Save Your Startup During an Economic Downturn

Seibel and Caldwell explain that a startup is default alive if its growth can make it profitable before its cash runs out, even if it is losing money today. They recommend calculating this without assuming another round of investment will arrive.

Caldwell and Seibel say founders can take future fundraising for granted, even though each round is different and later rounds involve a smaller pool of investors. A company with enough runway to survive without a new round has more room to recover from a failed fundraise, negotiate from strength, and make its own decisions.

The metrics used to pitch investors, such as revenue growth and hiring plans, are only part of what founders need to run a company. Caldwell and Seibel also point to burn rate, retention, customer expansion, and whether advertising costs are paying back. They caution that investors’ growth priorities may not match a founder’s goal of keeping the company alive.

The hosts urge founders to act as soon as they suspect the company may run out of money. They identify overhiring, rising ad spend with poor payback, and selling at a loss as common problems, and suggest layoffs, reduced advertising, or higher prices when needed. Waiting until only three to six months of runway remains can leave too little time to turn things around.

Caldwell recalls Justin.tv making about $750,000 a month while spending $1 million, with only half a million dollars in the bank. The team cut costs and added advertising, reaching break-even by October and $1.2 million in profit by the end of December. Caldwell says that turning the business around gave the team room to develop the idea that became Twitch.