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If your company is under pressure from investors to cut your burn and increase cash flow so you can ultimately extend your startup runway, you’re probably struggling with:
We interviewed Matt Hafemeister, Head of Jeeves Growth and former partner at Andreessen Horowitz, to provide you with an in-depth look at how to extend your runway as a startup founder. Matt previously worked at a16z and has extensive experience advising and building startups.
In this post, we’ll cover:
Note: Extend your startup runway in days instead of months with Jeeves’ financing. Get started now and apply to Jeeves today.
As founders ourselves, we know what it’s like to have to take stock of your runway, analyse your capital and look for ways to extend your runway.
We’ll look at four fundamental ways to help your cash go further and review the pros and cons of each.
Cutting costs involves lowering your burn rate to increase the total amount of cash. The most common ways you can cut costs are through:
Pros of cutting costs:
You’ll have greater flexibility because you’re completely in charge of how you spend your cash. Cost cutting is the easiest way to extend your runway because you're not accountable to anyone else.
Cons:
Headcount is the most common way to cut costs, but also the most difficult and not necessarily the best. You’re dealing with people’s lives and impacting their families, so cutting heads is much more personal. That’s why it might be easier to cut SaaS tools, marketing, expense budgets and CAC first before letting go of people.
Another drawback is miscalculations. If you don’t calculate your burn rate correctly, you may wind up cutting aspects that hinder business growth. Slashing your customer acquisition costs (CAC) may seem like a good idea until you realise you’ve compromised all new customer leads.
You can only identify what to eliminate to get your burn rate down when you use the right metrics (spoiler alert: we’ll show you how below).
Out of the 4 ways to extend your startup runway, generating quality revenue is the most difficult to achieve.
Until now, you may have relied on just getting customers in your door. Now, you want to avoid worthless deals and turn a profit instead. For example, if you offer a new product or launch a service in a new market, you can’t afford to give away business cheaply.
“If you want to bring in quality revenue, double down on your most profitable channels and most profitable customers. Focus on those deals and nothing else.” – Matt Hafemeister, Head of Jeeves Growth
One way to avoid this is to focus on lowering your CAC while creating high-margin revenue.
Here’s an example. If you're a SaaS company, you may decide to no longer give away free tier subscriptions alongside paid higher tiers. Instead, you could try free trials that turn into paid subscriptions for all your tiers and dedicate your CAC to getting higher-tiered clients in the door.
Pros of bringing in quality revenue:
You don’t have to rely on external funding, which means you can keep control of your company and no longer risk losing personal assets.
Cons:
You risk churn if you’re not prepared for it. To avoid this, you could provide incentives for customers to switch from monthly to yearly contracts & shift go-to-market resources from marketing and sales to your account management team.
Results may be slow, which is also risky. When you want to generate higher quality revenue, make sure you have enough runway and a sound plan to profitability. Months could pass before you identify the right channels, market them effectively, and see any results.
If you don’t already have a profitable channel, it may also take time to develop one or tweak your existing product or service.
You can raise capital and extend your runway through internal or external investors.
Raising funds externally is possible in a good economy, but may be hard to do during a downturn because you risk compromising your valuation.
Or you could raise capital within your own portfolio of investors, regardless of the economy. Here’s Matt’s take on raising capital from internal investors:
“If your investors still believe in you, they wouldn’t want you to get a bad deal. They also don’t want to miss out on a deal (which might happen if you get external funding), so they may be willing to give you another round at the same price, at a discounted rate, or at a lower valuation. In the end, they’ll want to preserve their initial investment.”
To raise capital internally, you can talk to your VCs and angel investors about another round of funding. You could agree to flat rounds or simple agreement for future equity (SAFE) rounds (receive cash now in exchange for stakes in future equity) to raise capital while preserving your valuation and flexibility.
Pros of raising more capital:
Capital will help you stay afloat, give you the possibility to grow your business and is one path to profitability. Investors could also act as mentors because they want to see you win.
Cons:
You give away more dilution and will have less control over your company. You’ll also have less flexibility to use the money as you’d like, and raising funds could take the most time out of the four strategies. It can take months or years.
“Debt is more interesting than equity in a slower fundraising environment because it leverages your balance sheet to give you additional flexibility” –Matt Hafemeister
If raising money and getting equity are difficult, debt can help you capitalise your business to extend your runway.
You can leverage your balance sheet, revenue, and customers to get more capital to invest in growth, without ever touching your core cash revenue or cash runway.
Pros of raising debt:
You can invest in new products, features or services without depleting your cash reserves. Debt means you won’t dilute your business so you’ll have more flexibility than you would with invested capital.
Cons:
Debt takes time, though not as much as fundraising. For example, bank loans can take several months.
On the other hand, banks and institutions ask for personal guarantees, covenants or warrants, so you risk losing personal assets.
You’ll have additional costs (think interest rates) with most loan providers. If you need money deployed in multiple currencies, expect to pay additional charges, like transaction fees, currency hedging costs, and FX fees.
Matt knows founders have many questions about extending a startup’s runway. Here are his answers to your most common doubts:
In a good market, you’ll want 24 months of runway length (give or take six months) to reach your milestones. Make sure you pace yourself with strict budgets and monitor your cash balance and net burn rate frequently. You don’t want to run down your runway.
When you have 8 to 10 months of runway left, start to raise more money.
If you’re expecting an economic downturn, calculate 24 to 36 months to survive because it will be harder to fundraise and manage a startup during a recession.
Matt recommends looking at your burn rate from both a revenue perspective and a margin perspective to have a more complete and qualitative overview of the amount of time your business has left to remain solvent:
Let’s say you have $1,000,000 in cash and a monthly cash burn of $100,000. You’ll be default dead in 10 months. But if you have a path to profitability within 24 months, you’ll want to extend your cash runway to be default alive within that time frame, where each month you're generating more money than you're burning.
You can get those 24 months of runway when you use Jeeves as your roadmap. You can combine access to credit, expense management, and Jeeves Growth or working capital to cut cash burn and increase your cash balance.
Matt says the most common mistakes are how you react to extending your runway.
At Jeeves, we know first-hand how difficult and slow it is to cut the right costs, raise funds and grow with debt. This is why we made reducing cash burn, raising equity, and financing debt easy and fast with Jeeves Growth and Jeeves working capital.
Jeeves is a full financial stack for businesses that want to grow.
Here’s how Jeeves helps extend your runway:
Your Jeeves cashback will add to your bottom line and cash balance. You can get up to 1% cashback on all card spend so you can improve your margins on each transaction.
With Jeeves rewards, you can reduce the costs of your SaaS providers and increase your bottom line. Receive discounts on software tools like 25% off Slack subscriptions, 30% off your first year with HubSpot, and $1,000 off any team subscription in Notion.
With spend management software, you’ll have greater visibility and control over all your spending so you can identify how to optimise costs and eliminate maverick spending and overspending to cut your cash burn.
Increase your runway by cutting costs with a free spend management solution that integrates with your Jeeves’ credit cards for real-time expense tracking. You can manage all your company’s expenditures via Jeeves spend management software, available via app or desktop.
Jeeves helps you do away with the complexity of expense reports and expense reimbursements to give your staff and accounting department more time to dedicate to your business.
Track employee spending in real-time via Jeeves dashboard. Staff can upload and attach receipts with a click and add notes, which your accounting team can see immediately. You’ll have the data you need to educate employees on more efficient spending and see which departments spend the most.
Jeeves provides spending limits you can set on each employee's business credit card with a click so each department and employee can stay within budget. You can reduce or increase the limit at any time. Block cards with a click for suspected fraud and delete cards just as easily.
You can filter your transactions by card and employee to easily understand if departments or staff are overspending. Download transactions to improve reporting and create stricter spending policies.
Jeeves integrates with Xero, QuickBooks, NetSuite and SAP so you can create more complete reports and identify the best way to cut spending. For example, create procurement policies by identifying the most cost-effective vendors.
If you operate in different countries and use a separate expense management platform in each country, you might not have great visibility of your spending.
Maybe you have a monthly burn rate of Mex$25,000 in your Mexican office, £58,000 in the U.K., and $132,000 in the U.S., but you can't see the full picture.
With Jeeves, you can see all those expenses in one tool and tie them together to get a global picture of your spending. This way you can make better decisions on which costs to cut and reduce and get your burn rate down globally.
Find out which expense management tool is best for you in our comparison post, Payhawk vs Spendesk vs Soldo vs Jeeves.
As your financing partner, we care about giving you the guidance you need to grow your business. Here’s what you’ll receive when you work with us:
We hope this article helps you understand the best way to extend your startup runway and grow your business.
Jeeves can provide crucial spend management tools to extend your cash runway.
With Jeeves, you can take your startup to the next level with greater control, flexibility and peace of mind.
Note: Extend your runway without giving up control of your business or risking your assets. Apply to Jeeves today.
Written by Michelle Maiellaro
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