The Right (And Wrong) Way To Spend Money At Your Startup

**Brad Flora** (0:00)
When I see founders that are spending too much money, it's because they haven't yet had that moment, that lightbulb moment with any customers, that this is a thing that people want. And so they're kind of chasing that, they're trying to force it, and they think that if they can, the trick is to push harder, and not maybe do something different.

**Pete Koomen** (0:17)
One of the fundamental misunderstandings that a lot of early stage founders have, when they look at companies that have product market fit, at that point, what you need is growth, and money can help buy growth. When you're pre-product market fit, the only goal is to find product market fit, and money can't help with that. The only thing money can buy you pre-product market fit is time.

**Brad Flora** (0:43)
Welcome to another episode of Office Hours. I'm Brad, and I'm here with Pete, Nicolas and Gustaf. And we have sat across the table with thousands of founders over the years talking about all sorts of crazy topics. And today we're gonna talk about money, and how to think about money, how to think about spending money, when is a good time to spend money, when is a bad time to spend money, what are great things to spend money on, bad things to spend money on, money, money, money. So these startups' kind of relationship to money, or maybe the attitude around money changes depending on the stage that the company's at. And so companies, let's say, that are pre-seed, as one might like to say, where it's day zero, they're just getting started. Maybe they're thinking about applying to Y Combinator, or they're just applied to Y Combinator, getting ready. How should they be thinking about money?
What's the overall money strategy for a company that early?

**Nicolas Dessaigne** (1:31)
I think that's pretty simple at that stage. Like, don't spend any dollar. Like, only the very much necessary stuff. Yes, you need a laptop. Yes, you need a place to live. But that's it.

**Brad Flora** (1:41)
If you had to guess, just thinking on the spot here, of all the companies we funded, say, in recent years, like, how much money have they spent? If it's typical, how much money have they actually spent before we funded them? If I think about it, the number is very small. It's very, very small.

**Nicolas Dessaigne** (1:56)
Sometimes it's zero.

**Pete Koomen** (1:57)
Right.

**Brad Flora** (1:57)
It might be tempting to think, oh, there's YC funds companies and they've done all this stuff, but they really haven't.

**Nicolas Dessaigne** (2:03)
I mean, we've funded companies before they even start working on their idea.

**Pete Koomen** (2:06)
That's right.

**Nicolas Dessaigne** (2:07)
At that point, it's zero. Some people have worked for a while, maybe 10K over six months.

**Brad Flora** (2:12)
The vast majority don't even have bank accounts yet, or even exist as an entity yet. In the earliest stages, you spend no money. You probably don't have to spend much money on anything. Okay, but then let's say you get out of that and you raise a seed round, anywhere from half a million to two million dollars. What are the things that are important for people to be spending money on, or that we typically see people spending money on that we think are good things?

**Gustaf Alströmer** (2:36)
The most common case for software companies, you hire one or maybe two engineers, and that is over a span of 12 months, and you know both of them. Okay, let's try to convince the best people. And you already know that they're pretty good. Have you worked with them in the past, it's even better? Or like you know them from work or some school projects. And then you just, you get kind of a convincing game. You're like convincing them to leave their really other good opportunity.
And if you hire those two people, that's mostly what it's all about. For other roles, it's generally like contractors. In the early days, you don't really need full time roles besides one or two more engineers.

**Pete Koomen** (3:09)
Founders should be doing sales.

**Nicolas Dessaigne** (3:11)
Don't have a higher for sales or marketing until product market fit.

**Gustaf Alströmer** (3:14)
Yeah, this is kind of one of the dangers of having the money is that the things that you don't like doing. You're like, great, I can hire someone for this. Well, if you don't like doing it, you're probably not very good at it, which means you hire someone who's also not very good at it. So you have to learn the things.

**Brad Flora** (3:27)
And this is another extremely common office hour for us, is a founder reaches out. There's this person, they're so good at selling. I think they would be better than me at selling my product that I'm the only one in the world that understands. Help me figure out how to hire them and make them better than I am at selling this. And it's oftentimes a very disappointing office hour for that founder. We have to say, I'm so sorry. No one is coming to save you. You are on your own. You've got to figure this out. Maybe a sales coach sometimes. Have you seen some examples of that? Okay. But bringing on someone to sell the product as a seed stage application of money, it's not good.