Jason M. Lemkin explains how to avoid burning through venture capital. Track your cash flow, know when you'll run out of money, calculate your trailing burn rate over the last three months, then divide cash by burn to find your runway. Inexperienced teams often escalate spending without realizing where the money goes.
Average the last three months' burn.
12 months.
July 15, 2023.
But then you sort of lose the discipline because you've never had it and you wake up and that burn goes from 20 to 100. 100 still. Okay, and then it's 200. Then it's what happens if your burn rate goes to 300,000? You raise 5 million, how long does it last? And what happens is there's no finance team and there's no experience and they just burned half the money without even knowing where it went. That's what happens with venture capital. So if you're lucky enough to raise Money, know your 0 cash date when you run out of money and track it every month. Don't make a joke out of it. Don't be either pessimistic or optimistic. Figure out what your trailing burn rate is. Average it the last three months and just divide it by the amount of cash. If you're burning $100,000 a month and you have 1.2 million in the bank, how long do you have? 12 months.
