Ask HN: Are there ways to raise small capital without huge expected returns? | Hacker News Reader

Ask HN: Are there ways to raise small capital without huge expected returns?

I have a few friends who have plenty of high-quality ideas for websites and media apps. They wouldn't require a lot of startup (if any) but wouldn't be able to raise a large amount of money, either. I have been looking at them as great projects to make a comfortable living off and not return 8-10 figures.

I always read about VCs and Angels looking to invest into the next big app, help it go public, then earn 10x their investment in 5 years. This is well and good for those who have such large ideas, but what about the smaller guys? What if a web app only pulls in $350k/yr? That's certainly not chump change, but it's not high-yield VC returns, either. Is there a market for this aside from bootstrapping?

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There's plenty of VC money like you describe available--Visa Card money that is ;)

All jokes aside, theoretically there is a capital market for any combination of risk and return--as long as the latter outweighs the former to some degree. At $350k/yr (revenue?) you're just not talking about a sustainable return. An investor would likely want more equity from your startup than you'd be willing to fork over in this type of situation.

Luckily there's another capital structure you can turn to--debt. There's a much larger number of people who would be willing to hand you over $20k so long as there's relative certainty you'll pay them back (eventually). These are the family, friends, and fools who get you going. You'll probably still have to sell them on your business a bit, but these people inherently believe in you (the most important part). Pay them back and everyone wins; don't pay them back and risk damaging a personal relationship.

Hope this helps.

Why raise money at all? To deploy a web app all you really need is a virtual server like SliceHost, Linode, etc. This costs $20-40 per month and should have enough resources for a regular web app until you get really big (in which case you should have some revenue to help cover costs).

Watch Tom Preston-Werner's (the founder of GitHub) speech at Start-up School for inspiration: http://www.justin.tv/startupschool/b/272178966

Angels are looking for a 10x return because startups are incredibly high risk, even aiming for a 10x return the average angel only gets back 2.5x, so it's really not worth their while to invest in low return startups.

(A talk about this here: http://blog.awesomezombie.com/2010/10/low-valuations-on-drag...)

If you're willing to give up significant percentage of equity (40-50%) you could probably raise $50k for a company that'll make 350k/year.

The other main alternative is by obtaining a bank loan, but this would have to be personally secured and you'd still be liable for the debt if the company failed.

If your company is going to be serving a few big customers as opposed to lots of small customers, another possibility would be to approach your customers for investment, as their interest will primarily in the product rather than the ROI.

Don't forget about your future customers (You do plan on having customers, right?). They are often the people who want you to succeed most while demanding nothing but product in return.

Plenty of people have built a business on credit cards. Atlassian is one that many are familiar with.

It's not as stupid as it sounds, either. If you have consulting business bringing in regular income it's pretty easy to service the debt on the cards.

They wouldn't require a lot of startup (if any) but wouldn't be able to raise a large amount of money, either.

I think you just said everything is OK.

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