Ask HN: How much money should I save up before quitting my job?

[trynabootstrap]

My cofounder and I have done data science / engineering work for various large companies. We have a startup idea in this space that we've fleshed out over the past six months while working at our jobs.

I have roughly $50,000 of our money that I can commit to our startup while we build the prototype in preparation for raising money. We can live with family members -- so rent will be free -- so we estimate our cost of living to be $1,000 / month / person.

At $2,000 per month total -- this gives us 20 months to finish the prototype. We think we can do it in 3-6 months, but we recognize that our time estimates could be completely wrong.

Are these numbers reasonable? Should we save up a much larger amount of money, like $100k or $250k? How complete should a prototype be before raising money?

Here are some additional considerations: - My cofounder has $20,000 in student loans to pay. Should he pay them all off before quitting his job? - We have another $50,000 of money in 401(k)s and Roth IRAs. We're young enough to lose all this money and make it back without concern. Should we convert some of our retirement money into capital for our startup[1]? This would give us a total of $100k in funding.

[1]: http://guides.wsj.com/small-business/funding/how-to-tap-an-ira-or-401k-to-help-fund-a-start-up/

[dalerus]

Having bootstrapped a couple of times:

1) I would double your estimated time to build. Worst case, think it would take 9-12 months.

2) Personally, I wouldn't get too into the finances of my co-founder. I'd just want to know that what are bringing (financially, sweat equity, and/or key industry knowledge) are equal. If I'm bringing 50K, my partner should too.

But to answer your question, if I was that co-founder, I would. I would look at paying off the debt and lowering the overall amount we needed to get to MVP.

3) Numbers look more than reasonable. Actually, I know a lot of people that would never have that much to bring to their own startup.

4) Don't touch the 401(k) or Roth.

Are you sure you need all this money and time to get your MVP ready? If you're bootstrapping, why not stay at your current roles and code in the mornings, evenings, or weekends?

Get your MVP done, get it into the hands of customers, and see if you find a fit. I'm not sure you need all that time and money...

[trynabootstrap]

> I'd just want to know that what are bringing (financially, sweat equity, and/or key industry knowledge) are equal.

My cofounder has several more years of work experience, and more closely focused on mathematics and machine learning. I have some experience in these fields, but am more of a general software engineer. Because I am bringing the money to the table, we intend to make the equity split 51/49 in my favor.

> Are you sure you need all this money and time to get your MVP ready? If you're bootstrapping, why not stay at your current roles and code in the mornings, evenings, or weekends?

We are currently working nights and weekends and making good progress. We both work very fast-paced, demanding jobs in Silicon Valley, which makes it hard to sustain our current pace without burning out.

> Don't touch the 401(k) or Roth.

Would you suggest that instead of cannibalizing our existing funds, that we just stop contributing to our 401(k)s and save more cash for our startup? Or should we continue to save for retirement at our previous pace?

> Get your MVP done, get it into the hands of customers, and see if you find a fit. I'm not sure you need all that time and money...

I am definitely in favor of doing this, but like you pointed out, the MVP could take twice as long even when working full time.

[dalerus]

> My cofounder has several more years of work experience, and more closely focused on mathematics and machine learning. I have some experience in these fields, but am more of a general software engineer. Because I am bringing the money to the table, we intend to make the equity split 51/49 in my favor.

Cool, as long as you both feel the even contribution. The 51/49 will also only work if you're both clear that the 51% has the deciding vote on disagreements. Otherwise, just a 50/50 split.

> We are currently working nights and weekends and making good progress. We both work very fast-paced, demanding jobs in Silicon Valley, which makes it hard to sustain our current pace without burning out.

Sure, I get that. Just make sure you're setting up times to talk to investors now. Showing your progress and trying to get customers.

> Would you suggest that instead of cannibalizing our existing funds, that we just stop contributing to our 401(k)s and save more cash for our startup? Or should we continue to save for retirement at our previous pace?

I'm never a fan of holding off on saving for retirement. Keep putting it in if you can afford it.

> I am definitely in favor of doing this, but like you pointed out, the MVP could take twice as long even when working full time.

True and you will know best of the time frames here. I have no idea what you are building. ;)

[alain94040]

Because I am bringing the money to the table, we intend to make the equity split 51/49 in my favor.

This is a not a great reason. I like 51/49 for the CEO, the real leader of the company. The person who will be the one pushing the other when everyone else wants to quit. The one who is biased for action. The passionate one.

I'm guessing you already know that, it's just the way you phrased it that wasn't perfect.

[Spooky23]

You're better off not contributing but recording what contribution value you're missing.

Every dollar removed from the 401k costs a significant amount due to taxes and penalty. If you can, always avoid taking money out.

[brudgers]

Divide the company 50/50. Share success and failure equally. At 51/49 less than full commitment is structurally expressed both for the minority partner and the controlling one.

[kiraken]

Well, i've helped hundreds of startups launch their product, and you guys are more prepared than 90% of my clients. You have enough money to survive for a long time, the technical knowledge to create your product ( I assume ) So you wont have to hire external help and a low burn rate. As for your friend's debt, it can wait for now, and you'll always have the 401(k) as a fallback If push comes to shove. Though its worth mentioning that you guys shouldn't probably quit your jobs until you pitch your idea for some random people, and see its viability in the market. All our ideas seem great to us, even if they're not.

As for when you should start raising money, i think that you should start pitching investors while you're working on the MVP to not lose time. And schedule meetings right when the MVP is ready.

There are a lot of other things that you should consider too! Feel free to reach out to me on Quora. I usually answer questions there and help new founders in my spare time. For free of course. https://www.quora.com/profile/Aladin-Bensassi

[brudgers]

My random advice from the internet:

+ Tap financial resources as you go. You will [hopefully] be iterating. Limiting the amount of cash in the company will reduce the chance of overspending on dead ends. Manage cash flow: 20% of $20k is a lot less than 20% of $100k.

+ Paying off student debt is foolish. $20k is 10 months living expenses. Over that 10 months loan payments are probably about a quarter of that. That's an extra six months of life.

+ Divide the company 50/50. If there's success, the 2% difference in equity isn't worth fighting over, the 100% difference in control is. If there's a disparity in initial investment, make it a loan with moderate interest if you must. Otherwise, one founder taking control of the company from the other is within the rules of the game.

+ Working toward product market fit is more important than building a proto-type. It's also harder because it requires talking to people and changing direction and dealing with rejection rather than going head down building a prototype using familiar skills.

+ Tap into your 401k when there is a clear business case for doing so. You can't blow it on Aeron Chairs and Macbook Pros and Google Adwords until you've got it to blow. Wait until you really know what you're doing.

+ How much money you should save depends on the business model. A SAAS can go up on Heroku for ten bucks a month. The first quantum smartphone is another matter.

+ The worst course of action is to spend six months building something, uveil it, and discover nobody wants it. What you're building is a company.

Good luck.

[AnimalMuppet]

It's possible that you are building something that nobody wants. How long is it going to take you to decide that you have failed (if you do)? Do you have enough money to get that far and still recover (find a new job before you are bankrupt)?

[sharemywin]

I didn't see any kind of marketing, sales plan. Your story would sound much more interesting with 10 customers lined up to give you $500/mo when your mvp is ready to go.

[new_hackers]

"We can live with family members -- so rent will be free"

Boy how generous and mature of you to take advantage of your family while building your empire. Also does that $1000 include paying for your own insurance? What are you going to do if your dream fails? Continue to live at home?

It sounds like your plan is only accounting for if everything goes exactly right.

Personnally, my recommendation is to do this:

- continue working. If you really want this, you should be able to build a MVP on the weekends (it didn't sound like you were married or had children)

- live on $1000 per month including savings and tithe. So for $1000 of "income" you should be able to live on $650. if you can't really do this, then adjust your required income numbers

- figure out how much you would need to live on your own. Add that to your income requirements. Then if you still want to live at home, then pay your parents. That food, laundry, property tax etc isn't free. They have to pay it and they have much less earning time than you.

- do not touch your retirement, you will need it later

- pay your debts, if you do the plan above, your friend should still have enough real income from their job to pay off the loan

[meric]

I have not started a startup:

1. $1,000 / month / person sounds sufficient, living with family.

2. I think paying off the loans are good idea, since the loans carry interest.

3. Your username is "trynabootstrap". What would it take to know your product either falls flat or bringing in regular revenue? Do you need to raise money for that? Before you raise money, you will continue to have the option to go back into full time work to "recharge" and work on this part time, and then quit the job a year later and work on it again. Once you've raised money, this option won't be on the table anymore.

4. No, I don't think tapping into 401(k)s and Roth IRAs is a good idea. That's the kind of thing I rely on in case my own money making schemes fail.

[trynabootstrap]

> What would it take to know your product either falls flat or bringing in regular revenue? Do you need to raise money for that?

We will likely need to raise money. My cofounder and I have a wide variety of experience, covering machine learning, data science, and site reliability engineering. We would like to hire a data scientist with deeper and narrower experience to handle some of the most difficult mathematics.

We can build the first version of the product by ourselves, but our product (enterprise SaaS) is not likely to gain traction until someone much better can performance-tune our algorithms. We would also need a strong UI / UX engineer, a designer, and a corporate salesperson -- but we can probably hobble along for longer without those roles.

[sharemywin]

Until you have at least one but probably both of these people identified and "recruited" it sounds like your dead in the water to me. Unless, you have someone that's willing to give you money to find and recruit the missing pieces. I'm not trying to be negative just suggesting what you need to focus on.

[brudgers]

A good product can gain traction with mediocre algorithmic performance because it provides business value. Same holds true for mediocre UX. The killer feature for a B2B application is business value.

[ramtatatam]

If your product is creating new market then consider how long will it take to close a deal. If you plan to have a MVP in 6 to 12 months and closing the sale can take up to 6 months (in our industry it can take that much) then you need ~18 months (you can start selling your idea, pitching, seeing your potential customers - in such case this time can go down). Also your money pot should pay somebody to do sales, marketing and operations for you (unless of course you do it yourself).

[trynabootstrap]

You bring up a good point -- our customers will definitely take a significant time to make a sale. Ideally we will raise enough money to wait out the long sales cycle and use that time to make our product more attractive.

We definitely need a strong sales lead, but we hope to pay for that role through outside investment.

If our estimate (20 months of runway in the bank) is correct, then we should have enough time to raise capital after 12 months of MVP-building.

[jf22]

Are you sure you can live with family members for over a year?

[eulji]

i wonder if you guys have considered moving to much cheaper country like Thailand or Malaysia. Or is being in the US part of the success ?

[trynabootstrap]

We have considered spending some time in Thailand, but we are concerned that the fixed costs of moving (plane tickets, visa, etc.) would outstrip the month-to-month savings unless we chose to stay there for over a year.

While our project estimate could be wrong, we intend to spend much less than a year working on our prototype before we can raise.

Our potential customers are almost all in SF, NY, LA, DC, and Boston. If we stayed in America, we would not be living in any of those cities, but could travel to some of them by car.

[brianwawok]

If living with parents I don't see a savings to pay to live in Thailand.