What’s In Your Wallet?
An entrepreneur asked me recently, "how much money should I have in the bank before I look for more money." He was really asking, "at my current burn rate, when should I look for more money." The best answer is that you shouldn’t because you are cash flow positive and don’t need a lot of new capital. You have a revenue model and are looking at using different types of financial instruments to super-charge your growth. But, given that most VC-powered startups require large amounts of capital for the promise of high returns, I understand the tension.
I personally, like to have at least 12-18 months of cash in the bank. In other words, if something disastrous happened to your business, how long would you have to ride out the storm. There is still a lot of money flowing into venture-funded companies per the chart below.
In fact, it wasn’t down much from the previous quarter. Techcrunch has a good piece on this recently. However, expect the bar to get higher as we move into worsening economic conditions. Never be in the position of having an under-funded startup. There are two many examples of great ideas and great management teams failing due to their lack of capital.
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