9 ms·

Advice for companies with less than 1 year of runway

289 points by loyalelectron 11y ago

Animats 11y ago
The alternative is becoming profitable as soon as possible. Then you get run over by someone with better access to capital who can absorb losses. Example: Sidecar.[1] [1] http://venturebeat.com/2016/01/20/sidecar-we-failed-because-uber-is-willing-to-win-at-any-cost/ http://venturebeat.com/2016/01/20/sidecar-we-failed-because-...
- namenotrequired 11y ago
  Were they profitable?
- bitsweet 11y ago
  UBER has sustained growth and momentum which provides access to capital so they can to pay win at the moment. The OP's article is contextual to a startup running out of cash (e.g. < 2 months) which happens because the startup hasn't sustained growth and investors are no longer interested.
- flormmm 11y ago
  Fair enough - but they really were up against some extraordinary competitors.
- danieltillett 11y ago
  This is a very good reason to avoid markets like this unless you are the most well funded. In some markets there just isn't a first mover advantage. The question is how much of a monopoly uber can build once they shift to profit extraction. There is little evidence that their customers are sticky against a new competetor willing to accept a lower rate of return.
  - Animats 11y ago
    For industries where there's a strong network effect, growth is a game of chicken. Who can get the most investment and spend the most money growing before they go bust? Only one can survive.
    - danieltillett 11y ago
      The question is how much of a network effect Uber really has. People stay with Facebook because that is where all their friends and family are, but do they have the same lock-in with their rideshare provider? It is an open question how much of a network effect exists in this market. My gut feeling is not much, but others obviously disagree with me. Uber could win the battle and lose the war.
      - draw_down 11y ago
        The network effect lies in the chicken-and-egg relationship of riders and drivers, no? Drivers drive for the service that has the most fares, users pick the app with the most cars available. Similar to selling & buying on eBay, though maybe not quite the same since both sides can be on multiple apps at once.
        danieltillett 11y ago
        Both drivers and riders can be bought. If you geographically constrain the area targeted then the costs can be kept under control.
        npizzolato 11y ago
        But drivers can drive for multiple services at the same time, using whichever one is giving them a customer at any specific moment. I've talked to many Uber/Lyft drivers that use both apps at the same time. On the consumer side, having the most cars available is not the only thing to consider. There's also price. For me, Uber is the first app I check (mostly out of habit), but if there's any sort of surge pricing going on, I'll check Lyft. If Lyft doesn't have a similar surge, I'll usually ride with them, even if it means a slightly longer wait.
- guelo 11y ago
  FTA: "If you want to reduce burn, the least painful thing to do is make a lot more money immediately. Hopefully you have been trying to do this anyway."
- rcarrigan87 11y ago
  This is a great example of why the idea truly doesn't matter. It's all about execution. They had better tech and still lost. Happens all the time.
  - draw_down 11y ago
    Who needs ideas and good tech when you have boatloads of capital?
  - danieltillett 11y ago
    No it is an example of the idea being bad to begin with. If your idea requires that you be able to out raise everyone else in a capital-burning death match then it is a bad idea unless you have a competitive advantage in capital raising. Unless you have amazing connections to people with battleship loads of cash don’t enter this type of market.
AndrewKemendo 11y ago
I think this article needs to be paired with an article about "When to shut your company down." If I recall, that article exists and it basically says: when you lose hope. Maybe I am not looking at this right but this part doesn't make sense to me: In many cases, <2 months is the point of no return. If you are in this state it is immediately necessary to lay off your employees and give them severance, pay down your obligations, and use your remaining cash for shutdown costs. So is that for companies that had a year+ of runway at some point and are now down to 2 months? What about companies that never had 1 year of runway? The differences between those are pretty big. For example if you have a 4 person startup and 2 months of runway after being on the market for only 4-6 months, you are supposed to just shut it down? No, you take consulting jobs and do side work till you can get higher revenue or some financing. I think, like most startup articles, this applies to companies who have already gotten past seed stage, initial traction and thus is not applicable for 90% of us.
- pavlov 11y ago
  It's actually mentioned in the headline: "Let’s imagine that you are the founder of a company that has successfully raised an angel or institutional round ..." That implicitly means there was more than a year of runway (otherwise it's not much of a round).
  - AndrewKemendo 11y ago
    I guess I'm saying that 90% of companies don't fall into that category - so applicability is low. Also speaking of implicit statements, he is saying that no matter what, if you have raised money, you should shut your company down if you are within 2 months of insolvency. Which I think goes back to my original point that you only shut down when you lose faith.
    - ellyagg 11y ago
      Not all advice is supposed to be generally applicable and there's nothing wrong with that. And, you should shut down your company when either 1) you lose hope, or 2) continuing will be unethical, whichever comes first. If it's likely you won't be able to pay your employees and other debts, that falls under point 2.
gjmulhol 11y ago
My friends, we are finally hitting the new economy where even startup are being asked to make money---maybe not to the point of profitability, but even a little revenue can make a big difference in a lean organization.
- pavlov 11y ago
  Hasn't "ramen profitable" been a YC mantra since, well, forever? I don't really see how anything has changed.
  - telotortium 11y ago
    Perhaps this mantra has fallen into obscurity in the exuberant times of the past few years. It'll probably be coming back soon enough.
  - gjmulhol 11y ago
    Maybe, but a lot of companies, even in YC, focus on a lot of things that are not related to revenue (unpaid user growth etc).
- shostack 11y ago
  I'm always reminded of this clip from "Silicon Valley" [1] when this comes up. [1] https://www.youtube.com/watch?v=OH9CXhWV6zE https://www.youtube.com/watch?v=OH9CXhWV6zE
- aagha 11y ago
  I'm willing to bet someone said almost EXACTLY this same thing at the end of the dot-com-bubble.
nunobrito 11y ago
Was laughing when reading "12 months of runway" as "low runaway". My bootstrapped company is "low runaway" by default since the past two years. Every. Single. Month. Funny how your mind gets busier to work and build revenue in Europe without a comfortable cushion like SF guys seem to have.
- jakejake 11y ago
  I've worked at bootstrapped companies where we were always squeaking by every month fighting to become profitable. But at least you are in control of your own destiny. Nobody can force you to shut down as long as everybody wants to keep hanging in. Unlike this is the ticking time bomb you have on your back the moment you take on investment. It's now do-or-die and when the money runs out you pretty much have no choice but to liquidate - often the decision isn't even yours to make. This article mainly applies only to the later. It is exciting when you get a big investor check but it's not the only way. I always encourage friends to think about investments that way - rather than just a free bag of cash!
  - crikli 11y ago
    Amen. Yeah it's exciting to get a big investor check. You know what's way more exciting? Being profitable. I occasionally get approached to help seed startups whose entire plan depends on a) getting funded and b) getting acquired. I enquire about a path to profitability and the answer frequently reveals a token effort. The CACs are unrealistic, market penetration estimates are hopelessly optimistic, etc. The entire play is acquisition or death.
    - danieltillett 11y ago
      Being profitable is hard work. Much more fun to play the startup game, throw some wild parties, and be acquired than building a real business making real money.
- tarr11 11y ago
  I don't think that's really low runway though? If you are breaking even you have infinite runway.
deleted 11y ago
[deleted]
bshimmin 11y ago
I don't wish to be overly mean or uncharitable, but I don't really think anyone who is unable to figure out the advice offered in the section titled "Some tips on reducing burn" all by themselves is ever going to be able to run a successful business.
- jacquesm 11y ago
  You'd be surprised how many people that are perfectly capable of running a business when things are going well and the company is expanding are totally clueless to running that very same company when it is contracting. The best thing for someone in a situation like that who is unable to handle it is to pass the helm as soon as is feasible to someone who does because otherwise it will be 'game over' in short order. So it is very well possible to run a successful business without being able to figure out how to reduce burn, the problem is that success is never forever.
  - danieltillett 11y ago
    Yes money solves lots of problem and fixes all sorts of bad decisions - much like how a marriage is fine until unemployment hits. I agree 100% that there is a need for different management approaches between foot-to-the-floor growth and surviving hard times. It is a rare person that excels at both. Having lived through both, I am better at the later, but the former is much more fun.
- pbreit 11y ago
  Probably true but there are still a lot of founders out there who reject or deny this or are simply oblivious.
  - tacos 11y ago
    But they're somehow going to be smart enough to Google "how to reduce burn" ... and stumble upon this article? And then act on it?
    - 11y ago
danieltillett 11y ago
There is a third way which is put the company into hibernation. I was faced with this with my startup a bit more than 10 years ago now. I ran out of runway so I laid everyone off, paid the bills, and got a job. I then bought out everyone else, worked part time on the business and built it back up over then next few years to the point where I could return full time. I could have started a new business, but I believed that there was a lot of value in the old business [1] which proved to be correct. 1. Some caveats here. Firstly, I did not have many people to buy out and they were willing to sell at a reasonable price. Secondly, my business is in biotech/bioinformatics and we had put a lot of resources into R&D. This R&D had real value that could be used to bring the business back to life.
- OopsCriticality 11y ago
  Did you have any licensed IP, and if so, how did you deal with that during the hibernation period?
  - danieltillett 11y ago
    Nothing that I could not re-license again later. I lost the patents in progress as I didn’t have the resources to continue with them, but this was actually a blessing in disguise. Rather than protecting the IP by patents I was forced to concentrate on trade secrets which if you have the choice is a much better way to go. If anyone is interested in learning more I wrote a rather long blog post about the whole experience [1]. 1. http://www.tillett.info/2015/06/24/why-i-kept-my-startup-in-australia-and-why-it-was-crazy/ http://www.tillett.info/2015/06/24/why-i-kept-my-startup-in-...
  - guelo 11y ago
    I was in a situation where angry clueless investors wanted to keep the software as an asset they were entitled to, but it was close to worthless without the engineering knowledge. They tried to shop the MVP around but got nowhere. If I could have kept it I would have tried to keep it running on the side.
    - 11y ago
JarvisSong 11y ago
Great analysis. I would add another chart -- likelihood of more investment / buyout -- both decrease as you get closer to zero runway.
lotso 11y ago
Could someone give a brief bio of Dalton Caldwell? I know he created Svbtle, but don't know much else about him.
- kmonsen 11y ago
  https://en.wikipedia.org/wiki/Dalton_Caldwell https://en.wikipedia.org/wiki/Dalton_Caldwell
- bshimmin 11y ago
  I think Svbtle was created by Dustin Curtis, actually.
larakerns 11y ago
It's discouraging when new employees expect a certain lifestyle on joining your startup but you're runway is less than a year. Startups have been portrayed as having so many perks that there's an impossibly high standard to strive toward.
- airza 11y ago
  I mean, usually those perks are a distraction from anomalously low salaries and probably non-valuable equity..
  - cballard 11y ago
    The perks are also designed to keep you there as long as possible. If you leave at a reasonable hour, you don't need catered dinner or company-provided alcohol.
- tptacek 11y ago
  If your runway is less than a year and you don't have a proven way to self-fund from revenue, you should be careful about hiring employees at all. It would be a red flag to me as an employer if we were close to exhausting our resources and somehow communicating to employees that they might be joining the kind of company that could afford perks of any sort. If you're that tight, the first conversation you should be having with candidates is about the kind of company you're running. There are good developers that are willing --- with enough upside! --- to join high-risk companies like this. But most developers, sensibly, are not.
josh_carterPDX 11y ago
I've never understood the psychology of those that do not fundamentally get this. If you just finished raising a seed or angel round, chances are you had less than 12 months of runway to begin with. Perhaps your personal savings was drying up or you were running out of friends and family resources that could help you run this out further. The sense of urgency and anxiety you felt while raising your seed round doesn't go away simply because you were able to raise some money. If anything, it would increase. So the fact that someone had to specifically cover this in a blog post seems really counterintuitive to me.
rl3 11y ago
>The Fatal Pinch does not apply to me Except, sometimes it doesn't? If you look at the notes[0] at the bottom of The Fatal Pinch: >There are a handful of companies that can't reasonably expect to make money for the first year or two, because what they're building takes so long. For these companies substitute "progress" for "revenue growth." You're not one of these companies unless your initial investors agreed in advance that you were. And frankly even these companies wish they weren't, because the illiquidity of "progress" puts them at the mercy of investors. What do you do if you're one of those companies? There's plenty of business models that could be attractive acquisition targets (read: billions), but otherwise can't monetize to save their souls. Two pieces of advice often encountered (paraphrasing): "Treat each funding round as if it's your last." "VC money is like rocket fuel. It's intended to be burned at a high rate." I imagine reconciling both is difficult at best. [0] http://paulgraham.com/pinch.html http://paulgraham.com/pinch.html
- danieltillett 11y ago
  >What do you do if you're one of those companies? There's plenty of business models that could be attractive acquisition targets (read: billions), but otherwise can't monetize to save their souls. You need patient investors which are rather hard to find. One suggestion I have seen is leave such businesses until you succeed once. If your first business is a success then you will have your own pockets to draw on and a track record that will allow other investors to trust you. Sometimes you just can’t get to the final destination in one hop.
aagha 11y ago
I love how investors are always willing and wanting to show examples of how they have the upper hand and the entrepreneur has the lower one (chart in the article).
- rwallace 11y ago
  Insulting people for honesty is a dick move. The article is doing its best to show you how to avoid situations where you have a terribly weak bargaining position.
Kiro 11y ago
> In especially messy scenarios you can end up with personal liability. When can this happen?

289 points by loyalelectron 11y ago

The alternative is becoming profitable as soon as possible. Then you get run over by someone with better access to capital who can absorb losses. Example: Sidecar.[1] [1] http://venturebeat.com/2016/01/20/sidecar-we-failed-because-uber-is-willing-to-win-at-any-cost/ http://venturebeat.com/2016/01/20/sidecar-we-failed-because-...

namenotrequired 11y ago
Were they profitable?
bitsweet 11y ago
UBER has sustained growth and momentum which provides access to capital so they can to pay win at the moment. The OP's article is contextual to a startup running out of cash (e.g. < 2 months) which happens because the startup hasn't sustained growth and investors are no longer interested.
flormmm 11y ago
Fair enough - but they really were up against some extraordinary competitors.
danieltillett 11y ago
This is a very good reason to avoid markets like this unless you are the most well funded. In some markets there just isn't a first mover advantage. The question is how much of a monopoly uber can build once they shift to profit extraction. There is little evidence that their customers are sticky against a new competetor willing to accept a lower rate of return.
- Animats 11y ago
  For industries where there's a strong network effect, growth is a game of chicken. Who can get the most investment and spend the most money growing before they go bust? Only one can survive.
  - danieltillett 11y ago
    The question is how much of a network effect Uber really has. People stay with Facebook because that is where all their friends and family are, but do they have the same lock-in with their rideshare provider? It is an open question how much of a network effect exists in this market. My gut feeling is not much, but others obviously disagree with me. Uber could win the battle and lose the war.
    - draw_down 11y ago
      The network effect lies in the chicken-and-egg relationship of riders and drivers, no? Drivers drive for the service that has the most fares, users pick the app with the most cars available. Similar to selling & buying on eBay, though maybe not quite the same since both sides can be on multiple apps at once.
      - danieltillett 11y ago
        Both drivers and riders can be bought. If you geographically constrain the area targeted then the costs can be kept under control.
      - npizzolato 11y ago
        But drivers can drive for multiple services at the same time, using whichever one is giving them a customer at any specific moment. I've talked to many Uber/Lyft drivers that use both apps at the same time. On the consumer side, having the most cars available is not the only thing to consider. There's also price. For me, Uber is the first app I check (mostly out of habit), but if there's any sort of surge pricing going on, I'll check Lyft. If Lyft doesn't have a similar surge, I'll usually ride with them, even if it means a slightly longer wait.
guelo 11y ago
FTA: "If you want to reduce burn, the least painful thing to do is make a lot more money immediately. Hopefully you have been trying to do this anyway."
rcarrigan87 11y ago
This is a great example of why the idea truly doesn't matter. It's all about execution. They had better tech and still lost. Happens all the time.
- draw_down 11y ago
  Who needs ideas and good tech when you have boatloads of capital?
- danieltillett 11y ago
  No it is an example of the idea being bad to begin with. If your idea requires that you be able to out raise everyone else in a capital-burning death match then it is a bad idea unless you have a competitive advantage in capital raising. Unless you have amazing connections to people with battleship loads of cash don’t enter this type of market.

AndrewKemendo 11y ago

I think this article needs to be paired with an article about "When to shut your company down." If I recall, that article exists and it basically says: when you lose hope. Maybe I am not looking at this right but this part doesn't make sense to me: In many cases, <2 months is the point of no return. If you are in this state it is immediately necessary to lay off your employees and give them severance, pay down your obligations, and use your remaining cash for shutdown costs. So is that for companies that had a year+ of runway at some point and are now down to 2 months? What about companies that never had 1 year of runway? The differences between those are pretty big. For example if you have a 4 person startup and 2 months of runway after being on the market for only 4-6 months, you are supposed to just shut it down? No, you take consulting jobs and do side work till you can get higher revenue or some financing. I think, like most startup articles, this applies to companies who have already gotten past seed stage, initial traction and thus is not applicable for 90% of us.

pavlov 11y ago
It's actually mentioned in the headline: "Let’s imagine that you are the founder of a company that has successfully raised an angel or institutional round ..." That implicitly means there was more than a year of runway (otherwise it's not much of a round).
- AndrewKemendo 11y ago
  I guess I'm saying that 90% of companies don't fall into that category - so applicability is low. Also speaking of implicit statements, he is saying that no matter what, if you have raised money, you should shut your company down if you are within 2 months of insolvency. Which I think goes back to my original point that you only shut down when you lose faith.
  - ellyagg 11y ago
    Not all advice is supposed to be generally applicable and there's nothing wrong with that. And, you should shut down your company when either 1) you lose hope, or 2) continuing will be unethical, whichever comes first. If it's likely you won't be able to pay your employees and other debts, that falls under point 2.

gjmulhol 11y ago

My friends, we are finally hitting the new economy where even startup are being asked to make money---maybe not to the point of profitability, but even a little revenue can make a big difference in a lean organization.

pavlov 11y ago
Hasn't "ramen profitable" been a YC mantra since, well, forever? I don't really see how anything has changed.
- telotortium 11y ago
  Perhaps this mantra has fallen into obscurity in the exuberant times of the past few years. It'll probably be coming back soon enough.
- gjmulhol 11y ago
  Maybe, but a lot of companies, even in YC, focus on a lot of things that are not related to revenue (unpaid user growth etc).
shostack 11y ago
I'm always reminded of this clip from "Silicon Valley" [1] when this comes up. [1] https://www.youtube.com/watch?v=OH9CXhWV6zE https://www.youtube.com/watch?v=OH9CXhWV6zE
aagha 11y ago
I'm willing to bet someone said almost EXACTLY this same thing at the end of the dot-com-bubble.

nunobrito 11y ago

Was laughing when reading "12 months of runway" as "low runaway". My bootstrapped company is "low runaway" by default since the past two years. Every. Single. Month. Funny how your mind gets busier to work and build revenue in Europe without a comfortable cushion like SF guys seem to have.

jakejake 11y ago
I've worked at bootstrapped companies where we were always squeaking by every month fighting to become profitable. But at least you are in control of your own destiny. Nobody can force you to shut down as long as everybody wants to keep hanging in. Unlike this is the ticking time bomb you have on your back the moment you take on investment. It's now do-or-die and when the money runs out you pretty much have no choice but to liquidate - often the decision isn't even yours to make. This article mainly applies only to the later. It is exciting when you get a big investor check but it's not the only way. I always encourage friends to think about investments that way - rather than just a free bag of cash!
- crikli 11y ago
  Amen. Yeah it's exciting to get a big investor check. You know what's way more exciting? Being profitable. I occasionally get approached to help seed startups whose entire plan depends on a) getting funded and b) getting acquired. I enquire about a path to profitability and the answer frequently reveals a token effort. The CACs are unrealistic, market penetration estimates are hopelessly optimistic, etc. The entire play is acquisition or death.
  - danieltillett 11y ago
    Being profitable is hard work. Much more fun to play the startup game, throw some wild parties, and be acquired than building a real business making real money.
tarr11 11y ago
I don't think that's really low runway though? If you are breaking even you have infinite runway.

deleted 11y ago

[deleted]

bshimmin 11y ago

I don't wish to be overly mean or uncharitable, but I don't really think anyone who is unable to figure out the advice offered in the section titled "Some tips on reducing burn" all by themselves is ever going to be able to run a successful business.

jacquesm 11y ago
You'd be surprised how many people that are perfectly capable of running a business when things are going well and the company is expanding are totally clueless to running that very same company when it is contracting. The best thing for someone in a situation like that who is unable to handle it is to pass the helm as soon as is feasible to someone who does because otherwise it will be 'game over' in short order. So it is very well possible to run a successful business without being able to figure out how to reduce burn, the problem is that success is never forever.
- danieltillett 11y ago
  Yes money solves lots of problem and fixes all sorts of bad decisions - much like how a marriage is fine until unemployment hits. I agree 100% that there is a need for different management approaches between foot-to-the-floor growth and surviving hard times. It is a rare person that excels at both. Having lived through both, I am better at the later, but the former is much more fun.
pbreit 11y ago
Probably true but there are still a lot of founders out there who reject or deny this or are simply oblivious.
- tacos 11y ago
  But they're somehow going to be smart enough to Google "how to reduce burn" ... and stumble upon this article? And then act on it?
  - 11y ago

danieltillett 11y ago

There is a third way which is put the company into hibernation. I was faced with this with my startup a bit more than 10 years ago now. I ran out of runway so I laid everyone off, paid the bills, and got a job. I then bought out everyone else, worked part time on the business and built it back up over then next few years to the point where I could return full time. I could have started a new business, but I believed that there was a lot of value in the old business [1] which proved to be correct. 1. Some caveats here. Firstly, I did not have many people to buy out and they were willing to sell at a reasonable price. Secondly, my business is in biotech/bioinformatics and we had put a lot of resources into R&D. This R&D had real value that could be used to bring the business back to life.

OopsCriticality 11y ago
Did you have any licensed IP, and if so, how did you deal with that during the hibernation period?
- danieltillett 11y ago
  Nothing that I could not re-license again later. I lost the patents in progress as I didn’t have the resources to continue with them, but this was actually a blessing in disguise. Rather than protecting the IP by patents I was forced to concentrate on trade secrets which if you have the choice is a much better way to go. If anyone is interested in learning more I wrote a rather long blog post about the whole experience [1]. 1. http://www.tillett.info/2015/06/24/why-i-kept-my-startup-in-australia-and-why-it-was-crazy/ http://www.tillett.info/2015/06/24/why-i-kept-my-startup-in-...
- guelo 11y ago
  I was in a situation where angry clueless investors wanted to keep the software as an asset they were entitled to, but it was close to worthless without the engineering knowledge. They tried to shop the MVP around but got nowhere. If I could have kept it I would have tried to keep it running on the side.
  - 11y ago

JarvisSong 11y ago

Great analysis. I would add another chart -- likelihood of more investment / buyout -- both decrease as you get closer to zero runway.

lotso 11y ago

Could someone give a brief bio of Dalton Caldwell? I know he created Svbtle, but don't know much else about him.

kmonsen 11y ago
https://en.wikipedia.org/wiki/Dalton_Caldwell https://en.wikipedia.org/wiki/Dalton_Caldwell
bshimmin 11y ago
I think Svbtle was created by Dustin Curtis, actually.

larakerns 11y ago

It's discouraging when new employees expect a certain lifestyle on joining your startup but you're runway is less than a year. Startups have been portrayed as having so many perks that there's an impossibly high standard to strive toward.

airza 11y ago
I mean, usually those perks are a distraction from anomalously low salaries and probably non-valuable equity..
- cballard 11y ago
  The perks are also designed to keep you there as long as possible. If you leave at a reasonable hour, you don't need catered dinner or company-provided alcohol.
tptacek 11y ago
If your runway is less than a year and you don't have a proven way to self-fund from revenue, you should be careful about hiring employees at all. It would be a red flag to me as an employer if we were close to exhausting our resources and somehow communicating to employees that they might be joining the kind of company that could afford perks of any sort. If you're that tight, the first conversation you should be having with candidates is about the kind of company you're running. There are good developers that are willing --- with enough upside! --- to join high-risk companies like this. But most developers, sensibly, are not.

josh_carterPDX 11y ago

I've never understood the psychology of those that do not fundamentally get this. If you just finished raising a seed or angel round, chances are you had less than 12 months of runway to begin with. Perhaps your personal savings was drying up or you were running out of friends and family resources that could help you run this out further. The sense of urgency and anxiety you felt while raising your seed round doesn't go away simply because you were able to raise some money. If anything, it would increase. So the fact that someone had to specifically cover this in a blog post seems really counterintuitive to me.

rl3 11y ago

>The Fatal Pinch does not apply to me Except, sometimes it doesn't? If you look at the notes[0] at the bottom of The Fatal Pinch: >There are a handful of companies that can't reasonably expect to make money for the first year or two, because what they're building takes so long. For these companies substitute "progress" for "revenue growth." You're not one of these companies unless your initial investors agreed in advance that you were. And frankly even these companies wish they weren't, because the illiquidity of "progress" puts them at the mercy of investors. What do you do if you're one of those companies? There's plenty of business models that could be attractive acquisition targets (read: billions), but otherwise can't monetize to save their souls. Two pieces of advice often encountered (paraphrasing): "Treat each funding round as if it's your last." "VC money is like rocket fuel. It's intended to be burned at a high rate." I imagine reconciling both is difficult at best. [0] http://paulgraham.com/pinch.html http://paulgraham.com/pinch.html

danieltillett 11y ago
>What do you do if you're one of those companies? There's plenty of business models that could be attractive acquisition targets (read: billions), but otherwise can't monetize to save their souls. You need patient investors which are rather hard to find. One suggestion I have seen is leave such businesses until you succeed once. If your first business is a success then you will have your own pockets to draw on and a track record that will allow other investors to trust you. Sometimes you just can’t get to the final destination in one hop.

aagha 11y ago

I love how investors are always willing and wanting to show examples of how they have the upper hand and the entrepreneur has the lower one (chart in the article).

rwallace 11y ago
Insulting people for honesty is a dick move. The article is doing its best to show you how to avoid situations where you have a terribly weak bargaining position.

Kiro 11y ago

> In especially messy scenarios you can end up with personal liability. When can this happen?