Shortly after the announcement that Mint.com was to be sold to Intuit in a $170m Cash Deal, CEO and Founder Aaron Patzer shared his step-by-step strategy for Mint’s growth at the Vator.tv Juice Pitcher event. Aaron breaks down his 3-½ year journey with Mint into three phases of development, and each stage’s goal, expected expenses and runway until next round.
Here’s the 22-minute video, and my notes below for those of you who don’t have the time…
Awesome, insightful and very helpful to see behind-the-scene basics of a successful startup to exit in the Valley…
PHASE I: Garage Stage (<$100k)
– Goal = Build a Prototype
– Pre-Revenue Valuation: How a company is valued prior to revenue.
- “Rule of thumb around the Valley is to…”
- Add + $500k / Engineer
- Subtract – $250k / Business Guy
- …Reason being, web startups need Engineers to build while there is little to do for the Business Guy at this stage.
– Mints Expenses: Calculating Phase One expenses, Burn Rate, and Runway before next round of funding (based on $100k).
- Founders at $30k Salary for living expenses. (Aaron’s Salary = $30k)
- Engineer First Hires at $30-50k, + 1-3% of company. (Mint’s 1st Hires at $36k + 1 ½ to 2% Equity)
- Legal Fees deferred payment for 0.5 to .075% of company.
- Example: 2 Founders + 1 Engineer = $150k / Yr Burn
- Resulting Runway = Must raise Seed Money in 9 months.
PHASE II: Seed Money
– Goal = Release Alpha Launch and get it in front of users.
- Alpha should be usable but not polished.
– Headcount should be around 5-6 ppl.
- 3-4 Engineers
- 1 Product/Front-End
- 1 Biz Generalist
– Mint had raised around $750k at this point.
– Mint’s Expenses: Calculating Phase Two expenses, Burn Rate, and Runway before next round of funding (based on $750k).
- Salaries = at $50-90k
- Overhead = + 20%
- Legal = $25k General + $2k/mth
- Total = $600k / Yr Burn
- Resulting Runway = Must raise Series A within 12 months.
- Note on Legal Fees: “One thing VC’s won’t tell you is how much the legal fees will be and that you’ll be paying theirs and yours…”
- Paid around $60k in Legal Fees on $750k, leaving them with $690k.
– Revenue Projections:
- “…they’re going to be total bullshit.” And everyone knows it.
- What Matters Most is…
- A Huge Market Opportunity
- Per use/client revenue
- How much will you make per user, per year?
- Calculating Opportunity:
- #User Base x Rev/User/Yr = Opportunity
PHASE III: Funded
– Goal = Launch a real product and grow a profitable business.
– Be Aware of Hidden Expenses
- Patents, Trademarks, Consultants, Legal, etc.
– Mint’s Expenses:
- Salaries + Overhead = $200k / Yr / Person
- Legal = $10-50k / Mth
- Total = $6m / Yr Burn
- Resulting Runway = Must be profitable within 2 years.
SUCCESSFUL EXIT MORE THAN $$$
– Boost in Self-Confidence
– Gratification of creating something from nothing.