Money is like gasoline during a roadtrip!

Money is like gasoline during a roadtrip: This was a perspective I missed during our fundraising activities. How much is really enough for a startup during its fundraising stages? I’ll admit that we never knew the right answer- sometimes it felt too much. At other times, it felt like we weren’t asking enough. The question is – where do we draw a line and say – this is what we need for a certain stage of the startup?

I’d strongly encourage reading through types of startup funding for clarity on most things we’ll refer to in this article. Whether it is the first round of seed investment or a Series D fundraise, we really have to identify what the right amount of investment is. Most importantly, we’ll need to back this amount with credible hypothesis to grow the business accordingly. The more detailed you can get at this stage, you have a better chance at convincing the potential investors.

Money is like gasoline during a roadtrip meaning

One of the most common reasons why startups fail is because of lack of money. I’m sure it doesn’t come as a surprise for you. Sales, product development, contracts – everything takes much longer than we anticipate. Unfortunately, no matter how good the plan is, there’s always an incident which changes everything for an entrepreneur. The main reason is that as an entrepreneur, we won’t have enough buffer to save us from rainy days.

Hence, during our fundraising days, the first advice we got was to raise more money than we thought. Our advisors and coaches weren’t trying to be pessimistic. The idea was that we had a bit of buffer to help us and reduce dependency on key events. Also, the number one question we’d get from most new hires was about our runway. (Related: How to calculate startup runway)

In addition, I also have to impress the fact that fundraising takes time. It took us about 6 months of time after having a good business plan. I’m conscious that the type of business and market matters, but generally for your planing, I’d recommend planning for 6 months. The worst thing you can do is realise that you haven’t raised enough money in a funding round. This will force you to go out for funding soon after closing one. This will mean your full time job will change from running a startup to raising money. Hence the quote – money is like gasoline during a roadtrip, you’re not doing a tour of the gas stations

You’re not doing a tour of the gas stations

I love this part of the quote. Making a direct translation, your job is not to keep fundraising. Your role is to run the startup, create value and continue doing this. Work never stops in a startup. You’ll be constantly pushed by your investors, co-founders, teams and other people that you’ve to answer to. Imagine having to fundraise amidst all these demands on your time. Puts this into perspective doesn’t it.

I’m aware that I’m labouring the same point again. But the only thing I’d like to say is that – define a buffer of money that would help you in rough times. This could be 2-6 months depending on the stage of your business and number of customers that you already have. You can’t depend on quick turnarounds in customer payments while defining your business plan. They will have their own processes to delay. The key point is that these decisions should not kill your business altogether. Hence the point – money is like gasoline during a roadtrip – you ought to have enough.

Running out of Money

Although, I would advocate this philosophy of a startup during initial stages, the scope changes almost immediately after you do your first round of fund raise or keep having regular expenses. The regular expenses are quantified in the form of employees, recurring services, etc. A general rule of thumb is that fundraising takes about 6-8 months. One of my mentors used to say – “the moment you complete your fundraising, you ought to be ready to plan for the next”

It is amazing to see how easy it is to burn through resources, particularly money – specially when you don’t have paying customers yet. This is probably an eternal challenge of startups – having enough money to get more customers and vice versa.

I suppose there is never an easy solution to this philosophy, but the concept of living or expenditures per day can be very dangerous when a startup starts growing.

As a founder, it is exceedingly relevant to keep track of this scenario which defines that a startup is moving away from being just an idea or about a founder to a company wherein planning starts taking a higher precedence.

“Money is like gasoline during a road trip. You don’t want to run out of gas on your trip, but you’re not doing a tour of gas stations.”

— Tim O’Reilly, founder, and CEO of O’Reilly Media