The past week has brought great uncertainty to our sector. The sudden collapse of Silicon Valley Bank (SVB) drastically altered the venture capital (VC) landscape – and its impacts on future fundraising and valuations are still unclear. Many startups were caught off guard and spent the weekend reviewing their cash balances and assessing how they would be able to meet their cash obligations in both the short and long term.
Common startup terms such as cash burn and cash runway suddenly flashed across news screens, headlines and Twitter feeds. While the Federal Deposit Insurance Corporation’s (FDIC) announcement to “backstop” deposits helped quell immediate concerns, the VC and startup community continue to evaluate their future.
Will Fallout From SVB Lead to a Rethinking of Tech Investment?
In this InformationWeek article, Chris DeMayo, Practice Leader, Technology and Emerging Growth Services, discusses the collapse of Silicon Valley Bank and how this may impact the future of startups and funding.
In times of economic uncertainty, the focus becomes increasingly clear for entrepreneurs: how much cash does our startup have and how long is our cash runway?
The cash runaway can be determined through a simple calculation of the current cash balance divided by the current cash burn which relies on historical data, or a more complex calculation that relies on the cash flow forecast of cash expenses and revenues when projecting the projected cash burn rate.
Uncertainty can drive decision-makers down two very distinct paths: one of confusion, frustration and financial disorder, or create an opportunity to do a top-down analysis of all financial and operational aspects of their company. The question is what does a startup rely on when entering a period of economic and operational uncertainty such as what we are witnessing now?
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Major expenses such as payroll, cloud storage and other key startup costs should be prioritized. A startup cannot exist without its people and SaaS solutions directly supporting its product and/or idea. Once these are identified, a startup should continue down its priority list to identify payment orders and to identify costs and vendors which can be negotiated on cost and payment timing.
Once a complete and thorough review of inflows and outflows is performed, decision-makers can begin the process of budgeting and forecasting into a murky and unclear future.
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