Mint CEO, Aaron Patzer, gave a presentation on building startups from the ground up.
He started Mint with an idea about handling personal finances more efficiently. He turned the idea into a company and built it from the ground up and sold it for $170 million in less than three years.
This video is one of the most revelatory resources I have come across in terms of providing real-world finance and start up details.
Following are some notes from the video.
Three Phases of Startup Business Growth
- Phase 1: Garage (<$100K)
- Phase 2: Seed (<$1m)
- Phase 3: Funded (>$1m)
Phase 1: Garage Goal
- Main goal is to build a prototype
- Question: How do venture capitalists and angel investors determine the value of a company that has no product and no revenue?
- Answer: Pre-revenue valuation:
- +$500K/engineer (prototype development)
- -$250k/business guy (idea, market research, biz plan)
Phase 1: Garage Expenses
- Founders: living expenses $30k/yr
- Engineering First Hires: low salary, high equity (1-5%) $30-50K year
- Office: by the cube, $400 /cube/month
- Tech: laptops, couple of servers, development software, $10K
- Legal: Corporate setup, deferred payment for 0.50 – 0.75% of company
- TOTAL with 2 founders + 1 engineer/contractor = $150k / year burn (Assumes 1 technical + 1 business founder)
- Need to raise seed money within 9 months
Phase 2: Seed Goal
- Main goal is an alpha launch of the prototype
- The product needs to be usable, but not a polished or scalable product
- Headcount: 5-6
- 3-4 engineers
- 1 product developer / frontend specialist
- 1 business generalist to do everything: fund raising, sales, marketing, recruiting, etc.
Phase 2: Seed Expenses
- Salaries: Equity decreases, salaries rise, but below market, $50-90k per yr, total $450K/yr
- Overhead: Facilities + benefits + taxes + food + laptops, +20%, total $100k/yr
- Legal: VCs will make you pay for the financing, $25k incorporation, $2k/mo general, total $50k
- Total burn for 5-6 person team = $600k / yr
- Need to raise series A funding within 12 month
Phase 2: Seed Revenue Projections
- Your absolute revenue projections will be worthless.
- However, projections based on what you will make per product, per user or per transaction is best. If there’s a big market, investors can figure out realistic earnings.
- Walk investors through your revenue projections very linearly. Go from website, into revenue stream, scaling, etc.
Phase 3: Funded Goal
- Goal: Launch a real product and grow a profitable business
Phase 3: Funded Expenses
- Salaries and Overhead: Salaries at market + taxes + facilities – $200k /yr
- COG’s: Customer service, SMS, bandwidth, servers to scale – widely varying
- Legal: contracts, patents, employment scale up with headcount – $10-50k / month
- Total burn with 30 person team = $6.0m / yr
- “Hidden” expenses:
- Legal: patents, trademarks, contracts, financing, employment, immigration
- Consultants: SEO, SEM, design, logos, DB tuning, etc.
- Need to be profitable with 2 years
See the whole post on TechCrunch: Startups 101: The Complete Mint Presentation.