5 ms·

Counterpoint: if you're running out of money, the next investor you try to raise from is going to be tough to negotiate with. If you have years of runway left,

by yosefk 10y ago

Counterpoint: if you're running out of money, the next investor you try to raise from is going to be tough to negotiate with. If you have years of runway left, you're in control when talking to investors, when you have 6 months, they're in control. Another point is that when everything comes down crashing, as it did in 2008, and you can't raise money anywhere nor, in many cases, make a profit in the near future since demand for everything also crashes, then if you've squirreled away enough money, you don't have to fire anyone, nor close shop. This is not to say that too much money can't cause the problems you mentioned. The cure is to keep the money in the bank and not spend it. All of the above is what my employer did, not my own personal idea. (Also no VCs, these gut the company if it's neither public nor profitable in 5 years, or at least they used to.)

marcofloriano 10y ago
I like your idea (actually i practice it), but your investors aren't putting a lot of money in your hands so you keep it at the bank to them, right? They could do that for themselves. By experience you don't need years on cash to survive in the long run, discipline and a business that makes sense is way more powerful. But off course, months of runaway is necessary. More than that is luxury.
- yosefk 10y ago
  Investors put money in the craziest places, surely there's a public story stock right now that you think is inflated beyond belief and yet it trades at the price it does. It follows that investors will do crazier things than give you money to keep in the bank if you persuade them. You tell them point blank, "we're hoping to make it big this year, but we aren't taking any risks and we're gonna keep enough cash in the bank for the 3 next years. If you don't like this plan, fine, you're missing a chance to buy a stock that's gonna shoot up 10x and here's why", and they buy your pitch, they're gonna beg you to take their money. I'm not saying I can do this, I'm saying people exist who can, and there are markets where things are measured in years, and so you might want more runway because your progress is way slower than that of a YC-backed Internet monopoly wannabe. By the way, MIPS Technologies was killed by genius investors who said "give us your $100+ million in cash or invest it" and a genius CEO who said "fine, you ain't gettin' nothin', I'm buying Chip Idea." It turned out that they didn't know how to run Chip Idea and ran it into the ground, and now they had neither money in the bank nor anything to show for it. This drove the company value down so much that Imagination bought it for $60 million (the patents were sold to a big CPU cartel for another $500 million, perhaps unfortunately as genius investors did not get quite the punishment they needed to learn anything.) A CEO capable of persuading the board of directors to keep the money in the bank would have done better.
  - posterboy 10y ago
    >you're missing a chance to buy a stock that's gonna shoot up 10x and here's why that's not a positive pitch. The message sticks, whether you try to negate it or not, if resonating with expectation.
pc86 10y ago
If you're hemorrhaging money, they're going to be in control regardless of your actual burn rate. Even with years a runway if you're losing money month over month and your runway only gets you 90% to profitability, it doesn't matter if that 90% happens in 2 months or 2 years, it's still going to happen without cash or a change at the company.
- yosefk 10y ago
  > it doesn't matter if that 90% happens in 2 months or 2 years. It does. If you must sell your house this week you'll get a lower price than if you can afford to wait for a year for the most eager buyer who's in love with the place. The effect is more pronounced with selling stock in a private company which is much, much harder to price than a house. > it's still going to happen without cash or a change at the company. It depends on why you lose money. If you lose money because you acquire many users and lose money on every user, you need to "change" the company in the sense of finding a way to make money on every user, enough to cover your more or less fixed expenses and then some. If you lose money because you're building a product and haven't reached mass production either because it takes a lot of time to ramp up production or because it takes time for demand to show up, say for regulatory reasons, then the "change" is simply getting to mass production. In the latter case, having more money is (in a way) getting you closer to that welcome "change" than in the former.

by yosefk 10y ago

marcofloriano 10y ago

I like your idea (actually i practice it), but your investors aren't putting a lot of money in your hands so you keep it at the bank to them, right? They could do that for themselves. By experience you don't need years on cash to survive in the long run, discipline and a business that makes sense is way more powerful. But off course, months of runaway is necessary. More than that is luxury.

yosefk 10y ago
Investors put money in the craziest places, surely there's a public story stock right now that you think is inflated beyond belief and yet it trades at the price it does. It follows that investors will do crazier things than give you money to keep in the bank if you persuade them. You tell them point blank, "we're hoping to make it big this year, but we aren't taking any risks and we're gonna keep enough cash in the bank for the 3 next years. If you don't like this plan, fine, you're missing a chance to buy a stock that's gonna shoot up 10x and here's why", and they buy your pitch, they're gonna beg you to take their money. I'm not saying I can do this, I'm saying people exist who can, and there are markets where things are measured in years, and so you might want more runway because your progress is way slower than that of a YC-backed Internet monopoly wannabe. By the way, MIPS Technologies was killed by genius investors who said "give us your $100+ million in cash or invest it" and a genius CEO who said "fine, you ain't gettin' nothin', I'm buying Chip Idea." It turned out that they didn't know how to run Chip Idea and ran it into the ground, and now they had neither money in the bank nor anything to show for it. This drove the company value down so much that Imagination bought it for $60 million (the patents were sold to a big CPU cartel for another $500 million, perhaps unfortunately as genius investors did not get quite the punishment they needed to learn anything.) A CEO capable of persuading the board of directors to keep the money in the bank would have done better.
- posterboy 10y ago
  >you're missing a chance to buy a stock that's gonna shoot up 10x and here's why that's not a positive pitch. The message sticks, whether you try to negate it or not, if resonating with expectation.

pc86 10y ago

If you're hemorrhaging money, they're going to be in control regardless of your actual burn rate. Even with years a runway if you're losing money month over month and your runway only gets you 90% to profitability, it doesn't matter if that 90% happens in 2 months or 2 years, it's still going to happen without cash or a change at the company.

yosefk 10y ago
> it doesn't matter if that 90% happens in 2 months or 2 years. It does. If you must sell your house this week you'll get a lower price than if you can afford to wait for a year for the most eager buyer who's in love with the place. The effect is more pronounced with selling stock in a private company which is much, much harder to price than a house. > it's still going to happen without cash or a change at the company. It depends on why you lose money. If you lose money because you acquire many users and lose money on every user, you need to "change" the company in the sense of finding a way to make money on every user, enough to cover your more or less fixed expenses and then some. If you lose money because you're building a product and haven't reached mass production either because it takes a lot of time to ramp up production or because it takes time for demand to show up, say for regulatory reasons, then the "change" is simply getting to mass production. In the latter case, having more money is (in a way) getting you closer to that welcome "change" than in the former.