Something I ask most startup founders is…
What keeps you up at night?
One of the more common responses: running out of money.
I get it. Even with Silicon Valley pouring more capital than ever into startups, most founders still find it incredibly challenging to raise money. Nor are they sure how much longer the startup space will be flush with cash.
Another cause of insomnia that founders mention? Scaling. (We covered scaling in our article “What Seed Investors Should Look For.”)
It’s the fear of the unknown, combined with a sense of urgency. One founder recently told me, “We need to scale and I need to make it happen as soon as possible.”
Again, it makes sense. You can’t become big without scaling. Until you scale, most venture capital companies peg you for the minor leagues.
But these issues aren’t as straightforward as they might seem…
The Downside of Lots of Cash
I don’t blame founders who raise a little more cash than necessary. And I especially like the idea of using that extra cash as a “rainy day” fund – for emergencies and unanticipated scenarios.
What’s more, startups may need to use that extra cash when investors stop lavishing them with globs of money. Or as a safety net allowing them to take more risks in juicing revenue growth.
Listen, I’m not advocating free-wheeling spending. Those risks should be weighed carefully. Assuming they are, the downside of having too little cash is more serious than having too much.
The ultimate downside is running out altogether. Believe me, it happens. Many startups struggle to survive when investors become cautious or fearful.
It’s harder to recover from running out of cash than from a little extravagance stemming from sitting on a pile of money.
Yet, raising too much cash does have a downside. One VC investor who shares this view is the always interesting Mark Suster of Upfront Ventures. Hard to dispute his points.
