Paul Graham Units: How to treat investment capital

Take a moment to step into the shoes of an early stage startup founder. Adam is wearing a pair of two year old New Balance sneakers and I’m wearing a pair of J-Crew sandals which are older than Google Corporation. matt sandals

Humble visualizations aside, assume that someone invests $10,000 in your company at a $500,000 valuation*. At this valuation, every small expenditure of capital can be viewed as a significant depletion of your equity position in the company. I am still wearing these old sandals not only for the nostalgic value of having walked on 4 continents in them, but a new $40 pair is equivalent to 0.04% of our fictitious valuation. If you choose to live the startup life you will start to see the world the way we do.

A $20 meal is 0.02% of your company. Flowers for your now neglected girlfriend/soon-to-be ex-girlfriend: 0.01% of your company. When your investor is Paul Graham, you begin to evaluate every purchase in Paul Graham Units (PGUs).

In the land of Xobni the currency of choice is the PGU. The exchange rate: 1 PGU = 0.01% of the company.

In the early stages of a company, money is expensive. So expensive that you are spending 100 PGUs on your rent! For comparison, 0.1% of Microsoft (100 BGUs) will buy a small county in Washington and an air force to defend it.

allen's plane
The lesson to early stage entrepreneurs: live cheaply!

Seed investment is intended to allow your idea to break the surface of the topsoil. At some point you must move from Paul Graham Units to the more heavenly kind.

Angel money is expensive too, but it gets cheaper with time. It is like a dozen bagels at the corner bakery. Early in the day they are expensive. As the day progresses the relative value of bagels and money shifts. At the end of the day you can negotiate a much better deal. At 4 pm the other day I bought a dozen bagels for the price of six.

Raising money takes a lot of time and effort. Conventional wisdom says to raise enough money to allow your company to operate for 12-18 months. This adds another moving piece to the myriad of concerns on the mind of an entrepreneur. The other concerns being: customers, product development, hiring, cash flow projections, and so on.

How do you choose what to focus on? We say that for each minute we spend thinking about investors, presentations, or food we should spend an hour thinking about customers.

At this stage of the company we are talking to potential customers about Xobni Analytics nearly every day. Nothing makes an investor sit up and listen like the talk of paying customers. We think that actively addressing customers’ needs will be our secret to facing any other challenges we may encounter.

 

*All numbers in this article are hypothetical except the purchase price of my sandals which cost $40 and Paul Allen’s air force which costs $40,000,000.

2 Responses to “Paul Graham Units: How to treat investment capital”


  1. 1 anil August 23, 2006 at 12:38 am

    how do you start talking to customers, please give me some pointers
    thanks

  2. 2 Beno September 3, 2006 at 8:27 pm

    Don’t lie … those sandals were 38.95


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