Issue 15:
Hello to Our Readers
Welcome to the Fifteenth issue of Reflecting on Venturing, the Ticking Clock issue.
If you enjoy what we share here, please forward this to a friend, a colleague, or a business partner.?If you think it is a waste of time, please forward it to a competitor.
If you are interested in investing in emerging markets companies with small to medium ticket sizes and an accredited investor (usually net worth excluding primary residence of over USD 1MM or annual income for each of the last two years of over USD 200K) then please email [email protected].
You Should Read This
If You Are Not Sweating You Are Not Worried Enough!
Your company or your investee is doing well.?They have money in the bank, revenue and/or GMV is going up fast, and the future looks bright.
Your problems seem minor.?Your negative cash flow is increasing as revenue increases.?You have 12 months runway at current burn, but if you factor in your planned growth without an improvement in economics you will run out in six months.?Does this sound like your company??If so, it is a dead man walking.
Obviously, you know how to solve this problem – raise more money from investors.
Unfortunately, what was quick and easy in 2021, is now like pulling teeth.?That six months does not look like it is long enough anymore.?You are now in the?fatal pinch.
1.The company is spending more now than it did the first time it raised money.
2. Investors have much higher standards for companies that have already raised money.
3. The company is now starting to read as a failure. The first time it raised money, it was neither a success nor a failure; it was too early to ask. Now it's possible to ask that question, and the default answer is failure, because at this point that is the default outcome.
I'm going to call the situation I described in the first paragraph "the fatal pinch." I try to resist coining phrases, but making up a name for this situation may snap founders into realizing when they're in it.
One of the things that makes the fatal pinch so dangerous is that it's self-reinforcing. Founders overestimate their chances of raising more money, and so are slack about reaching profitability, which further decreases their chances of raising money.
Now that you know about the fatal pinch, how do you avoid it? Y?Combinator tells founders who raise money to act as if it's the last they'll ever get. Because the self-reinforcing nature of this situation works the other way too: the less you need further investment, the easier it is to get.
What do you do if you're already in the fatal pinch? The first step is to re-evaluate the probability of raising more money. I will now, by an amazing feat of clairvoyance, do this for you: the probability is zero.
At this point, you have four options:
Action Steps ?
Most importantly, you need to move fast and act decisively.?Cutting burn 50% when you have a one month runway gives you a month to recover – probably not enough time.?Cutting 25% when you have six months burn extends you to just nine months.?Is that enough to matter??Cutting 50% when you have six months gives you a year.?That is enough time to make a difference.
Whatever you plan to do, do not wait.?The longer you wait, the less leverage you have in any negotiation and the more opportunities for something else to go wrong.
When You Hit Three Months of Runway
You have a decision to make.?
You still should have enough money to pay staff what you owe them including some severance pay.?If you do not have a realistic chance of saving the company at this point you need to shut down.?Your staff should get their last paycheck and hopefully any statutory severance.?You need to have enough money to pay payroll taxes, legally required insurance, etc.?You want to have a bit left over to pay the lawyers to cleanly shut down your company.
Alternatively, you throw the dice.?You would not have started a company if you were not a risk taker.?Roll the dice.?You think you can get that customer payment or investor check.?But understand something.?You are also betting the final paycheck of your staff.?They may not be as well positioned as you to handle losing a month of pay.?They may also sue your company and in many countries, if you do not pay full wages and severance, they may be able to sue you or your company’s directors.
When You Blow Past Three Months of Runway
Well, now you are committed.?Either you somehow save the company or you go down with the ship.
Good luck, hope you pull it off.
If you do crash and burn, consider your physical safety.?Unpaid staff and vendors may get upset and do things they may regret later.?You can really be kidnapped and beaten to try to get you to pay up.
Let’s hope your unpaid staff and creditors come from a more civilized place than France!
Investee News
Kamion (YC S22)?Raises $2M in Seed Round to Revolutionize Freight Management in Turkey and Beyond.
Turkey-based freight management startup? Kamion (YC S22) ?has raised $2M in a SEED round from Reflect Ventures , Y Combinator and a host of other investors.
The startup utilizes software, data and industry experience to connect businesses looking for trucks, with trucks looking for loads.
Kamion joins the league of Reflect Ventures B2B Trucking marketplace investee alongside Truck It In and Truckistan Technologies ??plugging local truck owners to large enterprise customers.
We are proud to support Kamion in their mission to establish a strong foothold in Turkey and expand into neighbouring geographies.
Congratulations to? Berkay Adlim and the Kamion team!
Jatri Sells 100 Million Tickets!
A stack of 100MM sheets of printer paper would be about 10km high - taller than Mt. Everest! A stack of 100MM tickets would certainly be higher.
Jatri is revolutionising the way people travel providing ease and convenience to thousands of commuters in South Asia.
Talk about taking the transportation game to the next level!
Keep up the amazing work. Making a positive impact on the world, one bus ticket at a time!
Vivan Therapeutics Achieves Milestone for ECHS1 Therapeutics Discovery program
Vivan recently achieved the first two milestones in its quest to develop a treatment for ECHS1 deficiency, a rare congenital metabolic disorder.
Vivan employs AI in matching potential therapeutics to each patient with ECHS1 deficiency and other genetic diseases.
Reflect Ventures is proud to be supporting Vivan in its groundbreaking work to develop personalised therapeutics for rare genetic disorders.
If you would like to invest to support Vivan's mission, please reach out to us.
MEDZnMORE partners with Hudson Pharma
This collaboration aims to bring 100% authentic medicines and healthcare products to the customers of tabiyat.pk, Medznmore's B2C vertical.
Teaming up with reputable healthcare partners like Hudson Pharma is evidence of MedznMore's commitment to eradicate counterfeit medicines and improve the healthcare system in Pakistan.
We are proud to support Medznmore in its efforts to build an authentic healthcare platform for the benefit of 230 million people in Pakistan.
Digestif
Welcome to the new Twitter
No irony here
PS: We are also working on diversifying our portfolio
A Flight to Quality?
Solid Investment Advice
Tide's CEO: You Gotta Stop Eating Tide Pods
A Last Word
Reflect Ventures helps accredited investors build diversified emerging markets startup portfolios with small or medium sized tickets.??
We invest in B2B and B2B2C startups focusing on logistics, supply chain, and distribution - areas that are big enough to produce big companies in a single geographic market.?We identify attractive verticals that are likely to be oligopolies or monopolies, determine the business model that we believe will succeed in each vertical, and then invest in companies executing that model in different markets.
If you are an accredited investor (usually net worth excluding primary residence of over USD 1MM or annual income for each of the last two years of over USD 200K) and interested in investing with us then please email [email protected].
If you are looking for investment, please look at our one pager below.?If you think you match our criteria, please contact us at [email protected].
Great advice and laughs too
Partner at IVC & Web3 Investor | Web2 Investor | Former Investment Banker
1 年Amazing progress, Jatri team!