Jillian Manus explains runway and burn rate for startups. Raise enough for 12 to 18 months of operations. Focus on one or two verticals and understand your term sheet before signing.
Chapters
That's getting worrisome at this point in my life. Okay. Now, we've got a building an empire. We've got an entrepreneur and a wantrepreneur. Okay? And the entrepreneur is, okay, here are the building blocks. We got this. And this is the wantrepreneur, which goes all the way up and is like, oh shit! That's a wantrepreneur. OK? And that's actually— it all has to do with being realistic. All right. Don't blow smoke on your numbers or product capability. Believe it or not, I can tell when you're bullshitting me. Sorry. I can tell when you're not being honest.
OK.
Founders bend the rules, but don't break them. I need to know, you need to know your financials. You need to know how to forecast. You need to be able to be extremely extremely, extremely realistic with your numbers. And if you don't know, go figure it out. A friend of mine came to me and said, I have an entrepreneur who's in another VC that didn't understand what a term sheet is. Okay, now who knows what a term sheet is? Who knows the points that would be negotiated in a term sheet?
Okay.
Clearly that hasn't— that's part of, I don't know, maybe the accelerator. But a term sheet is the point where the VC or whomever wants to invest in you, and then you give them basically a list of all the terms of investing, the financial terms and the legal terms. That's what's covered in the term. There are many entrepreneurs have no idea what this even looks like. So you guys are going to go to capshare.com, C-A-P-S-H-A-R-E.com, and you're going to be able to learn the best point— well, not the best, but only points So we're going to focus on a term sheet, and you're going to be able to understand from that term sheet a bit what's expected of you as a viable investment. And then it will also go into the legal terms and all of that. But you know what, guys? I— this is how I approach teaching. I think we should reverse engineer this. I think of all of you as successful entrepreneurs, okay?
How'd you get there? Let's go backwards.
Did you know the legal piece? Did you know the terminologies? Were you able— what does your team look like now? In 6 months or a year, do you know what your team is going to look like? How many people in your teams in 6 months?
In 6 months?
Yes.
5.
10. 10 in 6 months. How many people on your team now?
Just 2.
How many?
2.
Okay.
2 with me.
Okay, there are 3. Okay, and in 6 months there are going to be 10. Okay, okay, there we go. All right, all right.
Six months. That's literally super hard to say. I don't know. Probably two particular moments. I'll say five.
Five. Okay. How are you gonna get the money? Money tree.
Yeah. We're planning it right now with water and with gas. Yeah. Okay. So gross. We're pitching to investors here. We're meeting.
OK. OK. Do you know what the right answer is? I already have it. I have no clue. And I couldn't possibly, because I haven't raised any capital yet. Right? But you're right. Your instinct was right. You have no idea what that's going to look like. Right? The fact is, can you take the next 6 months and build out your product with just the 2 people that you have? Can you? Can you build your product? Who can build their product right now?
Who's built their product?
Okay, who has runway? Who knows what that is?
What's runway?
Oh, okay, this is really good. Okay, I'm going to go back. I'm going to give you some basic terminology. Runway means capital, the amount of capital that you have in the bank to be able to pay for your overhead, okay? Burn, if someone talks about your burn rate, that means how much of the capital that you're spending in order to keep the company running. Okay, so when someone— you raise $1 million, your burn rate could be $100,000 a month. $100,000 means you have X number of employees, okay, and X amount of overhead. Then that's what you're burning, that's your burn rate. And your runway is in 10 months I will be out of runway, right?
So when you're raising, you always raise for how many months?
12 months. 18.
18.
So let's reverse engineer this, okay? How long is it going to take you— okay, I'm on my 8— how long is it going to take you to get where you want to go? And where you want to go, by the way, is not necessarily making money. It's not cash flow positive. Sometimes it takes years to get there. Where you want to go is traction, proving at least 2 use cases. Do you know what a use case is?
Okay.
I always say there are stakes in the ground, flags in the ground. You need 2 flags in the ground. I'm going to start accelerating this learning right now, all right? Don't boil the ocean. Don't start a product, don't build a product, and don't start your team working on more than 2 verticals at a time, more than 2 areas that you're going to— okay, let's say I have a Hyper— Hyper is one of our companies.
It's a real-time engagement platform.
Now there's a sports vertical, hospitality vertical, there's a healthcare vertical that we can go into. There are like at least 10 verticals. Verticals are, you know what a vertical is, they're pillars that you can go into. Be careful not to go into too many. I always say that a business model, your product is a house. Walk in one door, one door, big door, big, big door. Walk into the door and then go to the rest of the house. and look and explore the other rooms. The one thing VCs cannot stand is you saying, we've got this market, we've got this vertical, we're going to get this and this and this done, because that scares the pants off of us. Because that shows a lack of discipline and thought around this. So pick 1 to 2 areas that you're going to crack and you're going to do very well. You're going to show and prove out the product. And then you're going to expand from there. I know I'm getting way off topic on this, but I hope this is OK.
