Too much funding, not enough action

People often advise raising more than you think you need. Years ago, we raised double what we intended and it had a hugely positive impact on the company. (Investors and advisors: the crowd, the ringside, and your corner)

Yet, I’m starting to see a downside of too much capital: new founders with years of runway and no external pressure to perform. Imagine a team that:
  • Raises a lot of money (3+ years of runway)
  • Doesn’t focus on revenue and / or engagement
  • Hires haphazardly
  • Doesn’t have a board or external pressure [1]
  • Doesn’t run projections (Don’t be the startup that accidentally runs out of money)
  • Doesn’t execute on a plan or build deliberately
The common outcome: unnecessarily long development cycles both pre-launch and post launch - often building without any strategic vision.

This is startup purgatory, which is working forever, building for users that might not exist. Then, if they do exist, they may represent a vertical too small to support your company. (Don't build a Galapagos product)

It’s only when the founders discover that their runway is finite that there's a race to the fundamentals, like active users or revenue. They plan better and iterate like crazy. There's nothing like finite runway, diminishing cash and uninterested investors to focus on core business fundamentals.

Extra capital can significantly de-risk a company. It helps to take it. But, it can also lull you into a sense of complacency. If you have the capital, think hard about how you can put it to work.

[1] There’s a lot of aversion to having a board because there are a lot of stories of bad boards. I found it really helpful. We have a meeting every 2 months and discuss company goals, objectives and accomplishments. There’s nothing like announcing commitments to make sure you keep them.
17 responses
Hey Joseph - Curious to know what is the point where you have enough runway that you don't have to be fundraising all the time and at the same time don't raise "too much". Is it more like 18-24 months or less?
Gaurav, I think 24 months of funding is a pretty safe number. You always want a minimum of 6 months of runway when you raise, otherwise things can get risky: That means you get 18 months of executing (assuming 0 revenue), which is a good amount of time. It also just comes down to your plan. How much money does your plan need? I think the biggest issue I see is when people have a lot of cash in the bank, tons of things they want to do, a lot of competitive pressure, but for whatever reason, they’re not doing it. They’re not hiring faster or investing in distribution. So, this is more about putting the money to work with a more aggressive plan than being passive.
I agree excess capital can lull one into complacency or lead one to be more aggressive about spending it than they should. However, I think it still better to raise more money. And find an alternative forcing function/urgency function. I think the fantastic fundraising environment we've had has lull'ed people into thinking investors will be waiting at the end of that runway.
Suli, agreed. I'm a big believer in having extra capital on hand and raising more than you need. However, if you do take extra money (like we did), you just need to be extra diligent about creating ways to prevent complacency, like setting up a board, creating an annual plan, having advisors, attending office hours, sending investor updates, etc. Then, stay hyper focused on core metrics, like revenue and engagement. Plus, if you look at your roadmap and decide that 2x the team would get you there 2x faster, do it. You have the money. That's what it's for.
Agreed, Joseph. Would love to know more about you and what you're building, let's get coffee sometime!
The 4 Disciplines of Execution might help in getting the goals accomplished.
very good post! In Europe though, you tend to find the opposite situation. there is too little funding in too small rounds with lots of milestones attached for young companies. so you have an enormous energy drain on key employees (ie founders) to go fundraising all the time, and a restriction in ability to pivot business models. i guess it's the balance between obesity and lack of food where companies are the fittest and fastest.
Dan, anything with that title will probably help get goals accomplished :) Robert, thanks! Agreed, that sounds like the opposite problem. I imagined that would be highly distracting. If funding isn’t ideal over there, move to Silicon Valley? There are a lot of European founders here.
Hi Joseph, We're a paying customer at trying to port our fax number to hellofax. We completed/submitted the letter of authorization and supporting documents a few weeks ago, but porting status still says "in progress" and hasn't exactly been responsive (no responses to queries sent on 7/23 and 7/28). We're all busy and I don't like to contact you this way, but wasn't sure how else to get this moving. Thank you!
Hey Ron, no worries! Apologies that it's been delayed. Usually porting takes a few weeks, but we should have been more responsive during the process. Can you email me from the address you use with your account? (Joseph at HelloSign) I'll investigate. -Joseph
Since I contacted you publicly on your blog, I thought I should follow up here too, for the benefit of anyone who sees these comments. Joseph contacted me to address our concerns. A HelloFax support team member also got back to me and indicated there was a problem with the ticketing system causing some of my responses to go unnoticed. They weren't deliberately ignoring me. :-) Several colleagues have remarked that HelloFax is easier to use than our previous virtual fax service provider. We use Google Apps and the integration features are appreciated. I think HelloSign may also help us streamline some areas of our work. Thanks much!
Ron, really appreciate the kind words and glad that your team is finding HelloFax helpful! Either way, I’m happy the support team got everything sorted out for you. We appreciate fast customer support when we use other services, so we're working on building that kind of speed here. Still working on it! Anyway, best of luck with everything! Best wishes, Joseph
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