Managing Startups: Best Blog Posts

Chapter 69. Once You Take Money, the Clock Starts Ticking

Chris Dixon

One of the interesting things about having been investing in startups for a number of years is that at any moment you can get an inside peek at startups at a variety of different stages. In the course of a few weeks, I might talk to people who are ideating around new business ideas, people raising seed rounds, people raising later (VC) rounds, people whose products are blowing up, people whose products are struggling, people getting acquired, people leaving acquirers to start new companies, etc. Sadly, there are also usually a few companies that are struggling and facing the serious possibility of running out of money and being forced to shut down.

One side-by-side comparison struck me recently. Company A is just now raising a seed round. The money they raise will last 12 months (personally, I strongly recommend raising 18 months’ worth of runway—if you have the option to do so). Company A was also, in my opinion, not ready to raise money (they needed to work on their plan and team more). Company B raised a seed round about 10 months ago and is now struggling to raise more. Company B had the option to raise more money back then but chose to only raise 12 months’ runway in order to minimize dilution. Company B also made the mistake of having a large VC invest $100k in the round (a meaningless amount to a large VC). The large VC has since said it won’t support the company (despite the fact that the company ...