You Can Only Burn a Dollar Once
Over the last couple of weeks, I have had several startups claim that they are super scrappy and capital efficient. Yet they have raised approximately $10M and have only about $1M or recognized ARR. I hate to tell you — that is not capital efficient by any definition.
I empathize with early-stage founders when they think about company building in this environment. The chess board is dramatically different even since I started doing early-stage investing, which was only 7-years ago.
SaaS products are more complex and expensive to build, customers’ expectations for an MVP are much higher, and selling software is super competitive due to how many SaaS products are out there.
That being said, however, it is a founder’s job to understand how to manage their capital stack to squeeze as much value from each dollar burned per runway cycle. In addition, they need to know how the funding market will react to a company by stage and the amount of capitalization it has consumed. My friend and colleague Wain Kellum used to tell me — “you can only burn a dollar once.”
David Sacks of Craft Ventures has a great article on understanding capital efficiency using a Burn Multiple. He states essentially that you are a capital-efficient business. If you are between $1–2, burns for every 1 dollar of ARR is in the business.