The Finance To Value Framework

There are two major failure modes in startups.

The first common failure mode is the thing you make doesn’t get adopted. That’s called not finding product market fit in startup lingo.

The second common failure mode is “getting too far out over your skis” and it happens to companies that do find product market fit but mess things up by building an inappropriate cost structure (and capital base) and it all comes crashing down on them when they either can’t continue to raise money at ever increasing valuations and/or when they can’t grow into their cost structure quickly enough.

The first failure mode comes with the territory. The world of startups is all about experimentation. Most experiments fail. If this happens to you, it sucks, but that is what you signed up for.

The second failure mode is entirely avoidable and way more common than you might think.

The capital markets are efficient over the very long run but highly inefficient in the moment. So just because investors are willing to throw gobs of money at you and your company, it doesn’t mean that it is smart to take it. And, as I have written numerous times here before, having lots of capital does not derisk your business plan. In many cases, it amplifies the risk of your business plan.

So how do you stay in balance and avoid getting too far out over your skis?

I like this framework that I call “Finance To Value” which means you finance your business to regular valuation targets that are driven by fundamental value analysis.

The first thing you need to know is how your business will be valued by a buyer or the public markets when it is a scaled business. I like to use EBITDA and Revenue multiples for this work. And the best place to get them is from bankers who work in your sector and/or investors who are active in your sector. The key point is these multiples are what you are going to be valued at upon exit or IPO, not currently.

Revenue multiples work better for this than EBITDA because very few companies have positive EBITDA during their growth phases.

Here are some examples. Please don’t use these multiples without verifying them with someone who knows your industry and your business. These are simply examples:

E-commerce business – 1 to 2 times revenues

SAAS business – 6 to 8 times revenues

Marketplace business – 4 to 6 times revenues (which can be less than 1x GMV depending on your take rate)

Once you know this number for your business (and don’t be aspirational or agressive in determining it as that will just lead to problems), you can apply the Finance To Value framework.

There are two Finance To Value rules:

Don’t raise more money in a given financing round than you can create in incremental value during that capital window.

Don’t let the post-money value of your round get higher than you can grow into during the capital window.

So let’s apply it to a fictional company.

Let’s say you have a SAAS software company that is doing $10mm of annual recurring revenue and you want to raise money to fund the business for the next 18 months. Let’s say that your business is growing at 40% per year and that your annual recurring revenue will be $18mm in 18 months. And let’s say that the post money value of the your last round was $60mm.

So using a revenue multiple of 6x revenues says that you should not raise more than 8×6 or $48mm. But that means you won’t create any incremental value. If you want to create incremental value then you should raise some fraction of that, maybe half of that.

Also, you should not let your post-money value get beyond $108mm (6×18). So if you raised the entire $48mm, it would be a flat round with your last one.

This is a bit of art vs science, but what those two calculations tell me is that the right raise for this company would be something like $20mm at $70mm pre/$90mm post, leaving some cushion to miss plan and still be able to raise an up round.

The challenge for founders and CEOs operating in startup land is that investors are often willing to throw more money at an opportunity at a higher price than you should accept. Who wouldn’t want more capital and less dilution?

But that is how you get out of balance. Don’t be tempted by the money and the valuation. Stay in balance and always make sure you can get the next round done on fundamentals.

If you stick to that practice, you can significantly reduce the possibility of getting too far out over your skis.

#Uncategorized

Comments (Archived):

  1. LIAD

    Sunday but with a Monday length post. Someone slept well last night.

    1. fredwilson

      i slept well. but i am trying to write longish helpful stuff on sundays now

      1. Mac

        Thank you. Balance well struck.

  2. David C. Baker

    Fred, posts like this are why I read your stuff. Clear, concise, an articulated POV. I soaked this up and really appreciate your continued education of the rest of us. 🙂

    1. fredwilson

      Thanks David

  3. Connar BensonEpstein

    Great post!! Bigger is not always better. Big valuations also lead to big management egos. Big egos are often the kryptonite for promising startups. This was a great rule of thumb for entrepreneurs.

  4. William Mougayar

    Based on this explanation, all ICOs are out of balance, far out over their skis, and many over their heads.They want to raise at maximum prospective valuations, often the equivalent of 6 rounds at once. I recently interacted with a company who wanted to jump to a $100M token-based valuation, 6 months after a 5M traditional VC valuation, and without having created new value or advanced their product significantly. This is a trend I’m seeing now, with companies calling this “token valuation”, based as a reference point of publicly traded cryptocurrency prices for other projects. That’s the CoinMarketCap.com Hype to no-Value Framework.

    1. fredwilson

      At least they are raising many years of cash.

      1. William Mougayar

        Yes, that keeps them in the game to keep iterating. But, what is very uncertain is whether they can, in the meantime, sustain the generous valuation multiples they inherently received.

        1. pointsnfigures

          This is a conundrum because of point 1. A lot of these crypto companies won’t find product market fit. In the traditional funding model, they would fail. Instead, they will keep iterating until they burn through the cash. How many will send money back to investors?

          1. William Mougayar

            Yup. I know a couple that are trading below intrinsic value, and would return money if they failed or closed down.

          2. jason wright

            money back to investors?they will find creative ways of extracting the money e.g. ‘third party’ contractors hidden behind nominee directors and offshore companies. investors will never get it back.

          3. PhilipSugar

            Unfortunately I used to be more idealistic and think that wealth just got transferred to smarter parties….landlords, furniture companies, consultants, etc.Then I saw well you hire and overpaid outside firms and land a cushy job when things crashed.But you are right.

          4. LE

            Perhaps also you saw this in the WSJ the other day:https://www.wsj.com/article…In a review of documents produced for 1,450 digital coin offerings, The Wall Street Journal has found 271 with red flags that include plagiarized investor documents, promises of guaranteed returns and missing or fake executive teams.

          5. pointsnfigures

            https://medium.com/satis-gr… 81% fraud. Gonna happen when people think there is free money. I am not at all upset about failures. Happens as Fred says. Not sure what constitutes fraud either, but if you don’t build anything after you take money then it’s not good for anyone.

        2. cavepainting

          I wonder about the need for innovations in token structures to provide the equivalent of preferred stock in tokens that allows certain classes of token holders to be able to liquidate their tokens at a pre-defined price governed by certain triggers.Very likely that a crash in the price of some popular tokens could precipitate something like that if enough token investors lose their capital.As tokens work today, the value of a company whose token price crashes will be ~ = the cash remaining from the token sale. Unfortunately, the token holders have no claim to that cash and a bankruptcy or sale would distribute that cash primarily to debt and equity holders.This of course is complicated because utility tokens are not securities to start with so token holders should not even be expecting such rights.

      2. Rob Larson

        Yes – if you can raise rounds A-D upfront, you might be ok as long as you don’t need to ever raise again, cause odds are you won’t be able to. (And with that kind of money you probably shouldn’t have to.) So plan carefully, hide most of the money in the vault and don’t let yourself spend it for many many years.

        1. pointsnfigures

          When I was at Five Star Basketball Camp in Pittsburgh back in 1979, Rick Pitino (then asst coach at BU) said if anyone signed an NBA contract to bank the salary and live off the shoe contract. This is the same principle.

        2. sigmaalgebra

          As I quoted Marilyn Monroe on diamonds, “It can never be too big”!!!!

      3. sigmaalgebra

        I made that point in my post — I was surprised at your original post that seemed to dismiss this point. As I quoted Marilyn, “It can never be too big”!!!!!

      4. JamesHRH

        Hmmmmmm.For whom?

      5. PhilipSugar

        I’d love to see if that holds true. What I have seen:Well why not get 2X the space we need, and it has to be in prime location, and we need it decorated really cool to attract people.Sure these top execs are expensive and the recruiting fees are huge but we need people who can grow, we are in it to win it.I know the budgets for these conferences, marketing, PR and Advertising agencies are astounding, but we’re in a land grab.All other expenses just go through the roof as well.Two years later when you need to start raising again, people are funding the numbers not the dream.Have you seen this play?

    2. LE

      all ICOs are out of balance, far out over their skis, and many over their heads.Agree but whether that is smart or not in context to traditional raises of money depends on perspective and the nuance of the situation.I see ICO’s more as ‘strike while the iron is hot’ maybe similar to going public in a way. Timing. I think what Fred is saying applies to money that would more likely be there later if you needed it as history has shown. Not ‘for sure’ but ‘more likely’. So the iron is hot and expected to be hot (in theory) later. As of this month and this year ICO’s are the thing. We don’t know if that will be the case next year or 2 years from now.One thing though with what Fred is saying. It also assumes that if you don’t take the money now your fortunes will not change whereby you will not be able to raise money later. [1] No way that isn’t a potential risk. All sorts of things change in the world and with business prospects. And in personal life. With the loss of key accounts, employees and books of business. Changes in investment terms, interest rates politics an endless list. You can’t factor out those extrinsic influences. [2][1] A personal and non-business example of this is what I told my older cousin when he asked me if his son should accept an offer to go to a 7 year medical program or go the traditional route which is undergraduate and then medical school. I said to go for the 7 year program (even with some drawbacks). Why? Because once you are in you are in. If he went to undergraduate first then there are all sorts of things that could happen in the 4 years that could derail his medical school plans. Strike while the iron is hot. This is literally what I told him. He went to the 7 year program and now has a multi office practice in the Austin Tx area. Who knows the outcome if he hadn’t done that. And since getting into a 7 year program is hard it is also a good bit of branding which helped him get a good residency.[2] I am actually getting a deal done this way right now. Not done but 99% sure it will go through. A FANG company is the buyer and my client is the seller. I said something that roughly translated to ‘think if you don’t take it now you can come back later and get it for that price?’. Well guess again you won’t be able to the price will be much higher. The FUD of the statement (along with other things said such as a 7 day time limit to decide) was enough to get the action desired. Part of this is playing the company employees whereby they will look bad in the future if they represent that ‘we can always buy it later for $X dollars so let’s take our time’.

    3. JamesHRH

      This cannot be a surprise.ICOs are the new version of pre-revenue IPOs.

  5. Tom Labus

    This is a Yankee HR production post!!!How do the large funds justify tossing huge sums in early stages? Are they using a different model? Isn’t early over funding dooming your ultimate exit, goal?

    1. cavepainting

      a) they have raised LOTS of money from LPs, b) Their preference terms protect their capital first, c) Huge sums are usually in the later stages when the company us generating $20m + revenues or has a very large user base. Institutional crypto investors seem to have a different model though.

  6. pointsnfigures

    Corporate finance is a strategy, just like marketing.

    1. awaldstein

      CFO for these large crypto projects is an essential hire. Non trivial management with no real guidelines.

      1. pointsnfigures

        Can use an outsourced CFO like (https://earlygrowthfinancia… who I have recommended in the past. (I get no fee from them or juice) but agree, discipline and cash management is hyper important

        1. awaldstein

          If I was running a project whose model was tokens I would most assuredly have a CFO on staff.Many are.I will keep this referral on file though.Thanks!

  7. awaldstein

    Thanks for this Fred.Sunday is best when it starts with a thoughtful tone.

  8. Sarah

    The ski analogies always work for me. There is so much technical preparation that goes into a ski – fitting the boot/binding and then adjusting for unpredictable snow conditions/waxing. I think a lot about the micro adjustments and illusions that propel us forward. Telemark skiers need to put more weight on the back ski – who knew? Skate skiers shift their hips down and forward to an awkward position in front of the bindings – the real bend is in the ankles. Hard to see as an observer but when you do it right it is magical to watch. It all requires preload, focus and repetition. You will be fast, efficient and possibly in a position (if you also do the initial analysis & technical prep) to exceed your expectations.

  9. Stephen Christopher

    As a VC, wouldn’t you be worried if a company is purposefully trying to take less money as a signaling that they don’t intend or know how to scale faster if they were to get cheaper/more capital to deploy? Personally, I’m in the camp of do what’s best for your company and if a VC can’t get on board, they shouldn’t be on your cap table. Would like to get your thoughts on market perception/framing strategies esp given the inefficient short-term markets.

  10. PhilipSugar

    This is a GREAT post.Great numbers, great examples.Let me only add one point, which I have said too many times.You raise too much money………you spend too much money.Never seen this not happen. It must, but I’ve never seen.I know why you are posting this….When times change, there will be tears.

    1. William Mougayar

      Yup, with too much money, one tends to lose spending discipline…in business and life.

    2. sigmaalgebra

      Yup:You raise too much money………you spend too much money. Yup, the risks are from some grand, internationally famous work of art HQ monument to idiocy, some original Picasso paintings in the reception area, free Michelin three star lunches with high ranked, 1855 Haut Medoc wines, C-suite interior decorating at $1+ M per office, executive aircraft and stretch limo service, high living, trips to Vegas, fast women and slow horses, debauchery, “pride, greed, lust, envy, gluttony, wrath and sloth”?Speak for yourself but not for me, oh tempted one!!

    3. cavepainting

      Startup founding and investing is done by people. Most people are driven by fear, greed, and pride even if they might claim to be pragmatic and beyond all that.Thus it is instructive to go back to the WHY of someone is founding something. If it is driven by a bigger mission that is beyond making money or being perceived as successful, there is a higher chance that they will do what’s right for the company and its mission for the long term than be driven by emotions, ego, or appearances.Nevertheless, accepting or turning down cash you may not need in the near term goes to the heart of dealing with the uncertainty and risk so inherent in this business. It is easier said than done for very human reasons and not governed just by logic.

      1. PhilipSugar

        I will be the first person to say I am too conservative on raising cash.I will admit to saying it will always end badly in a frenzied market.I have never made or really want to make money playing the greater fool in the game of musical chairs.I think as you get older (past a half a century) and have had enough success that you realize the youth is wasted on the young, and your outlook changes.Oh well, just a perspective.

    4. JamesHRH

      The older I get, the more life is about ratios.And knowing the right miss.

  11. James Seely

    “So using a revenue multiple of 6x revenues says that you should not raise more than 8×6 or $48mm.”I think I missed something – where does the 8 come from in this? The $18M in projected ARR minus the $10M of today’s ARR?

    1. k77ws

      same question

    2. Karan Khandpur

      8 is the difference between the 18M future revenue in 18 months and 10M in rev today (40% CAGR). Multiplying that by the 6X multiple gives you the value generated over the period.

      1. Karan Khandpur

        Another way to get the 48M figure is to subtract the value in the 18th month (18M rev * 6X multiple) or 108M and the value today at 60M (10M rev * 6X) = 48M or the total value generated within the period.

  12. Rob Larson

    Fantastic post, love reading this kind of insight.

  13. cavepainting

    Great post. I think the failure modes in 1 and 2 are more on a spectrum, that makes it hard for founders to really grok the risks they face and determine if they should take more cash when available or be pragmatic but face the possibility of running out of cash, should the underlying market and funding dynamics change dramatically.The company could be in one of these situations:1) No Product Market Fit yet, but market cannot be written off because of underlying shift in market dynamics and new tech.2) PMF found only in niche segments, but not translating into mainstream3) PMF was too fleeting because of macro changes or moves of big cos. (Meerkat)4) PMF in what appears to be a mainstream market, but unsustainable unit economics 5) PMF and sustainable unit economics, but lots of capital needed to capture market share.6) PMF, sustainable unit economics, and generating positive EBITDA (sustainable business model)Until (6) that provides some element of stability or predictability – even that can be questionable – all other situations are filled with incerto.The risk of not having a bigger war chest or buffer has to be squared off against the risk that the additional cash and preference terms adds to the business and the founders’ possible outcomes.It is not an easy thing to do at all and your framework can be very helpful. But the emotional and human elements of this play a very big part as well. No founder wants to run out of cash and things can change dramatically pretty fast.

  14. christmasgorilla

    Really helpful framing post. Setting yourself up to raise an up round is important, but not all up rounds are created equal. Two quick follow up questions:1) Where did the notion of a company that couldn’t 2X it’s value (early stage) before the next fundraise become a norm?2) Given this post—what are some rules of thumb around how to position value for a subsequent fundraise that you give to your portfolio companies?ie, use this framework and be able to double value of the company and you’re in great shape vs. create 20% more value over capital burn and you’re in the danger zone

  15. sigmaalgebra

    The world of startups is all about experimentation. Most experiments fail. If this happens to you, it sucks, but that is what you signed up for. Okay.But athttp://www.paulgraham.com/g…there is by Paul Graham of YCombinator in part:Startup = GrowthWant to start a startup? Get funded by Y Combinator.September 2012A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of “exit.” The only essential thing is growth. Everything else we associate with startups follows from growth. Okay.There Graham goes on to compare starting (A) a barbershop and (B) a search engine.He makes the point that a barbershop is quite limited in how fast or large it can grow and that a search engine can, by serving many more people over much larger distances, grow much faster and bigger.Okay.But there seems to be an assumption that a startup must be planned, designed, and executed to grow quickly and become really big or will be a genuine failure, as in… it sucks, but that is what you signed up for. But there does not have to be such high risk, such high probability of failure that “sucks”.One point is, for the really rapid growth of Facebook, Snap, Instagram, etc., there was some astounding virality. Okay but such virality is tough to design, plan, or execute, maybe usually heavily due to luck, and is “riding the whirlwind”.So, the difference between a good business and some sudden, explosive growth might be just the luck of a whirlwind.Lesson: Don’t count on the whirlwind and, instead, design, plan, and execute a business that, maybe, will have explosive growth but otherwise still looks like a good shot at a good business.Or, the times I was in US yacht clubs, I saw some nice results of some good businesses but never saw anything like what Graham has in mind, Facebook, or a whirlwind.Lesson: There are a lot of good businesses much better than Graham’s barbershops but less spectacular than his Facebook.Another point is the matter of equity funding: The old story went that a Web site needed equity funding to pay for the expensive Web site server farm products of Sun, Cisco, AT&T, etc.Not now!!!Let’s see: (1) AMD FX-8350 64 bit 8 core processor at 4.0 GHz, $115, (2) Asus M5A78L-M/USB3 motherboard, $60, (3) 16 GB DDR3 ECC main memory, $132, (4) high end Antec power supply ~$100, (5) 5 hard disk drives, 500 GB each, SATA, $100, (6) Windows 7 64 bit Professional SP1, ~$100, (7) SATA CD/DVD R/W, $20, (8) case $20, (9) video display, keyboard, mouse, printer, cables, etc. for115 + 60 + 132 + 100 + 100 + 100 + 20 + 20 = 647i.e., less than $1000.At current ad rates (M. Meeker at KPCB), if keep that computer, say, half busy 24 x 7 sending Web pages with ads, can get revenue $100 K a month, with more details maybe $250 K a month, with some especially good user demographics and ad targeting results maybe $1 M a month.So, it’s a business with a sole, solo founder with revenue of $1.2 M to $12 M a year.There is just that one server worth less than the $1000. But, sure, with the revenue, the founder will get a better software development setup and go to a spare bedroom, install its own circuit breaker box, some more such servers, a good load leveling router, some good system monitoring and management, some uninterruptible power supplies, a backup electric power generator, and good air conditioning, etc. Even at only $100 K a month, that’s not much money. And such expansion could easily increase capacity by a factor of 10, say, enough for $12 M to $120 M a year in revenue.Sure, even the $1 million a month would not excite Graham unless it was growing quickly. But $1 million a month funds a nice, say, 40′, yacht in a nice US yacht club, even if the business lasts only a few years.So it’s better than Graham’s example of a barbershop. Without promise of another Facebook, it is a failure for Graham and, maybe for a VC, is… it sucks, but that is what you signed up for. But, at the $1.2 M or $12 M a year in revenue, maybe the business would have high growth rate and, thus, excite Graham and justify discussion of what the revenue and/or “pre-money” might be then or in the “18 months”.Okay.If the founder wants to have a BoD of VCs, etc., he can go for it. He’s got a good business anyway, plenty of cash for growth.So, some VC wants to offer a really big check at a really big pre-money evaluation with really good terms otherwise.Well, as Marilyn Monroe said in Gentlemen Prefer Blonds about the size of a diamond in an engagement ring, “it can never be too big”, or as inWho wouldn’t want more capital and less dilution? I agree.ForAnd, as I have written numerous times here before, having lots of capital does not derisk your business plan. In many cases, it amplifies the risk of your business plan. I’m not seeing that at all. In simple terms, if suddenly have much more cash than need or called for in the planning, then just park the cash in some safe place for “a rainy day”. IIRC Apple and Microsoft both have tens of billions of dollars in such parked cash, and I doubt that it is hurting their business.Sure, if the extra cash causes the CEO actually to start spending that extra cash in foolish or unproductive ways, then, that, and lots of stupid possibilities, can hurt or ruin the business.The risk is from what, some grand, internationally famous work of art HQ monument to idiocy, some original Picasso paintings in the reception area, free Michelin three star lunches with high ranked, 1855 Haut Medoc wines, C-suite interior decorating at $1+ M per office, executive aircraft and stretch limo service, high living, trips to Vegas, fast women and slow horses, debauchery, “pride, greed, lust, envy, gluttony, wrath and sloth”?Not in my company: More space for people? Well, a lot of shopping malls have been closing. So, maybe get some good lease terms on a wing of one of those, already with solid floors, good utilities, parking, etc., and put up some partitions.The first cut solution to being so stupid is don’t be stupid.ForSo how do you stay in balance and avoid getting too far out over your skis? I don’t see the role of “balance” or skis. I’ve never been on skis and don’t plan to be. When I think of skiing, I think of pictures of people on crutches with some of their limbs in big, plaster casts, a big brace around their neck, etc.For all that extra cash from equity funding from generous VCs, I’m not seeing any role for a “capital window”.Instead, just use the planned cash as in the plan, put the extra cash in some safe place, and continue on.If the plan is for 18 months — if that 18 months is the “capital window” — at the end of the 18 months see what is the state of the business:(1) If the business went according to the original plan, that is, the plan without the extra cash, then can use the extra cash for extending the plan, i.e., extending the “capital window”, without having to raise more equity funding. Sounds like good news for all but any competitors.(2) If the business did not do so well, then the extra cash can be for the “rainy day”, a safety net, a second chance, having “some cushion”, and without doing more fund raising.So, net, for a really big check at a really big pre-money evaluation and as inWho wouldn’t want more capital and less dilution? my reaction is like Marilyn’s “it can never be too big”!But all this assumes a crucial role for equity funding. I’m not seeing that any such role is necessary for building a good business, now maybe a business better than Facebook.Sure, one way to evaluate early startups is to look at current traction and its growth for a large market. Okay. But, really, for anyone at all serious about business or money at all, even the least bit serious, using just such simplistic pattern matching project planning and evaluation criteria is just wandering in a dark cave with a weak candle and one eye shut.Instead, really good project planning goes way back, e.g., to Caligula’s project to move a single piece of stone monolith from the headwaters of the Nile to a public location in Rome, long before that, the Parthenon in Athens, long before that the Pyramids, and there has long been really good project planning in the US in engineering — deep tunnels, tall buildings, long bridges, challenging roads, railways, and canals, major US military, NASA, and scientific projects, e.g., the human genome project, all amazing projects done with high payoff and low risk.Startup entrepreneurs are free to do good planning for their projects. For an information technology project, what can be done with a server from $1000 in parts can be part of that planning.Again, as in the US yacht clubs, lots of US entrepreneurs are quite successful without equity funding.In particular, some sole, solo, information technology startup entrepreneurs can be nicely successful without equity funding.E.g., there was the Canadian romantic matchmaking Web site Plenty of Fish. Their server farm architecture was covered inhttp://highscalability.com/…andhttp://highscalability.com/…So, the service started with two old Dell servers and ran Microsoft’s Windows with .NET, ASP.NET, ADO.NET, and SQL Server.The founder was Markus Frind. Early on he was a sole, solo founder with ads just from Google with $10 million a year in revenue.There is also a more general description of the project athttps://www.inc.com/magazin…As inhttp://techcrunch.com/2015/…in July, 2015, Frind sold his company for $575 million.Obviously for an information technology startup entrepreneur, the goal is a good business, maybe not another Facebook, at least not right away, but much better than Graham’s example of a barbershop.Lots of people in the US, border to border, villages to the largest cities, build such good businesses; being in information technology able to exploit a server of $1000 in parts is just a huge advantage.For such business success, we don’t just “swing for the fences” or “strike out”. Instead, we can do a lot better than a barbershop even if not another Facebook.But for another Facebook, with some good ideas and work, that field is also wide open. E.g., at least from the publicity, apparently the best, most promising, hottest work in information technology now is artificial intelligence (AI). There the emphasis should be on artificial. Uh, to be blunt but correct, AI is, done poorly or well, so far necessarily part of applied math, but IMHO anyone with any reasonably good background in pure and applied math will look at the hyped work in AI as at best empirical curve fitting and otherwise embarrassing baby drool way behind long lists of solid accomplishments in applied math. Net, the competition for doing better manipulations with the data are astoundingly weak and the opportunities correspondingly high.In summary, I’m not seeing that equity funding has much to do with the good opportunities.Off to get some exercise and then install some more software on my FX-8350 server.Right away I can say, just from first usage of the thing, even on software that uses mostly just one core at a time, it is obviously DARNED fast!!!The first week that keeps that puppy busy will be a good seven days!

  16. george

    Always find your math lessons extremely valuable; thanks for sharing. There is one mistake I’ve often see with startups whom are well funded, overspending on office facilities…that might make a good 3rd finance rule; remain agile, at least, until you scale profits.

  17. JLM

    .This is exactly what happened in the CATV and telecom days.CATV never made a cash flow profit. Instead, everybody valued CATV at 3X plant and equipment (PPE).They mumbled about “housed passed.” They pretended cash flow wasn’t important.Everybody just kept sticking cable in the ground. Billions of dollars.Until there were a couple of bankruptcies and companies (systems) sold for 15% of PPE. Suddenly everyone was drifting back to cash flow.Luckily, the Internet came along so they all became bundlers of CATV, programming of all kinds, phone, wireless, and the Internet.The further any financial data gets from old fashioned GAAP earnings, the more chicken shit in the chicken salad. You can perfume it for a while, but soon it returns to real cash.It also shows up in the post-IPO tech market.JLMwww.themusingsofthebigredcar .com

  18. Azreen

    Thank you @fredwilson:disqus super appreciate it.

  19. James Ferguson @kWIQly

    HmmmThis post smacks of Marshmallow https://uploads.disquscdn.chttps://en.wikipedia.org/wi…IF you can defer gratification, raising too much is only a problem in that you raise at too low a valuation,If you can get to the same place raising LESS the incremental gratification should be higher. (less dilution).The logic is simple – never raise more than you can exploit effectively or you will pay more for it now than you could have later.The when money is cheap exception – is NOT an exception – If you hold onto your marshmallows it will get cheaper yet !Disclosure : Fully Bootstrapped Marshmallow Investor