How Much Should You Spend After Fundraising? - Gustaf Alströmer

How much money should I spend after I erase my seed round? The reason I feel so strongly about this topic is I see way too many companies spend way too much of their money way too fast. Running out of money is a top concern; your company will die. You should spend the money with the assumption that you'll probably never be able to raise another round. In fact, most companies are not able to ever raise another round. That's because fundraising is really hard. Most of the companies that raise the seed round will not be able to raise a Series A, and most of the companies that raise a Series A will not be able to raise a Series B. The bar just gets higher.

Your goal as a founder is to make your company survive, not to raise another round. Raising another round of financing is just a means to an end and not a goal itself. As a result of doing it, you own less of your company. If you run your company with this in mind, you'll probably make different decisions.

So how much should I spend? The first day of your new financing, or earlier, you should set a very clear set of milestones with good metrics of things you plan to achieve with this fundraising. Typically, the timeframe you're given to achieve this is about 24 months. Since you won't raise another round right when you run out of money, it's good to start when you have about 8 months of runway left. That leaves 16 months to try to achieve your milestones. Some companies make the 24 months last; there will be six months or even longer when your company starts making revenue.

You can start increasing your spend on things like hiring or marketing, but not more than the revenue you're bringing in. One trick that we sometimes advise YC companies is to take half of the money that they raise in the seed round, put it in a different bank account, and imagine like they don't have that money for the first year. That makes you a lot more frugal and forces you to spend your money more wisely.

In closing, most startups spend their money way too fast. Because it's so hard to raise another round, you should always spend your money like you'll never be able to raise another round.