Do fledgling startups need cash?

During Winter 2010, I managed to win a small amount of seed funding for my startup project - several thousands of dollars. It was a major milestone. A huge weight lifted off my shoulders. But then I had a problem: what was I going to spend this money on?

As I made the shopping list, I realized that all the things that I was trying to get for free, I was now thinking of spending money on. I realized that when you have cash for a startup, all you are ever doing is converting cash into other goods or services, such as a web developer to work on your project or a PC to host your website. If you can get to the goods and services you need without spending money, it's even better: you don't have to give away equity, or worry about the tax man.

So what is the best use of money? Ultimately what you do have to pay for is the living expenses (rent, food etc) of anyone working full-time on your project who has no other source of income. In my opinion, you only start doing this when you have enough of a tangible concept that it merits having people working on it full time.

As I approach the end of my time at Kellogg, I am again looking at raising money - a far larger amount than previously. This time it's to pay for the living expenses of a few people who will work on the company full time with the purpose of scaling it up. I think the concept is tangible enough. Hopefully investors will agree.