The ways founders are not yet funded. Part 1

There are only two kinds of weather in Ho Chi Minh City: one is hot and dry; the other one hot and wet. I guess this smooth seasonality helps create a peculiar attitude towards time: everything that didn’t happen today might as well happen tomorrow. This actually might be a good life philosophy. But finalizing an hour-long conference call with the lawyers I couldn’t feel anything but frustration. Getting approval from a government department — a condition precedent of a venture financing tranche — would not be finalized for another three weeks. This meant we would not be receiving our next tranche of financing as planned. A weekly cash flow statement showed that we would not be able to simultaneously pay salary to the sales team, overdue supplier bills, and stay current on our interest payment to a bank. This in turn meant we would violate covenants with debt funds, which — you’ve guessed it right — would completely derail the VC round in the first place. One call and the company was on the brink of survival.

Kamil Kurmakayev. Founder & CEO at Sramble

This story might be told in countless shapes in Silicon Valley, in Russia, or in South East Asia. In theory, as a diligent growth founder or a reputable CEO, you’re not supposed to spend more than you already have in the bank. In practice, start-ups rarely work this way. Things happen. Deadlines are missed. People across the table change their minds and go on a soul-searching yachting voyage instead of wiring you a check. Everything usually ends well: you scramble together a combination of a loan from friendly entrepreneurs, beg suppliers for a delay, all the while explaining to your shareholders that it’s in their own best interest to waive this one condition precedent. You survive to live one more day. And sometimes you don’t, and this is when your company folds. As an executive of an established business, you learn to hire a good CFO and manage your cash flow carefully.

As a growth founder, you spend up to 50% of your time barely sustaining your access to capital. You do something about “fundraising” at least weekly, and you keep doing it for sometimes as long as five to ten years.

What always struck me as odd was the amount of capital that can make all the difference at a critical juncture. In my experience, the lowest was $20k, and the highest was $150k. I’m talking about short-term loans that saved companies that were valued — on paper, but still — for millions or tens of millions of dollars.

The other thing is how much undue stress and loss of founder time happens because of the way fundraising works. Focus and time allocation of the founder/CEO is arguably the most crucial factor driving the value of a growth business. Imagine what kind of start-up performance we would see with founders spending 5% of their time on fundraising instead of 50%?

Usually, when something is not working the way it should, there’s a good enough reason. I’ve spent the last year or so trying to learn a bit more about this weird status quo and seek an opportunity to disrupt it... (to be continued)