Dear SaaStr: What is the most challenging thing facing a long-time bootstrapped company immediately after accepting their first investment term sheet?
In my experience — not accidentally spending it all, and ending up with way too high of a burn rate. Without intending to, or even fully realizing it.
What I’ve seen again and again is founders that are great at bootstrapping finance just don’t intuitively understand how to spend more. They don’t scrutinize every hire and every expense as closely, because they raised the money to invest. A little more hiring in each department makes sense.
But then it compounds. They go from say, a $0 a month burn to $50k to $100k, and then it slowly creeps up each month, and the burn rate compounds. That extra hire, extra campaign, extra this and that.
And pretty soon, more than half the money is gone, and even more importantly, the burn rate has moved to structurally much higher. And the runway has shrunk to less than 10–12 months.
Look at Klarna. They were bootstrapped for most of their existence, and just took on optional capital. After de-bootstrapping, they rocketed to the #1 valuation in Europe. But they couldn’t manage the burn. When tougher times hit, they ended up with a massive down round:
It’s just hard. The burn creeps up on you without realizing it when you de-bootstrap.
If nothing else, make sure you have a proactive controller, and that you extremely carefully model your Zero Cash Date and have a very, very careful burn rate budget. Because if you’ve always bootstrapped, usually there was no Zero Cash Date before.
More on having a Burn Rate Budget here: