Range Anxiety Is Good For Your Startup

My wife and I are car collectors. Not the kind you’re probably thinking.? When our kids became urban dwellers, we “adopted” the cars that they don’t use anymore. So we now have four cars for two drivers. None of them turn any heads, but they all serve a purpose. My son’s SUV is useful for hauling stuff. My daughter’s tiny hatchback is great for finding parking in the city. Our Accord hybrid is the most comfortable and presentable. And my 12-year-old Prius gets the best gas mileage.??

On a recent road trip from Maryland to visit friends in North Carolina, my wife and I decided the Prius was our best choice. Leaving home with a half tank, I knew it would take us around 200 miles before needing gas. We could stop, grab lunch and fill up somewhere in Virginia to break up the trip. But when I drive long distances, I sometimes get into a zone.?

We headed down Interstate 95 from DC where fast-food restaurants and gas stations abound. Not fixating on the gas gauge, before I knew it, we had sped past Richmond and turned onto I-85 heading toward Durham. Although we found ourselves on a beautiful, tree-lined highway enjoying the fall colors and the lack of traffic, we also realized we had entered a fuel desert…with almost an empty tank.?

I have been involved with plenty of startups that reached the brink of running out of gas.? A couple of them did.? Others pulled a rabbit out of the hat and were able to keep going.? After closing a round of funding, there’s a sense of both relief and excitement that you can now gun the engine and go fast again. There’s the assumption that additional fuel will be available as needed to keep you going along the journey. The priority is making rapid progress, not maintaining financial discipline. But no runway lasts forever.

Last week at the Harvard Alumni Angels Global Conference, I had an opportunity to hear the perspectives of several accomplished VCs on the current funding climate.?

Tony Florence of New Enterprise Associates (NEA) , cautioned that funding rounds are smaller and valuations are down. Great companies are still getting funded, but investors are being more opportunistic and more diligently driving valuations off of company metrics than in the recent past.

Carlotta "Lotti" Siniscalco of Emergence Capital reinforced this point, warning that the compression of public company valuations is putting greater pressure on VCs to drive private company valuations down to ensure that VCs can still deliver good returns to their limited partners. That means smaller rounds for companies and greater ownership for investors.

Patricia Nakache of Trinity Ventures pointed out that funding rounds are taking longer than during the frenzy of recent years. While early stage venture funds are active, they are undertaking greater due diligence and being more cautious. She advised that startups should budget for protracted fundraising processes that can take six months or longer.

When it comes to startup funding, we've turned off of I-95 onto I-85. It’s not that there aren’t gas stations out there where you can fuel your startup. They are just fewer and farther between. You might have to go off the beaten path to find them. And it may get worse.

According to Natasha Mascarenhas , a Senior Reporter at TechCrunch , we are in the middle of a culling of the VC ranks. So it will take greater planning and discipline to make sure you reach the remaining investors before your company runs out of gas.

Driving down I-85, I finally woke up and realized that the tank was down to less than 1/10 full when the gas gauge started flashing.? Now, finding a gas station became an urgent priority.? I could no longer carelessly speed down the highway ignoring our waning reserves.

We entered crisis management mode. We switched the destination on our GPS. We temporarily abandoned the plan to stop for lunch AND gas at the same time. The range on the car said 13 miles and the nearest gas station was 8 miles away. OK, no problem.??

But after a few miles and well before we reached the gas station, the range reading dropped to 0! I panicked. I slowed down the car to below 60 mph to preserve gas as all the other cars started whizzing by!

The level of tension skyrocketed. I secretly prayed that I wasn’t going to have to walk the last mile or two to a gas station or call for roadside assistance. Ironically,? the main reason I haven’t considered buying an electric car is the fear of not being able to find a charging station. But I became so complacent driving my Prius that I created the exact sort of range anxiety that I have been avoiding.??

Your Startup Needs a Healthy Level of Range Anxiety

According to statistics tracked by Layoffs.fyi , more than 700 startups have undertaken layoffs since the beginning of 2022--and that's just the ones that have been publicly reported. This is the largest spike in layoffs since the early pandemic and represents a general fear among investors and startup leaders that we are entering into a more challenging economic climate. Cash preservation has become critical and companies are focusing on increasing profitability and delivering more with less.

For startups, the prospect of running on fumes can be destructive. It causes a heightened level of range anxiety that can be paralyzing. You stop concentrating on company building. The focus shifts to survival mode. It feeds on itself and causes the board and management to make precipitous short term decisions that undermine the prospects for the business.

The most painful of those is layoffs that break up teams that have taken years to bring together and may be impossible to rebuild later. Unfortunately, once a company reaches that point, there is little recourse.

On the other hand, maintaining a modest level of range anxiety from the outset is a healthy and I would argue necessary state to operate under. It leads to a level of discipline and focus that not only extends the company’s life, but also drives more capital efficiency and greater returns for founders, employees and investors. Not coincidentally, that level of discipline also makes companies more fundable as investors want to back teams that manage burn effectively.?

As your startup navigates the uncertain times ahead, it’s never too early to start watching the gas gauge. Keeping an eye on your burn rate and figuring out ways to extend your runway should be front and center. Managing runway is, as I like to say, a “numerator AND denominator problem". It’s a function of how much you have in the tank and how quickly you burn it.?

Making sure you have enough to fuel your company may mean taking money whenever and wherever you can get it, even if the terms are not perfect. Of course, the best way to fund your company is by closing sales, which has the added benefit of making you more interesting to investors. But few early stage companies can generate enough revenue to sustain themselves without outside funding.

Venture capital has become a buyer’s market and most companies seeking funding cannot afford to be overly choosy in negotiating the perfect terms. It also means, as Patricia Nakache from Trinity Ventures pointed out, that you must give yourself ample time to find interested investors and get your funding round closed.

The funding climate also makes it all the more important that you manage your expenditures aggressively.? Track your cash flows monthly and keep track of the length of your runway.? Don’t over-hire and even consider a hiring freeze. Keep costs variable wherever you can to minimize your structural burn.? Be as transparent as possible with your team and make resource conservation a company-wide priority. It’s a whole lot better for everyone to work together as a team to reduce burn than to have to undertake one or more rounds of layoffs.

We did end up making it to that gas station. I didn't have to push the car or call a tow truck.? But I could have avoided a whole lot of anxiety if I had simply exhibited a little more foresight and discipline before heading too far South.

Gus Bessalel is the author of the upcoming book, The Startup Lottery: Your Guide to Navigating Risk and Reward. The book is an essential guide for anyone considering a career in startups. To be notified of the book’s release in fall 2023, please visit:

A former Inc. 500 CEO, serial entrepreneur and 30-year veteran of startup life, Gus has a BA and MBA from Harvard University and started his career in management consulting at Bain & Co. He was also the Co-Founder of Compass Pro Bono, a volunteer consulting organization that advises nonprofits. He mentors young companies and entrepreneurs and writes about startups and business, among other eclectic topics.

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