Startup: Garage or Angel Funded or Solo

There are three main models for startup as the title suggests. In the old days before Open-Source, there was Share-Ware. Often Share-ware allowed a single person to produce a viable startup with no external funding etc.  Support was via email, there was no need for a website, and social media did not exist.

 

Today, a solo startup could technically make it – but it has the following risks:

• You get swamped trying to do everything – in fact, you may suffer burn out.
• If anyone sets their business crosshairs on your business, they can jump ahead of you because they have more resources
• Moving from solo to team runs a very high risk. There is learning curve to working as a team. If you are running solo, you will likely defer this change until it is forced upon you…
• Odds are that this will be in the middle of taking off… and the extra load on the single engine will cause the engine to sputter and your firm may crash instead of cash.
• If you do not have significant management experience, you will mismanage people because you are likely under stress….
• If the business model is such that you will never need more than one person – you are good…  if not, things may pressurize and explode when you try moving to more staff.

At one time, garage start-ups were the expected startup mode. People invested their time in working after hours to create a project. They may actually be out-of-pocket for some costs, ideally never putting their personal budget into the hole (they may have to give up a few concerts, a new car etc to make money available – that is fine). The real advantage of the garage is that there is staying power --- if you are early to market, you just wait until the market grows…  There are no investors asking you to delay refactoring, get a new release out, etc. You can do it right.

 

Today, I have seen several startups that want to go from

• Idea –> Angel Funding –> Sell out.

This is the dotCom thinking. Another variation is

• Idea –> Patent Filling –> Angel Funding –> Sell out. In this case, they are trying to “game” the Angels because many Angels are looking for IP. Remember, a patent filled does not mean a patent granted.

The reason that you should go to Angels is when you need cash amounts that you cannot provide yourself. If the reason is to pay for LABOR, Angels should say “NO WAY!”. You should be investing your time (and your friends’ time as equity shares) in getting the startup going.

 

In today’s environment, you do not need money for most software, Microsoft Web Spark provides you with all that you need. For Hardware, you can bootstrap with a hosted site for $10/month  from folks like WebHost4Life (Asp.Net, SQL Databases etc).

 

If your site grows enough that you need something beyond this, then if you ping around, you will likely find a hosting service that is willing to provide one or more idle computers to you for an equity stake, or a firm with an awesome bandwidth that will allow you to drop a machine or two into their machine room for an equity stake (1%?).  They are giving you unused capacity in exchange for equity – a win-win scenario. The same applies to source control (I know of a local Team Foundation Server shared by several light load companies).

 

So when should you try for Angel Funding? IMHO, it should occur when:

• you need to spend cash that you cannot get out of your own budget
• without the cash, an opportunity will be lost
• Angel funding should  be biased for CAPITALIZATION and not Expenses

Examples: More hardware (for example, if you are offering backup services and cannot add customers without capitalization), advertising (to expand market quickly), etc.

 

You should never approach Angel Funding to pay for writing code. As a software developer, you are expected to have pre-invested your own hours into that activity.

 

So think garage startup. If you are not going solo, then try getting an experience development manager involved to manage the people and the project. They could do some of the coding but their first priority is management. You may have the excellent idea, but you are too close to it. Financial success depends on making compromises and making rational business decisions.