It seems to me that the entire point in creating an online software solution is that it can scale and starup costs (programming, network admin, etc) are fairly cheap in that even 100,000 USD can go a long way. Why is it that then that there are tech startups raising 100 millions? What is this cash used for if not tech infrastructure?
My point is that you don't need the amount that is being raised (let it be 2 mill) to get the tech infrastructure going. Look at 37signals-- no seed funding needed there.
Undercapitalization is the biggest problem with startups. Been there, done that. Many people are subcontractors because they are psychopaths/crazy assholes that can't hold a job. It costs a lot of $ to cycle through that mess trying to get something done/ not get screwed with..
You're right in one respect that startups shouldn't cost a lot to start. You just need office fixtures, computers and pay for hosting, which aws or azure doesn't have to cost a whole lot. As noted above, the biggest cost is talent. 100k might get you a junior developer for a year. If you go on Angel.co, you'll find tons of jobs from 80-150 or more + equity. So it comes down to payroll. You can't scale a company if you don't have the talent.
tumbl kid made bank......seems easy. but why not take 100k and trade it? turn it into 5 million, then use 1 million for tech company? or just get 100k and start tech company, sell it for 100 million or 1 billion... LOL first...you need an idea that doesn't suck. good luck with that. then you need timing. then you need the cash for marketing. marketing is a big part. no buzz, no bank
A lot of times when a VC will invest a lot of money to financially secure the founders. This disincentives them from managing the company for a speedy iPo rather than to maximize value creation.
There is a strange pattern in start ups. Namely, they are born grown up. This is just my anecdotal observation, but once a startup gets VC money they immediately hire a CFO and finance department (to control the founders?), A human resources department (to kill off scientific progress), put many VC cronies on the board at high salaries, hire a marketing VP and a sales VP and huge infra-structure such as PR and image (<g>) consultants (to make sure no smart sales person gets too much in commissions). No more Digital Equipment type companies can possibly be founded. No wonder the US is turning into a third world country. But at least most developers are smart enough to see through the system. No wonder tech investors need H1B visa indentured techies.