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Notes from week 5 of Startup School W2020
This article will contain my notes for the fifth week of Startup School 2020. Startup School is a free online course for founders actively pursuing their own startup.
Managing Startup Finances
The actual video that I took notes of
Money Money is really important for any kind of business. If business runs out of money, it’s
very hard to make profit from the business. It’s also very easy to run out of cash.
Holy Trinity
A common pitfall a lot of people fall into is not knowing what to look at for checking monetary health. Startups just need only 3 things to know:
- Bank Balance
- Money coming in
- Money coming out
A lot of companies don’t look at all of the 3 things. With these 3 things to know we could calculate:
- Burn -> Expense -> Money out - money in
- Avg burn -> Average money out - average money in
- Runway -> how long can company survive if income and expenses stay constant -> Bank Balance/Avg burn
- Growth Rate
Other Common pitfalls startups fall into
Another common pitfall is not looking at the three things often enough. Seeing the data every week is ideal period of time. When someone asks, we should know the numbers. That’s how strong we need to know our finances
Another common pitfall is not knowing that when we hire people, we don’t only give them salary. Our expenses will be at least 25% higher than salary per person.
Scaling the company too quickly is another pitfall a lot of companies fall into because often times, it isn’t very easy to get returns too quickly by scaling. The best startups do more with less. Hiring is not recommended until we find product market fit unless you need someone to help find product market fit. Seed stage invested money is only to reach product market fit.
Modern Startup Funding
The actual video that I took note of
All the terms mean one thing: * Priced equity financing * Preferred Stock round * Preferred stock financing * Series A financing * Priced round * Series seed financing
These terms mean selling stock at specific price per share. Convertible securities are something that will become stocks later.
Earlier, seed stage funding will be done using Series A financing. A is the first letter of the alphabet, so the first investment would be in Series A financing. They will work out a document with all the rights for negotiation. This financing would require a lot of paper work.
Bridge loan financing is where investors loan on convertible promissory notes. A company can just use Compulsory promissory notes as the first fundraising step. But is basically debt.
SAFE is an acronym for Simple Agreement (for) Future Equity. SAFE came into existence because it didn’t feel right to use debt to sell equity.