15,000 people are on an (admittedly large) ship, preparing to steam through treacherous North Atlantic seas. On this particular trip, forecasters put the odds of hitting a cataclysmic iceberg above 50%. The ship has lifeboat space for 1,500.
Do you get on the ship?
If the “ship” is “starting a seed funded company”, then I bet you do. The “icebergs”, of course, are the chance that your company runs afoul of its primary problem — lack of cash.
It turns out that, depending on your data sources, about 15,000 companies are funded by seed funders — everyone from Angelist to your Uncle Beavis. But only 1,500 companies per year are subsequently funded by Venture Capitalists.
Now that’s OK if a few hundred kilobucks is all you need for the life of your company. But the odds of a seed backed startup hitting an iceberg, of running out of cash, are quite a bit above 50% in actuality. If you need more capital, and your rich Uncle Beavis is all tapped out, then you’re going to need more. And VCs are investing in just 10% of you. The “lifeboats” are full. Enjoy the swim; the water is cold.
As a startup company, don’t forget this key point: If you are a money losing entity, your “customer” is more money. The money it takes to get you to cash flow break even is the “lifeboat”. Before cash-flow breakeven, having thousands of downloads of your mobile app, garnering paying customers, or building great product technology are only relevant to the extent that they get you more capital to keep the ship afloat.
And that later money, that lifeboat, is ten times harder to get than the ticket that got you on this leaky ship.