Perhaps the major sin I have recently observed in my portfolio companies is letting available cash get below 6-9 months of cash burn.
There are many good reasons for this, according to my CEO/founders, but I do not buy any of them. The CEO/founders first responsibility is to ensure that the company has enough cash to reach three months beyond its next key milestone, and thus easily raise their next tranche of capital. If not, then the CEO/founder has made a big mistake.
I'll save you a recital of the excuses, and they always seem rationale, but they just don't cut it. No matter how many times I remind them, the message does not always get through, we end up in near panic situations and scramble for cash. Thankfully, so far, Dave and his investing partners have come up with the needed cash.
But it is a tiresome and drama filled period while available cash hovers near two months and the investors scramble to fund a bridge of extend and equity round.
Here's a few words for advice for founders:
1. Put a Cash Calendar on the wall above your workstation. Circle the projected cash depletion date on one month, then the same date ten months earlier. Plan on beginning new fund raising on that date.
2. Set up a list of thirty VC's you are going to approach. Yes, thirty. Be sure you have something to tell them about progress each moth after you meet them. Keep in touch!
3. Develop a short list of VC's you most want to invest. This group will get you highest level of attention, including in person visits every few months.
4. Under promise and over deliver. Decide on your minimum acceptable funding metrics and beat them every month, rather than setting unattainable goals and missing them. Communicate these monthly to your VC target (actual versus promised).