YC
Kirsty Nathoo - Managing Startup Finances
@ Y Combinator
08/22/19
Takeaways
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Kirsty Nathoo
08/22/19
@ Y Combinator
Cash is the lifeblood of every business, and running out of cash means the business dies with no way back.
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Kirsty Nathoo
08/22/19
@ Y Combinator
Many startups fail to realize they are running out of cash until it's too late to turn things around.
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Kirsty Nathoo
08/22/19
@ Y Combinator
You should know your bank balance, the money coming in, and the money going out to ensure your company's financial health.
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Kirsty Nathoo
08/22/19
@ Y Combinator
Calculating your burn rate is straightforward: it's the difference between money in and money out, which you can find in your bank statements.
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Kirsty Nathoo
08/22/19
@ Y Combinator
Your runway is how long you can operate before running out of money, calculated by dividing your bank balance by your average burn rate.
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Kirsty Nathoo
08/22/19
@ Y Combinator
It's crucial to be honest about your burn rate; misrepresenting it only leads to self-deception about your financial situation.
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Kirsty Nathoo
08/22/19
@ Y Combinator
You should regularly review your financial numbers, ideally at least weekly, to stay informed about your company's financial health.
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Kirsty Nathoo
08/22/19
@ Y Combinator
Startups often underestimate their expenses, especially in the early days when founders may undervalue their own time and efforts.
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Kirsty Nathoo
08/22/19
@ Y Combinator
As you hire more people, your expenses will increase beyond just salaries, so it's important to anticipate these changes. An employee's total cost to a startup can be 25% to 50% more than their salary, so if you pay an engineer $100,000, the fully loaded cost could be between $125,000 and $150,000.
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Kirsty Nathoo
08/22/19
@ Y Combinator
It's a common mistake to assume that paid acquisition costs will remain constant; in reality, it often becomes more expensive to find and convert users over time.
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Kirsty Nathoo
08/22/19
@ Y Combinator
Runway is not just a vanity metric; it's crucial for understanding the health of your company. Don't ignore it or manipulate the numbers to feel better about your situation.
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Kirsty Nathoo
08/22/19
@ Y Combinator
Outsourcing financial responsibilities to a bookkeeper is normal, but the CEO and founders must still understand the financial numbers and question any discrepancies in reports.
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Kirsty Nathoo
08/22/19
@ Y Combinator
Hiring too quickly can be tempting, but every hire should be seen as an investment, and you need to ensure that you're getting a return on that investment.
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Kirsty Nathoo
08/22/19
@ Y Combinator
The best companies achieve more with fewer employees, so focus on the ratio of revenue to employees rather than just the number of employees.
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Kirsty Nathoo
08/22/19
@ Y Combinator
Scaling your startup before achieving product-market fit can be dangerous; it's better to spend as little as possible while figuring out what your product should be. If you have product market fit, customers will actively seek your product, and even a basic version can solve a significant problem for them.
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Kirsty Nathoo
08/22/19
@ Y Combinator
You should always assume that you will never raise more money and aim to achieve profitability with the funds you currently have.
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Kirsty Nathoo
08/22/19
@ Y Combinator
It's risky to rely on investors for additional funding, as they may not always provide it when you expect.
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Kirsty Nathoo
08/22/19
@ Y Combinator
As your company grows, raising money becomes more challenging, especially if you wait too long and your runway gets too low.
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Kirsty Nathoo
08/22/19
@ Y Combinator
If you have six months of runway left, you should start thinking about raising money or achieving profitability, as waiting too long can reduce your leverage with investors.
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Kirsty Nathoo
08/22/19
@ Y Combinator
Most startups fail because they run out of money, but you can avoid this by understanding your cash balance, expenses, and having a clear plan for profitability.
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Kirsty Nathoo
08/22/19
@ Y Combinator
In the early stages, it's important to be cautious with spending and have a plan to reach profitability, even if you're reinvesting revenue into growth.
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Kirsty Nathoo
08/22/19
@ Y Combinator
You typically don't need a full-time CFO until after Series A; earlier, you can rely on bookkeepers and consultants for financial guidance.
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Kirsty Nathoo
08/22/19
@ Y Combinator
At the seed stage, investors are more interested in your market potential than in detailed financial forecasts, which are more critical by Series A.