Ask YC: How do you (or how did you), a start-up, get your first lump sum of cash?

Don't get VC.<p>Save and don't quit your day job. I've been involved with several start-ups, including one I'm working on now. The great thing about tech is for the most part when you're just starting you don't NEED a manufacturing facility, specialized equipment, a huge support or sales or factory staff, etc...<p>Hardware and bandwidth is commoditized and available month to month for cheap, and can easily scale as your demand grows. Start with free software like Linux, Postgres, Apache, JBoss, etc... even if down the road you want to go with Oracle or something similar. Go small and grassroots with your marketing and see if people like your product/service first, before you decide you need to blow half a million on marketing. Use contractors instead of hiring people like designers, dbas, etc... Maybe you need to hire them after you get 10 clients or 100,000 users or whatever, but start off paying for the hours you need.<p>So what do you really need? You need a few hundred dollars to incorporate, setup a business bank account, and consult an accountant and/or attorney. You'll probably need some servers w/bandwidth for a month or two or six. A few grand here. And you need a product/service.<p>Start off building/writing it in the evenings, weekends, and make take a week of vacation and just work on it. See how you can do without quitting your day job. Sure it takes a little longer, but honestly that's a small price to pay to keep control of your enterprise, and often is less time than you'd spend prepping for and applying for VC, and getting turned down, and trying again....<p>All this applies only to soft-tech startups (web sites, software, online services, etc...) but I've dealt with many folks who were convinced we'd need $250,000 to get things going, and were shocked with a month or two later I had nice five figure checks rolling in off of a total outlay of just under $10,000. The company has no debt, and no one controls it but we the founders.<p>You should be able to scrape together $10,000 with a couple of partners. And in the end you're in control and you owe nothing to anyone.

We foresook the quest for VC funding 2 years ago, and think it's one of the best decisions we made. But having said that, I've held key roles at 3 VC-funded startups, and at none of them was $1MM in revenue a predicate.<p>At $1MM/yr (in product revenue), you're already funded.

From my experience, you are correct when you say VCs rarely are looking to lift a startup off the ground.<p>Most people I know and startups I have been involved in start off with cash from friends and family. One of the most difficult leaps you take is quitting a paying job and taking a small sum of money and trying things out. VCs definitely want to take an idea/product and scale it like you mentioned.<p>The one thing I would suggest is do you need 500k to start a startup? I would suggest the number is closer to 1/10th of that to survive for a year, at least as an Internet startup.<p>EDIT: To clarify, I meant 1/10th of that to start a company for a year, not to personally survive for a year. There are many necessary costs for a company that shouldn't total more than about that 50k mark, lets call it "servers and shit" costs. I was completely excluding living expenses!

For a software startup I don't know that you need a "lump of cash" of more than say $5-10K. You don't have that many capital expenditures compared to other industries (e.g. if you are going to design a chip you need at least $1M for the masks and almost that much for the design tools).<p>In my experience, VC's are asking "do you have customers" because they want to talk to them and double check that the reasons customers purchased and the benefits that the customers believe that they have gained match what you are telling them.<p>Also, it matters quite a bit if you are profitable in terms of your negotiating position. If you are unprofitable and tell an investor "we'll be out of money in six months" guess when the serious negotiations often start?<p>I have never heard of 7 employees being a magic number. Or $1M in revenue.<p>Also, I would gently disagree with your statement:<p>"Investors know that the failure of a startup isn't necessarily because of the idea, but in not having enough capital to keep afloat while figuring out how to make money."<p>I think investors value demonstrated results (e.g. happy customers) a team that can execute well together, and the possibility that they are investing in acceleration of the business, not salaries for folks still trying to figure out how to make money.<p>Consulting and working on the product in parallel has been one approach I've taken, another is keeping my day job and working nights and weekends with a partner. I think if you conceptualize the problem as how to raise 500K to $4M you overlooking the most important risk: market risk (is there a market for your product). Most teams don't fail because they can't build what they set out to build in my experience, most fail because there wasn't a market and they were not willing to adapt, refine, and improve the product until they found a market.

digg.com got $50k from the founder of textamerica.com. We did some cross-linking at the time. Before that it was all Kevin's savings.

Our first lump of cash came from angel investors that I got to know working (as an employee, not a founder) in a previous startup. In general, people who know you already, are more likely to be willing to bet on you.

Biz plan competition, some family and friends, and we work out of a house. We pay for food and servers, haven't even reached the $500K mark yet. You don't need much when you're hacking.

I don't. I prefer to create content-type websites that require no up front capital (aside from time and hosting coosts) or "investors" and build quality backlinks, focus on SEO, and continue the process until I have 5-10 good websites. From there, the money slowly comes in month after month.

Another interesting measure would be of how many deserving startups never did end up getting the initial money together...

Self-financed. Bootstrapped with savings.