One of my favorite First Round Capital Holiday Videos is the the 2014 release – “It’s All About Burn Rate” set to the tune of Meghan Trainor’s “All About That Bass”. I sometimes find myself humming that tune when I am reviewing an investment opportunity from an entrepreneur who does not fully appreciate the importance of understanding how burn rate and cash runway can impact the success/failure of their venture. When analyzing the financial structure of an investment opportunity, I try to evaluate both the amount of time the funding will last as well as the milestones/traction that the funding will enable the company to achieve. Will the proposed funding result in:
- Achieving cash flow “break-even” which allows the company to have some measure of control over their financial destiny?
- An inflection point of milestones/traction that will position the company to raise another round of funding at more attractive valuation levels?
- Landing in the “dead zone” – not enough traction to attract the next round of funding and without further funding in need of cutting expenses.
If the current raise enables the company to generate enough recurring revenue to operate on a break-even basis, then the company can continue as an operating entity without having to lay-off staff, reduce marketing outlays or frankly shut the doors and cease operation. The company needs to have a clear understanding of their variable versus fixed costs – what expenditures are mandatory to allow the company to survive versus those that can be reduced or even eliminated for a period of time. Growth may be slower than desired, but may at least provide the company the time to pivot their strategy or hold out for a more attractive funding environment.
Traction reached for next round:
For most of the companies in which I am investing, there will be multiple rounds of financing required before the company is in a position to exit. It is critical to understand what are the milestones/traction that the next investor will require and how does the company plan to achieve these milestones within the runway provided by the current raise? On the expense side, does the company have a strong grasp of the resources required to execute on the plan? Do the assumptions for revenue recognition take into account a realistic sales cycle for the product/service being offered?
Unfortunately, many companies end up in this position either because they do not raise sufficient capital or do not have the ability to actually execute on the plan that would position them to be attractive to the next investor. I find this oftentimes with companies that utilize convertible notes and end up within sight of the maturity date without enough demonstrated progress. As an investor, I am usually faced with the decision to extend my note, invest more in the company to provide some life support, or hope that there is at least some asset value to be distributed to note holders in the event of liquidation.
Remember as the music states – “It’s All About Burn Rate”
Posted in Angel Groups, Angel Investing, Convertible Notes, Due Diligence, Early Stage Investing, Financial Models, Golden Seeds, New York Angels, Opinion, Term Sheets, Uncategorized, Venture Capital, Women Investors
Tagged Education, Funding, Investing, Investments, Launch, Money, New York, NYC, Perceptions, Portfolio, Portfolios, Risk, Start Up, Startup, Strategy, Term Sheets, Value, Viewpoint, Women
On the first day of Christmas
St. Nick sent to me:
A Membership at The Wing! Continue reading
Posted in Angel Groups, Angel Investing, CrowdFunding, Due Diligence, Early Stage Investing, Feminist, Golden Seeds, Kickstarter, New York Angels, Opinion, Uncategorized, Venture Capital, Wharton Alumni Angel Network, Women Investors
Tagged Funding, Happy Holidays, Investing, Investments, Money, New York, Startup, Startups, Stereotypes, TechCrunch, The Wing, Women
It’s that time once again to reflect on the prior year and make some resolutions for the next. In last year’s post, I suggested that you:
- Take a critical look back at portfolio companies that didn’t make it and try to ascertain what really went wrong.
- Expand your access to quality deal flow
- Become a mentor to a young entrepreneur
Here are a few of my suggested resolutions for 2017: Continue reading
Posted in Accelerators, Angel Groups, Angel Investing, Due Diligence, Early Stage Investing, Feminist, Golden Seeds, New York Angels, Opinion, Uncategorized, Venture Capital
Tagged Funding, Investing, New York, Portfolio, Startup, Strategy, Viewpoint, Women
This past weekend, I had the opportunity to invest in a crowd-funding campaign for Bella Minds – whose mission is quite simple – “Bringing Tech Education to ALL Women”. There is lots of press these days on the lack of women in STEM… so rather than just read/write about the problem, this was an opportunity to participate in an actual solution; yes do something! Continue reading
Posted in Angel Groups, Angel Investing, CrowdFunding, Due Diligence, Golden Seeds, Opinion, Uncategorized, Venture Capital, Women in Tech
Tagged Angel Investing, Angel Investor, Bella Minds, Crowdfunding, Deb Jackson, Female Investors, Golden Seeds, Mentorship, Plum Alley, Women Angels
In previous posts, I have described how certain term sheet provisions impact the Economics, Control, and Value Protection in a proposed investment. In this final post on Term Sheets, I will discuss some provisions that impact the Liquidity of the investment. Continue reading
Posted in Angel Groups, Angel Investing, Due Diligence, Golden Seeds, Term Sheets, Uncategorized, Venture Capital
Tagged Angel Investor, Early Stage Company Valuation, Exit, Exit Strategy, Golden Seeds, Term Sheets, Women Angels, Women Investor
This is the fourth post on Term Sheets and how they impact returns to investors. In addition to economics and control, term sheets also contain provisions that impact how as investors we can add some level of protection for the value of our investment. Although there are a number of provisions in the term sheet addressing this, the three most important to me are:
Posted in Angel Groups, Angel Investing, Due Diligence, Opinion, Term Sheets, Uncategorized, Venture Capital
Tagged Angel Investing, Angel Investor, Anti-dilution, Female Investors, Golden Seeds, Information Rights, Term Sheets, Valuation, Value Protection, Women Angels, Women in Angel Investing, Writing Checks
This past week I had the opportunity to spend the week with my daughter Charlotte, watching her compete at a horse show. Charlotte, now an adult, has been riding and competing for a number of years and I never cease to be amazed by the strength and beauty of these incredible horses and how the riders can control such powerful animals. In much the same way I feel that being an angel investor enables me to be a “vicarious entrepreneur”, being a “HorseShowMom” allows me to imagine myself in the saddle. Now, in terms of full disclosure, I did take some riding lessons early in my daughter’s riding career which were quickly ended when I flew over the jump (without the horse!) and decided at that point that I was best suited for ground crew! Continue reading
Posted in Angel Groups, Angel Investing, Due Diligence, Opinion, Uncategorized
Tagged Angel Investing, Angel Investor, Business Plans, Early Stage Company Valuation, Failure, Female Angels, Female Investors, Investment, Pivot, Startup Failure, Women Angels, Women in Angel Investing, Women Investor