Can you explain the start-up lifestyle?

[Anonymous]

I typically don't care how they make their money, yet I'm kind of stunned by the number of my peers who have launched start-ups recently that don't seem to do much (not in the tech space -- where people work HARD to develop an idea and sell it to a bigger company). Is this just a fancy way of now taking a year or two off in your 20s/early 30s -- the way people used to travel for a while between jobs?

Saw a family friend tonight though -- who is always a jerk to everyone about how they aren't good enough (in that -- oh you're JUST an in-house lawyer now, oh) -- a year and a half ago he launched a start up which for lack of a better description makes/sells bandages -- the kind of product that J&J and 3M has supplied for generations. Of course his are fancier fabrics, colors etc. He spends the majority of his time going to medical conferences (he isn't a doctor/nurse but I guess is looking for hospital clients) and alternatively going to venture cap events and rubbing elbows with finance types to get funding. How does one do this for a yr and a half?? He has a top 10 MBA and worked at Goldman Sachs for about 18 months, so I'm sure he has savings -- but he was an associate, not a higher-up, and he lives in Manhattan which isn't cheap. His parents have wealth but not like Rockefeller wealth -- but what 32yr old man with a good education is ok turning to mommy and daddy every time he needs a few thousand whether to pay his bills or fly to Texas for some conference?

Is there an obvious funding source that I'm missing -- bc this seems like a sweet life for a few years to name yourself CEO of something, travel around, and not be chained to a desk/boss/assignments. Is there that much start up funding out there that anyone can scare up a few hundred thousand and just live on that for a yr or two under the guise of a business? Or are you typically funding this for yourself or thru family money?

[Anonymous]

Angel investors.

[Anonymous]

There's a bubble brewing. He probably has investors. It'll pop soon.

[Anonymous]

Living off of savings and credit cards. Ideally you would also live off profit from other ventures, but if he doesn't have that, then savings and credit cards.

[Anonymous]

I think a lot of those people have trust funds

[Anonymous]

Maybe I'm just not innovative enough, but I see this amongst my peers too and don't understand why anyone would do it? If I had enough investors that I could pay myself a salary, fine. But if I had to live off savings and credit cards, then I think a year of traveling to take a break who be much more rejuvenating than running one of these businesses. And I'm not someone who is against running my own business - buy a few properties and manage those or run a bricks and mortar shop - but these fancy businesses that supply nothing useful and depend on angel investors, go fund me campaigns, and family contributions just blow my mind.

[Anonymous]

Anonymous wrote:I think a lot of those people have trust funds

A lot do (and then it makes sense), but these days a lot don't. I think a lot of people go in thinking it'll be easy to get a few hundred thousand in funding. Not sure if it's so easy but a lot of b school grads are doing this, even from schools that have excellent placement in the banking, consulting, corporate world.

[Anonymous]

You work crazy hours for no pay and the assholes that funded it walk away tightly collared.

[Anonymous]

Anonymous wrote:Angel investors.

This. Chasing yield has created a massive bubble in VC. Fed can't unwind bc it's driving all sorts of jobs (all those 1099 gig jobs, have of Amazon AWS demand, heck look at the explosion of space companies).

Slack CEO basically said they took far more VC than they needed but took it in good terms and can basically run in current state for like 60 years without revenue. I exaggerate but not far from truth.

Ask the journalist from freakonomics how this works: http://www.earwolf.com/episode/touched-by-an-angel-investor/

Artisanal bandages? All the hipsters with GoPros, I see a market

[Anonymous]

Wouldn't you have to pay back your investors? So, that's like using cc's, right?

[Anonymous]

Anonymous wrote:Wouldn't you have to pay back your investors? So, that's like using cc's, right?

I thought angel investing was equity not debt; like stock - if your business is successful, the investor gets a return but if not, he doesn't have a claim against you.

[Anonymous]

Before putting in money, any investor is going to review the company's financials, incl the salaries the top executives take. So it's not like a company gets a few hundred thousand in financing and then your friend uses it to live on. It would be unusual for the top executives at an early stage start up to get to take more than $150k in annual salary, and it is usually less than that - and frankly I don't know how you'd live on that amount in NYC - so your friend much be living off or majorly supplementing with his own savings, personal cc debt, or family money.
It is also not as easy to get funding as it would appear - you need a legit business plan, growth product or service, etc. That begs the question of artisnal bandages, and I must say after 15 years on bith sides of the table in the vc world, I am scratching my head over that one ... if I scratch it raw I will be sure to cover it up with one of his bandages.

[Anonymous]

Anonymous wrote:Before putting in money, any investor is going to review the company's financials, incl the salaries the top executives take. So it's not like a company gets a few hundred thousand in financing and then your friend uses it to live on. It would be unusual for the top executives at an early stage start up to get to take more than $150k in annual salary, and it is usually less than that - and frankly I don't know how you'd live on that amount in NYC - so your friend much be living off or majorly supplementing with his own savings, personal cc debt, or family money.
It is also not as easy to get funding as it would appear - you need a legit business plan, growth product or service, etc. That begs the question of artisnal bandages, and I must say after 15 years on bith sides of the table in the vc world, I am scratching my head over that one ... if I scratch it raw I will be sure to cover it up with one of his bandages.

That's what I would think -- whether angel investors or VC, they will want to see SOME financials and some growth market for the product before sinking their money into it. Until you get to the point where you have some sales so that you can show investors the product has potential, it's on you -- whether your savings, family money, or CC debt. I imagine these VC companies and angel investors get thousands of ideas thrown at them in one year, and while there is a lot of funding out there -- it isn't unlimited and I feel like it tends to go to the tech/web app types of start ups bc they tend to be in the best position to grow a service or product or if they can't -- develop it and sell it off to a bigger company that can use the technology.

[Anonymous]

You sound a bit obsessed with this particular person.

[Anonymous]

Anonymous wrote:Maybe I'm just not innovative enough, but I see this amongst my peers too and don't understand why anyone would do it? If I had enough investors that I could pay myself a salary, fine. But if I had to live off savings and credit cards, then I think a year of traveling to take a break who be much more rejuvenating than running one of these businesses. And I'm not someone who is against running my own business - buy a few properties and manage those or run a bricks and mortar shop - but these fancy businesses that supply nothing useful and depend on angel investors, go fund me campaigns, and family contributions just blow my mind.

Me too. 20 something w/ no responsibility -- give me a year in Europe, not a fake business.