Welcome to 2016. We’ve already heard lots of predictions about the late stage financing market, tech IPOs, and what is going to happen to unicorns this year. And it’s only Monday, January 4th.
Remember that these are predictions. No one really has a clue. And a year is a long time.
My simple advice for 2016 is “control your destiny.” There are lots of different ways to control your destiny. It’s dependent on the stage you are at, the size of your company, and the configuration of your investor base.
Here’s an example from an email exchange I had this morning with the CEO of an early stage company that has growing revenue and a small team.
Founder: “So far we’ve raised $1.2mm and our revenues for 2016 will eclipse that. (All software licenses sold, no services). With status quo, we can become profitable, but grow slowly. I can burn faster, and grow faster, but risk not being able to raise money. There are network effects and winning the market is important. If my end goal is to ultimately win the market and not stay a “nice little business” is there any rule of thumb for how much to burn versus keep in the coffers? Is it better to burn out, or fade away?”
Me: 1. How much cash do you have in the bank? 2. How much are you burning a month?
Founder: 1. $250K actual cash. $250K in A/R. 2. $65k / month
Me: Get profitable so you are self-sustaining. Then raise more money.
Founder: Thanks! I think you are right. Love to know your reasoning.
Me: Control your future. It makes fundraising much easier.
I’ve got plenty of different examples for different situations and stages. Look for more examples like this in the future. If there are specific cases you are looking for feedback on, feel free to leave them in the comments.