Cash is king if you want to keep peace of mind

If you have ever been married, you know that you are not just marrying your spouse, but also adding their family and friends to your extended family. On that wedding day, you also introduce new demands on your time such as yearly visits to the in-laws, requests for grandchildren and an endless stream of birthday parties, anniversaries and baby showers. To make sure you keep your sanity, it is critical to maintain a budget that can afford these activities or at least know when to say no. You risk increasing debt and hungry creditors without an effective budget. Being pulled in all different directions with new expectations is a predicament that any CEO of a start-up company can sympathize with. In their case the critical event is not marriage, but rather taking in venture capital. So in order to delay this outside funding event for as long as possible, here is another tip for start-ups: preserve as much cash as possible. As for delaying the marriage event, you will have to take that up with your spouse.

Cash is King
Extending cash and keeping a low burn rate is a pretty simple concept in principle but difficult in practice. Beg, borrow and steal to get your product to market and start building a customer base. The most important thing you can do with your seed or angel money is to build your prototype, identify market demand, demonstrate your team’s ability to execute and get customers that will vouch for the problem you are solving. Do odd jobs to get extra income, pool money from family, friends and relatives to help with cash flow. The extent to which you can keep funding your business on your own without the need for VC funding, the better off you will be in the long term.

Why is this so important?
Once you open your company to outside board members, especially institutions, you have accelerated your expected time to revenue and some type of liquidation event. Most VC firms are not in the business to just build companies that last with year over year returns, they are in it to get a high return on their investment. Going back to the marriage analogy, taking VC money is like adding a father-in-law and mother-in-law and daily reminders about grandchildren. If that is along the same timeline as you and your spouse, then you should not have a problem with it.

For some, venture capital is a required next step. If so, here is a post on Rick Segal’s blog with an overview of the funding process.

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