What to Do When Your Start-up is Running Out of Money?

I know what it’s like to be part of a start-up that runs out of cash. Less than 10 years ago, I was on the executive committee of a company that went into liquidation. We had a team of almost 70 people, operating in several countries and under different jurisdictions. We made some mistakes. We were in the Swiss Private Banking sector, which was hit hard by the perfect storm. I joined 15 months before the end, and it was a frustrating experience.

Today, I see some similarities between what I went through and what many foodtech and agtech start-ups are facing. The funding market has dried up for them. They used to plan their next round every 24 to 36 months. That model is broken now, and the light at the end of the tunnel is dim (link).

You still have a shot, but time is running out faster than you think. You need some fresh and honest advice ASAP. For 12 months of runway, assume your odds of survival are of 50% with a non-linear distribution thereafter.

If you are a start-up founder in this situation, you need to act fast and make some tough decisions. Here are 12 questions you should ask yourself and your team to help you survive (and succeed).

1. How reliable is your financial forecast? Review your projections and assumptions and make sure they are realistic and data-driven. Update them regularly and consider different scenarios and risks. My advice, discount them by 30%, you always have less than you think.
2. How can you lower your expenses? Look for ways to reduce your costs and extend your cash runway. This may mean cutting your staff, renegotiating your contracts, or eliminating non-essential spending. Beware, a going-concern when lowering costs (redundancies and so on) incurs costs that are generally not or poorly factored in (running contracts, regulatory break-up fees…). Going back to Bootstrapping is generally not a viable option.
3. How can you raise more capital? Look for ways to secure more funding from external sources. This may mean reaching out to investors, applying for loans or grants, or crowdfunding from your community. Your best bet is with existing shareholders but you must realize that when they invested they factored-in a default rate for their overall portfolio. Put yourself in a position where they would rather let go of another company rather than yours.
4. How can you communicate effectively with your stakeholders? Look for ways to keep your stakeholders informed and engaged. This may mean communicating honestly and transparently with your employees, customers, partners, or investors. Side questions (for a separate article); should you lower the size of your raise? Lower the pre-money in the midst of a capital raise while not being in a TS negotiation phase yet? How pro-active can you be with the terms?
5. How can you boost your income? Look for ways to increase your revenue and improve your cash flow. This may mean launching new offerings, expanding to new markets, or adjusting your pricing or incentives. Doing more with less is easier said than done. Hardly ever works.
6. How can you pivot or adapt your business? Look for ways to rethink and reinvent your business. This may mean changing your product, market, customer, or strategy to fit the changing needs and demands of the environment. This is just a variation of the previous one. Worth trying but low delta.
7. How flexible is your business? Can you pivot from a B2C to a B2B model, from a hardware to a software solution, from a niche to a mass market, or from a premium to a freemium pricing strategy? This is just another variation from the previous 2.
8. How can you prepare for the worst-case scenario? Look for ways to have a contingency plan, a graceful exit strategy, and a positive attitude in case you have to shut down or sell your business.
9. Have you engaged with potential buyers? Problem here is when your (prospective) clients are your best potential acquirers. You don’t want to tip them-off on your situation as they might see an opportunity to buy you on the cheap (or worse in liquidation). If you don’t have this problem you need to always be in contact with potential buyers.
10. Have you identified all potential buyers? Competitors, companies that could use your IP, clients… You need to think laterally about what you’ve built and who could use it. You also need to consider taking yourself out of the equation. You have shares in the company so maximizing its valuation is in your best interest.
11. Have you considered joining forces with another start-up? Sometimes, it may be better to merge or partner with another start-up that has complementary strengths or resources. This may help you create synergies, reduce costs, increase revenues, or access new markets or customers.
12. Have you learned from your mistakes? Running out of cash is not necessarily a sign of failure, but an opportunity to learn and grow as an entrepreneur. You should reflect on what went wrong, what went right, and what you can do differently next time.