How To Start And Grow A Tech Company

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.