Thanks. I just want to make sure I'm being a good steward of the money that was given to us. We obviously don't want to do anything fancy with it since we need to spend it, but I want to do due diligence on what others are doing with their cash when they get it like this.
Well also depending on what your business is, there is also the risk that tying up funds might end REALLY badly. For example if you happen to be hosting your own servers or tangible assets and suffer a major breakdown just a few days of not being able to access enough funds could kill or at least very seriously hurt your company.
When I was still in market research, we used a rate of 150000€ per FTE as as heuristic to convert between number of empolyees and gross revenue whenever one of the numbers was missing. But this number is mostly for businesses that move inventory. Since software startups usually do not have to stockpile luxury cars in the showroom, the number might be too high in this field.
I think that's a bit high - possibly a lot high. You can likely find quite good qualified people at $70-$80k - base of $50k plus benefits and overhead. Be prepared to offer some equity stake in the operation in exchange for that somewhat lower base salary.
Let's assume 3 employees at your rather low rate. That's: 3 x $70k = $210k.
So all you money is now gone.
With no money left how are you going to pay the rent, pay for equiment, pay for any other day to day business expenses (i.e. phone, electricity, insurance, taxes etc).
I'd say $200k is even too low for 2 employees (in any western country).
That's assuming he's taking money for a full year…
In reality, he's not paying the employees a year's salary upfront, so at this point all he really needs to have in cash is the first couple months' salary.
Imagine that he's going off 6 months, at which point he would reassess the financial situation (whether he needs to raise more money, lay off, or is now making enough profits to pay for the team.)
