer than 10% have the math prerequisites. Among Ph.D. computer science profs, fewer than 1%.
So, since I can't actually use the math, I'll have to work just with analogies and draw some cute pictures to be seen just intuitively.
Maybe I'll get lucky, take a very simple, basically just a first-cut guess, at the math (remember the targeting math is not all done yet!), take some data from the log files, write a little prototype software, get lucky, and show that the targeting works better, say, goes from the Mary Meeker's $2 per 1000 to $4.25 per 1000. Uh, with everything else constant that more than doubles revenue. And, if that works for ads based on actual sales, the result, for those ads, could go to IIRC ballpark $50 per 1000.
That work could take me longer, maybe three weeks away from my CEO duties. I'd have my door closed, and when the COO, head of HR, Chief Counsel, and CFO pounded on the door, I'd have to tell them to work it out on their own.
So, the big day comes, and I pitch to the BoD. Soon they start looking at their smartphones. There is little so painful as listening to an advanced math lecture where don't have even a clue about even the basics, especially when are supposed to understand the stuff, even when I try to make it easy. The first BoD Member gets an urge, soils his chair and the carpet as he rushes to the men's room. Soon I'm the only one in the Board room; all the rest of the BoD has visited the men's room and retired to a bar down the block. There I get a new title, Senior PIA, pain in the ass. The ad targeting project is cancelled. All the BoD Members are pissed.
Later the rest of the BoD Members meet and can't decide what to do, and I've got a big BoD fight on my hands. All the rest of the work stops to settle the BoD fight. The company ship is starting to leak slowly.
So, BoD squabbles.
"Partners"? The famous co-founder disputes, e.g., with the usual, some chance of a nice short term gain but with a risk of a long term loss, say, a big anti-trust issue, a user privacy issue, some accusations of collusion in restraint of trade, pissing off some EU regulator. So, make some extra money for six months and then work off and on for years trying to clean up the mess.
Good grief: Why would a startup, prior to equity funding, want to be a Delaware C-corporation instead of just an LLC?
Disclaimer: happy Atlas user who did previous C-corps the old-fashioned way and did not enjoy doing that.
What's the advantage of doing it in 2 (expensive!) steps if you know the plan already?
I'd wonder about that. But, all the IP is on just a little portable, USB interface, hard drive I own, so I bring a copy with me when the C-corp is formed? Shhh, don't tell anyone!
For two steps, easy: For a solo founder and 100% owner, an LLC is a total sweetheart and a C-corp. with a BoD is a forever continuing total pain in the back side. So, very much do not want a C-corp until need it for equity funding where the founder is no longer 100% owner, and such equity funding is chancy. Equity funding is not easy to get.
I'm not counting on equity funding and, really, have given up on it -- by the time VCs will write me a check, I will long since have not been willing to accept it. My startup is deliberately designed to get to plenty of money for growth with just my labor and my thin checkbook. And, I'd greatly prefer to remain 100% owner of an LLC.
I thought revenue was a "protected" term, like how it's described in the books. In that case isn't GMV the same as revenue? Since that's the money you actually invoice. And your cut is "net revenue", profit or something instead.
The GAAP guidance instructs companies to make the determination whether they're the principal or the agent with the following criteria:
1. You are the primary obligor in the sales transaction. This means, are you responsible for providing the product or service, or is the supplier? If you’re doing the work or shipping the product, you can probably record at gross.
2. You have general inventory risk. If you take title to the inventory before you sell it to the customer, and you take title to any returns from customers, you can probably record revenue at gross.
3. You can select suppliers. This one is important, since it implies that there isn’t some key supplier operating in the background who’s actually running the transaction.
4. You have credit risk. This means that if the customer does not pay, then you absorb the loss, and not a supplier. However, if you’re only at risk for losing a commission if the customer doesn’t pay, then you’re probably looking at recording the revenue at net.
5. If you get to set the price, then you probably have control over the entire transaction, and you can record the revenue at gross.
6. The amount you earn is fixed. This indicates a commission structure, which is sometimes set up as a fixed payment per customer transaction. If you earn a percentage of what the customer pays, this is also an indicator that you report revenue at net. In either case, you’re really just an agent for someone else.
7. The other two guidelines for reporting at net are just the reverse side of some earlier guidelines. If a supplier has credit risk, or if a supplier is responsible for providing products or services to the customer, then you’re probably looking at reporting revenue at net.
There's a pretty comprehensive document from the 'Emerging Issues Task Force' of the FASB here:
http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=121...
It isn't mindblowing, but insightful enough to take a look. "Focus on nascent greatness" is particularly a great section, because tries to solve some misconception about bizplan and ideas