Xobni's Burn in the Early Days

A friend just asked about spending at an early stage startup.  I thought I'd post my response in case it's useful to others.

hey adam - what do you think your personal burn rate has been during these stages:

seed stage
- a dollars / month on rent
- b dollars / month on everything else personal

vc stage
- x dollars / month on rent
- y dollars / month on everything else personal.

Seed stage (a) should be easy; it’s just the rent for your area.  In Cambridge we had a 3br apartment near Harvard Square for $2200 per month, but we subletted out one of the rooms for $800 per month and had Drew working from our living room for about $400 per month.  In Crystal Towers we paid $2600 for our 2br and then we had a stint of working out of my single which was also about $2600 per month.

I don’t know Seed stage (b) as much because I just didn’t keep track.  But I can triangulate based on our out of cash dates.  We were making $12,000 last four months, though that includes some consulting revenue from Matt working a weekend or two per month @ NASA for $55 per hour.  It was super low.  We ate bagels in the morning with cream cheese, and made turkey sandwiches with avocado for lunch.  Dinner was usually the Italian sandwich/pasta place next door.

Our burn was so low partially because we were working so hard.  When you’re working seven days a week for 14 hours per day that leaves little time else to get out and spend money.

Needless to say, we weren’t drawing a salary.  The company was essentially paying for everything.  Our philosophy was that we put our bank accounts into long term storage, like a secret agent on a 10 year mission would.  We didn’t withdraw from or deposit into our personal accounts.

Once VC stage hit we were slow to accelerate burn, which was smart in some ways and dumb in others.  Matt still didn’t want to spend the money for window AC units (dumb).  We raised our salaries to $72k (smart).  We continued to work out of my apartment until we outgrew it by headcount, not by bank balance (smart).

Matt was a champion for conserving cash.  Him plus our lowly roots made us, as a board member put it, “remarkably capital efficient.”

It caused me some cognitive dissonance, though, to see different spending habits WITHIN rounds.  When we were launching at TechCrunch 40 I had a hired hand we flew in sleep on my couch at home, but a year later while we were still series A we wouldn’t have hesitated to put him up in a hotel.  The people in the company had changed; it wasn’t related to being in series X.

So I guess to answer your VC stage (a) we got a lease for 3200 sq ft for $5000 per month by looking on craigslist.  A steal.

For VC stage (b), we paid all personal expenses by salary.  The salary could be low because we were working so much of the day.

That’s the prevailing effect.  High salaries in a startup are probably exactly correlated with low time in front of a computer.

Comments

[Amit C]

That’s the prevailing effect. High salaries in a startup are probably exactly correlated with low time in front of a computer.
Ouch, that is wrong in many cases.

Amit