We ran a 4-5 person startup from our apartment (and had the servers running in the closet) for a year before we got free office space. I had a different experience where we worked longer and faster when we were all in the same room (my roommate and I slept in the back, which was our area and no one could touch). Once we got a little larger and had reasonable funding, we moved out and got a really nice office with the money we'd saved for a year.