Drive to Survive (extend your runway…)

Tactical advice on extending your runway to raise in the fall

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Last week’s goal was inspiration. This week we start on tactics. 

Last week my message was – “Yes this market sucks, and pausing a fundraise can be painful…BUT it could be a blessing in disguise.”  

I wanted founders who had their fundraises blown up by the market to realize this newfound time with added constraints (euphemism of the century, I know) could drive incredible outcomes. Deep and deliberate preparation for a fundraise, I argued in the podcast I referenced, can be transformational.

In normal times, that change can be accessed with just a bit of planning and guidance.

However, when you’re unexpectedly forced to push off fundraising for months in the middle of crashing markets and a swirling economy, transformation is on the other side of a major first step…

DRIVE TO SURVIVE 

To even consider using your unplanned time towards preparing a fundraise, first you need to survive.

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The basics of this means organizing the company so you have the breathing room to execute a fundraise once we emerge from the current period of irrational pullback by early stage investors. After summer vacation ends and the uncertainty of crashing markets settles, investing activity will start picking back up. Holding off fundraising till September at the earliest means you will need to stay alive till December, but ideally you extend your cash out date till March (who knows how slow processes will be in the fall).

So how do you pull this off?

Basic Survival Steps

The best first step in surviving is intelligent planning. You must get a hold of your financials so you can identify your cash out date and then do what it takes to MOVE that date.

As soon as possible, jump into the numbers and build a great model. If you don’t know how to do this, ask for help! An accurate handle on how much you’re burning every month is essential to getting this right and you can’t get there without spreadsheets. 

Side Note: don’t be ashamed if you don’t already have a great financial model or aren’t great at financial modeling. MOST early stage startup founders are in this situation (but don’t admit it). The positive effect of this fire drill is to make sure you know how to do this for the future (either on your own or with help).

Once you’ve got the model in place, there are only two things to focus on… costs/expenses and revenue/investment. In other words - decreasing / increasing your outflows and inflows of cash. 

Adding Inflows

There are limited options here but you should leave no stone unturned. 

While it’s not a great time to run a traditional fundraise process, there are a few opportunities that could be easier to access. Explore adding smaller amounts of financing from current investors (inside bridge round), one-off angel checks from outsiders, equity crowdfunding, and/or different debt/borrowing/credit card options [always be careful with these options]). 

Do you have paying customers? Try negotiating to pull future revenues forward at a discount. Cash today is worth much more to you than cash in the future.

Cutting Outflows

The largest expense item for most early stage startups is salaries. This can be the most emotionally painful expense to cut but also the most impactful on your runway. Eliminating headcount is the common approach to this, but cutting / deferring salaries are other options.

Beyond headcount, look for opportunities to eliminate unnecessary expenses. A good filter is dropping anything that doesn’t help you hit milestones over the next 3-6 months. 

Finally, if you have any contractually obligated expenses, negotiate. No one benefits if you go out of business and you might be surprised at how willing partners will be to help.

Some options on the costs side: 

• Eliminate expenses that don’t help you hit milestones over the next 3-6 months
• Defer payment of bills
• Negotiate payment terms
• Defer salaries
• Trade equity for salary
• Reduce headcount

On the cash side:

• Bridge / investor insiders to invest more
• Solicit smaller checks from outsiders
• Equity Crowdfunding
• Debt providers 
• Credit card (not desirable)

Moving Forward and Creating Diamonds 💎

If part of your survival plan is reducing headcount or asking for your team to accept reduced salaries,  execute this quickly. The longer you wait, the shorter you have to execute. You’ll be hurting everyone to avoid an uncomfortable situation.

Do take note - I said “quickly” not “recklessly”. The way you do this is important. The business needs to survive but you’re dealing with humans so be a human. The way you treat people on the way out will be part of your reputation for future hires and with remaining teammates. 

For the team that stays with you in the trenches, keep an eye on maintaining morale, rallying the team around a common goal, and building excitement for the future. High pressure does not need to be a death march.

It’s not easy but if successful this process can cut fat and sharpen the pencil in a way that benefits you beyond just getting to the next fundraise. With the right ingredients, pressure can create diamonds.

Next week, we’ll talk about how to use that time you just bought for yourself...

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