Know your company’s burn rate and runway

Restored from Instagram stories · 25 April 2023

tip: one efficient marker to identify when your company is in trouble is to watch your perks being cut off.

this is one stuff i never want to do. the CEO has no clue why they hired so many people at the first place. now they want to lay them off. so bad.

if you're working in a startup,

you must know the burn rate of your company
you must know how much runway is left in the bank (the sweet spot is 24 months)

for context: burn rate is how much money the company is spending every month. if the revenue is 10000 and the company is spending 12000, it's burn rate is $2000/mo

runway is - how much cash is left in the bank until it goes to zero

- if the runway is less than 24 months and there's no sign of that growing or moving to profitability (venture funded startups need not), ask - whether they have started raising.

- if raising, how much at what valuation. know the last round valuation and see if it's a down round. (down round is raising at a valuation lesser than that of the prev. raised round)

- if it's a down round, ask why ? it always means that metrics are very bad. if metrics are decent and good, the probabilities are that they will raise another round at the same valuation.

if bad, ask what measures are the company taking to fix it ? has it been addressed lately ? in the recent meetings ? has the CEO talked about this ?

if not, you have a bad CEO and you are effectively asking questions which if your CEO doesn't have answers to, he/she should probably step down, buy a feet of rope and exit honorably.

- considering we have positive answers from above, ask how the funding rounds are going. how much of the capital is committed? the round is closed? commitments wired? who's the lead investor? any follow-up investment from investors of the previous round (usually followup investments are a good sign that your CEO has retained the trust of your prev. investors - usually all funds who invest keep a reserve for follow-up investments)

if the answers to the previous sections are good, you are in a good place.

if not, it's time you put your resumes in different places, and switch on the toggle button as available to hire in linkedin.

couple this off with redflags a startup might have and you'll know whether you are in a good place or not.

okay. i got confirmation from multiple people, and even saw the email. TCS stuff is true. these are usually the signs of starting of a layoff cycle. be prepared.