Comment by cglee | Hacker News Reader

Comment by cglee | Hacker News Reader

First, decide if you really need to raise money. Can you bootstrap (ie, self fund) your business? Too many people immediately go for capital when they don't need it. It's extremely distracting and not all that necessary. You should only look into raising capital if you have a capital constrained opportunity or problem. So many problems initially look like money problems, but they're really disguised as something else (culture, product/market fit, market timing, etc). Usually, it's best to really get to know your market really well first, before reaching for funding.

Second, make sure your legal documents are in order. Incorporate, if you haven't already, and open up a business bank account. Make sure to use your business bank account for all business related expenses. This will make accounting much easier down the line.

Third, hire a great bookkeeper. Trust and loyalty is really important here, so best if you hire someone who is somehow connected to you.

Fourth, hire a great accountant. Some accounts will also do bookkeeping for you. I don't think this is a good idea, as you typically want someone "on your side" watching out for your day to day finances. Intelligence and industry expertise is really important for an accountant.

Fifth, if you're making real money, it's important to put some words on paper about how the company ownership is divided, and other "what if" scenarios. You typically also want some sort of Operating Agreement between the founders. Usually this document covers: 1) ownership division 2) provisions for terminating members 3) provisions in case of long term disability or death of a member (for example, do you all of a sudden want your cofounder's spouse or parents as your cofounder in case of death? Look into "key man" insurance.) 4) provisions for adding new members

Some people say get a lawyer for these documents, which isn't a bad idea, but most of these types of documents at this stage is pretty boilerplate. If you have some unique circumstance, like an international cofounder or something like that, then perhaps consulting a lawyer is best.

We've been bootstrapped since the beginning, but, as much as we don't want to admit it, we're starting to outgrow what we can do as our very limited personal savings start to decline. Yeah, it's cool to have some money in the bank after doing these advertising deals, but it's not nearly enough that it's sustainable right away.

We have plans to expand to 150 schools across the country, and if we do that we project to be cash-flow positive within 6 months. But right now we don't have enough resources to expand to even 10 schools and try and maintain that. And especially with how our demographic (college students) respond to word-of-mouth with services like these, we really want to be available to as many students at as many campuses as possible before we lose any "buzz" that we're cultivating (either organically or through marketing efforts).

With regard to legal documents and accounting and all that, we have an LLC right now, with Quickbooks and a boilerplate operating agreement that I found in a book at Barnes and Nobles. I definitely agree that it is incredibly important to be on top of the legal side of things, but we honestly don't even have the money for that right now.

Being on the HN frontpage is really going to expose you to both opportunities and competitors. Taking funding is probably a winning strategy for you right now

"as our very limited personal savings start to decline. Yeah, it's cool to have some money in the bank after doing these advertising deals, but it's not nearly enough that it's sustainable right away."

Bootstrapped = your profits are able to grow as your company grows. It sounds like you have an expensive hobby at the moment. Either scale back your operations so you're profitable or grow your numbers.

This. Bootstrapped does not mean "pour personal savings down a black hole".

Why not grow at the rate you can sustain? Rather than taking on 150 schools, grow by as many schools as you can afford with the profits from the initial set.

After all, Boston Market wasn't that long ago.

I think the answer is already in his comment:

"we really want to be available to as many students at as many campuses as possible before we lose any "buzz" that we're cultivating (either organically or through marketing efforts)"

Another fear can be competitors who may have more money and can grow faster than them, especially after posting his story here on HN.

Piggybacking on some earlier comments, the "sell ads to local businesses" model is a tough one to scale (using the common startup definition of scale to mean "grow exponentially"). However, that doesn't mean you can't grow your business into a nice little income source that, ideally, won't take much management (since your users are college students, people who move often, and a market that has a built in supply increase every year, if your service works for them, advertisers who see a benefit will likely continue to pay you once they are onboarded). You can probably get to this point (focus on the top 10, then 25, then 50, etc. colleges in terms of student population - I'd look at new student population, to be honest, as well as adjusting for % that live in non-university housing).

From your comments, I don't think you should worry about trying to join an accelerator or get a largish amount of funding - that will just push you to make the Groupon mistake and spend too much money on local sales. My recommendation - see if you can raise money from friends, family, your university, or any local entrepreneurship groups (in Austin, for example, there are several organizations that exist nearly entirely to help students get through the part of founding a company you are in). From there, were I running the company, either you or your cofounder should shift entirely to onboarding schools (or hire someone to focus full time on this if you each are actually needed on other projects). Create a "college rep" program, and offer either a small stipend (college students will work for tiny amounts of money, especially if they can then put "worked at startup in school" on their resume) or in kind services from your advertisers (half off mattress, free move, whatever they'll offer to you). Build quickly from there, and keep promoting it. If you're business model is real, it will become apparent quickly, and you can think about raising real money then.

> With regard to legal documents and accounting and all that, we have an LLC right now, with Quickbooks and a boilerplate operating agreement that I found in a book at Barnes and Nobles. I definitely agree that it is incredibly important to be on top of the legal side of things, but we honestly don't even have the money for that right now.

The main benefit of having shareholders and operating agreements is not in having a piece of paper, but having discussed and agreed on the principles with your co-founders. A boilerplate agreement is entirely useless, unless you all have thoroughly read and understood, and agreed with it.

Instead, I would recommend sitting down with everyone one evening, and coming to a mutual understanding about questions such as:

* How is ownership currently split between co-founders?

* How much do you pay yourselves salary? How should this change in the future depending on revenue or investments?

* Under which conditions would each of you consider selling the business, versus keeping on growing it?

* Who is allowed to purchase stuff with the company account, and when do they have to confirm it with the others?

* If one of the co-founders decides to quit (fantastic job offer, just tired of the startup, etc), what happens to their ownership? Do they keep all of it, lose all of it, or keep and lose some parts depending on time with the startup?

* If one of the co-founders doesn't quit, but just takes a side job, starts ignoring you, or becomes an asshole, are the others allowed to fire them? What are the share ownership outcomes of that?

* Are the owners allowed to sell their shares to outsiders?

* What happens if one of the co-founders dies or becomes disabled and incapable of working? Do their relatives inherit their ownership (this is probably the default!)?

One of the main causes of startup implosion are co-founder fights, and these in turn arise from not having discussed these issues beforehand. It's best to do it before the problems arise, and before there is serious money on the line.

If you have actually debated these questions, you are already ahead of many startup teams. You can also just write them down in plain English on a single sheet of paper with everyone's signatures - that will count as solid evidence if it ever goes to court.

And if you have plenty of cash later on, you can take that sheet to a lawyer to get a "proper" agreement. After all, a lawyer cannot and will not tell you the answers to these questions - they just write up what you have decided in more detail based on local laws.

Getting into an accelerator or incubator (even if it's one that's not popular) can really help with the legal stuff since you'll be able to get more advice and they will always have those boilerplate docs for you.

Form a C corp in Delaware and get the ownership figured out ASAP. I also generally think that all of the founders should vest (no cliffs or anything, but a four year vest for everyone will keep the company safe in the event one of you leave, even the CEO).

I agree with cglee's comment that you don't need capital right now, get more traction and build more product. Then in six months revisit the topic and determine if your organic growth is enough to sustain further growth or whether you'll need capital injection.

Raising money, btw, isn't always just about the money - if you pick your investors correctly they can help you and your business tremendously.

Agree with the above - altho forming a Delaware C Corp at this early stage is not necessary. It's become much easier now to form an LLC in your state of residence and convert at a later stage (if at all) to Delaware C if you end up raising money.

Thank you- somewhere it became lore that filing in Delaware is a necessary step to running a successful business. Most businesses that are cited as examples didn't start in Delaware, but did so after they had much to lose and on the advice of their highly-paid counsels.

If you have $1k in revenue, congrats, that's a great accomplishment, but with all due respect, nobody is going to file suit against a group of college students with $1k in cash.

The advice to just get an LLC going first then convert to a C corp is fine for their stage, I won't argue against it. However, what you're saying in opposition to forming a C corp early doesn't feel very rigorous.

From my limited experience as a founder, forming a C corp early has made some things easier. The time we had to convert a California C corp to a Delaware C corp became messy and I imagine converting a {whatever state} LLC to a Delaware C corp also has the potential for being messy.

The conversion cost us a lot of money to have done right when instead taking boilerplate docs and simply forming in Delaware first would have been much easier.

Angels and incubators will generally want you to be a C corp first or convert ASAP, too (which is a valid option but I feel like there are other more important things to be spending cycles and money on). Raising money without worrying about converting your corporate structure is a pretty big reason to just do it as a C corp from the start.

Worry about the lawyers and corp and tax stuff later, when you have some success behind you. Put together a clear written agreement among founders, but don't throw money at the lawyers until you have the money to throw.

Very poor advice. The business is always the product.

If you're going to file in Delaware, do so for a good reason. Just assuming you're better off having your legal entity setup there because anecdotally everyone says you should is no better than randomly picking what kind of corporate structure you'll use. What led you to transfer from California to Delaware?

Delaware is chosen by large corporations because it tends to be very business-friendly in the way its laws are written. However many other states are business-friendly too, and charge much lower filing and renewal fees.

What my advice boils down to is: talk to a respected small business attorney in your state and find out what your options are and what advice they offer.

Can you expand on the bookkeeper idea? What would their job entail? Can it be part time? Any tips on finding someone?

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