The runway, the Saviour of this crisis
A mastery of our company’s financial situation is essential, especially in the current crisis. Our CEO should ensure that the “company box” has not been run out of money. Therefore, there is a key metric to manage and control: Runaway.
This indicator refers to the time that our startup can “live” before running out of money and will allow us to carry out certain actions to increase in this period. It will also help us to manage our money and achieve our goals. This is, invest in all those things that make the business run.
Some decisions should be taken to lengthen our runway, for example: to choose the most suitable members for our team, to take into account the unforeseen events that may arise, and to be able to adapt to the necessary changes when things do not go as expected.
The runway and our financing rounds
Any successful business owner must develop some abilities that will be influential in the company’s success in the future. One of them is the forecasting ability, which allows us to transform threats into opportunities. Thus, this indicator is helpful to be ahead of the lack of cash and to know the future cash balance.
Thanks to this coefficient, runway not only helps us to efficiently manage our money, but we can also organize our new financing round.
Enrique Penichet, investor and cofounder of Bbooster Ventures, recommends that your approach is “the later and with more value created, the better. It is better for protecting your equity and for preparing to go out and find those resources”.
Raising a round requires time, and investors also manage their own time for their analysis and decision-making processes. The investment process has a series of phases that involve time (between three weeks and three months). Therefore, going out to obtain financing with a runway of less than six months can jeopardize our company. Moreover, if we also find ourselves in an uncertain scenario as we are currently experiencing, it would be advisable to increase these ratios to 12-18 months. All prudence is too little, and if we have access to sources of financing, we should calculate our runway with very conservative sales.
Therefore, if we consider that the creation of a round is big, difficult and in takes much time (3-8 months), it is not advisable to look for a runway lower than twelve months. If we have a good financing department in charge of the strategic decision-making to keep improving, we will achieve the full success when taking these actions.
At Fellow Funders we know that cash on hand means profit, now more than never. This crisis will also be over, sooner than later, but, in the meanwhile, we support every startup to rely on their runway. This will ensure their survival.