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.