With the economic downturn and associated uncertainty, startup founders at every stage have been rushing to shore up their balance sheets and extend runways.
I’ve been recommending that founders plan to have at least two years of runway in the bank (ideally three). However, if you were in the process of raising a round or just embarking on your next fundraising circuit, that can be a tall order.
Founders of such companies are faced with a tough decision: waiting it out and hoping the six to 18 months of runway they’ve got can last them through a potentially protracted downturn or securing extra runway via a down or flat funding round.
Remember, if you don’t ask investors for support now, someone else in their portfolio will.
I lived and invested through the 2008 crisis, and I’ve been trying to share the lessons I learned through that struggle with my portfolio companies, some of which I want to share with you.
One of the biggest lessons I’ve learned is: Err on the side of caution and secure the financing you need to be considered “alive” as a company, even if that means taking a flat or down round.
I’m telling every founder I meet to talk to their existing investors first about where the company balance sheet stands, and what they need to be confident that their company will survive the next several quarters. This can be a tough pill to swallow, but it’s an important (albeit difficult) conversation to have.