Jason M. Lemkin warns founders about the dangers of rapidly increasing burn rate after raising venture capital. Using a numeric anecdote (raising $5M, initial low burn, then hiring and escalating monthly burn to $300k), he emphasizes how lack of prior financial discipline and absence of experienced finance teams can cause runaway spending that shortens runway.
One to three in one year. That's pretty good, right? And these VCs give me $5 million, okay? And you've never had a dollar in the bank, but it seems like so much money. You open up the bank statement, there's $5 million, and your burn rate is zero. So you go to hire, like, two more people. It doesn't. Your burn rate goes up $20,000. Does it matter? 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 is still okay. And then it's 200. And then it's. What happens if your burn rate goes to 300,000? You raised 5 million. How long does it last? And what happens is there's no finance team and there's no experience. And so they're so disciplined about the funnel, about the product, about the Gantt charts, about the airtabling, everything. And the burn runs away from them because they've never done it before.
