Imagine being a founder who just closed their first round. In the blink of an eye this person is responsible for managing anywhere from $500k to many millions of dollars.

Now imagine you don’t have a whole lot of experience managing a P+L. What are the chances that you’re going to burn through that cash faster than expected?

High. The chances are high.

As an investor, it may be helpful to recognize what areas founders are spending their runway on, and what they can do to extend their runway while investing in growth.

Let’s dig in.

Overspending on talent

We find that the number one category that startups spend on is talent.

We understand this. Founders who have raised a round need to hit certain milestones so that they grow at venture-scale rates, and achieve venture scale outcomes.

But too often we see founders hiring too quickly, at salaries that are too high, and without clear deliverables in place.

When a founder has runway in the bank and milestones to meet, it can be tempting to just get bodies in the door. But this can be disastrous. And expensive.

We encourage founders to take a role from 0-1 before bringing on a full time employee, or even a contractor.

They should clearly understand what excellence looks like, and what specific deliverables are needed before hiring for that position.

This will allow the founder to work backwards in creating clear goals for each role, and help them avoid over-hiring.

We also recommend that founders leverage equity when putting together attractive packages to prospective employees.

People typically join startups for the opportunities that come from having ownership in the biz.

So rather than trying to match the salaries of big companies like Facebook or Amazon, startups should aim for a balance between salary and equity, knowing that their employees stand to reap the rewards if the company exits.

Overspending on Marketing

Startups will almost certainly need to allocate funds to their marketing budget. And as someone in marketing, I’m a big believer that investing in marketing can have huge benefits.

But often we see founders prioritize product development over conversion and retention.

First, they should test positioning — ideally in organic channels — to determine what messaging will lead to the highest conversion rate.

Once they have that dialed in, they can start testing CAC across a variety of paid channels. This will help the founders determine which channels to invest in more heavily.

From there it’s a matter of figuring out the time it takes to hit profitability with each customer. This will give the founder a strong grasp of their startup’s unit economics:

• how much does it cost to acquire a customer
• how much money do we earn from that customer
• how long does it take us to get paid

Ideally founders can hold off on building out teams of engineers and product managers until they can answer those three questions with confidence.

Overspending on Infrastructure

With a recent trend towards returning to in-office work, founders might be eyeing some fairly expensive office spaces.

If you can encourage your founders to hold off on that expense, it’ll likely pay off in the future. Commercial rental agreements often extend for 3-7 years, which is a huge liability for a startup trying to extend their runway for as long as possible.

Startups may also want to avoid paying upfront for annual contracts. Instead, we recommend going month-to-month and regularly re-assessing if the service is still necessary.

Lastly, founders will benefit from negotiating their highest expenses. Software in particular can suck the runway right up, but those contracts are often the most flexible.

Best Practices + How You Can Help

As an investor, you are in a unique position to help your portfolio founder manage their burn and extend their runway.

You can do this through:

• helping them set up a financial model
• encourage them to do a weekly review of money coming in and money going out
• schedule monthly check-ins to talk about money

Most people don’t want to talk about money. It can be uncomfortable, or even scary.

But the more informed founders are about where their finances stand, the more likely they are to make choices that will help them extend their runway and increase their revenue.

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