Extending your runway in uncertain times

The fundraising environment right now is exceptionally challenging, even in climate tech. The length of time between Seed and Series A is increasingly being drawn out, while the number of startups that are funded at Series A is falling and exits are at a 10 year low.

For founders of early stage climate startups, this means that fundraising will take longer and require much more effort than expected. What you thought might take 6-9 months could end up taking double that. At the same time, when it comes to metrics that investors want to see at any given stage, the bar is only getting higher. So, how can you navigate the dual challenge of taking your business further with less resources?  

Nate Williams is the co-founder and Managing Partner of Union Labs VC, We sat down with him to discuss tactics for driving revenue without spending and cutting costs to control your burn. 

Recognizing when to conserve cash 

Since the point of a startup is to grow exceptionally fast, you need to go all out for a specific period of time – you generally have one shot to find product market fit without deep-pocketed patient investors. 

In most cases, if 6 months pass after you’ve raised your seed round and you don’t see strong signs of early product market fit, you should assume you won’t have any more external capital coming in until you hit serious traction milestones (i.e. revenue, revenue growth, margin, etc). It’s like being on a hike and getting lost – you need to ration your food until you’re out of the woods. 

In such a tough climate, you need to throw away whatever dogma you have about how businesses are built, and optimize in whatever way will allow your company to survive. Without clear signal that you have  runaway success, spending indiscriminately is a dangerous game. Cut unnecessary costs earlier, or find other ways to generate cashflow.

Leveraging your existing revenue 

1. Don’t be afraid to negotiate with customers
When it comes to customer contracts, don’t automatically agree to a payment term that puts you on the back foot. If a customer’s terms are Net 90, especially if it’s a large company who’s likely to have the resources available, you can push back and say your default is 30 or even 15. Likewise, don’t be afraid to ask for a percentage of the payment upfront – just be open about the fact you need it to pay your subcontractors and suppliers.

And if a customer owes you money, don’t be afraid to chase people – send a demand letter if you have to. Collecting revenue you’ve already sold is much easier than trying to sell new revenue. 

Keep in mind that this is where cash vs revenue recognition is important – even if you sell products worth $100K and can accrue the revenue as product is delivered, the cash will only land in your bank account when your customer pays you.  Do everything in your power to bring this forward.

2. Big game hunting
To reduce the cost associated with generating new revenue, consider going one step up the food chain and selling to the people who sell to your customers – so if that’s utilities, you’ll sell to the people who sell to utilities, like hardware vendors and consultancies. Maybe they’ll become a customer, or you’ll end up doing a proof of concept together. 

So, map out all of your potential targets in the ecosystem and start the process with as many as possible. Although some will take forever, you might get lucky and one will want to move quickly. Even if it takes two years, it’ll take two years from whatever point you start at, so that may as well be now. Plus, remember there’s a FOMO component to selling, meaning you can incentivize larger companies to move forward by telling them you only have the capacity to do one big deal this year, and are already talking to other major players. There’s also the chance that if you show them a roadmap and they want something that’s coming down the line, you can ask them for an expedite fee.

But while you’re broadening your definition of potential customers, don’t just focus on well-known companies with brand recognition – they might bring in a lot of cash, but will be much harder to sign. It’ll be easier to sell to lots of smaller companies than one big name, and you might end up with more revenue at the end of the day.

3. Co-opt someone else’s marketing big guns
Marketing generates revenue, but comes at a cost. So, is there a way you can leverage a big player’s marketing team in a way that allows you both to benefit? This is where your customers, partners, and even vendors can come in handy. They’ll have your story to show off to their customers, and you’ll get in front of customers you wouldn’t otherwise be able to. Even if you only get as far as the other company making a LinkedIn post about your work, it will reflect their credibility back on you, which can go a long way. Think about implementing a referral program, participating in case studies, etc.

4. Explore other options to keep the lights on
In such a difficult fundraising environment, one option is to change tack and do whatever you can to keep cash coming in. That might be consulting, sales, or something more outside the box – the founders of Airbnb sold novelty cereal. 

This short-term, adjacent business should add value to your main mission, whether that’s a lesson learned, a new hire, or a new partner, but you’ll need to have the discipline to know when to get back on track. A side hustle can be hard to unwind, and could distract you from the business you actually want to build. 

Keeping expenses down

1. Think hard before hiring
For instance, do you really need a dedicated person to onboard customers, or can they do that via the product? This can be challenging to figure out, but effective and much cheaper.

Similarly, think about whether you really need a full-time employee for a certain role, or can outsource the work to a contractor. As an early-stage startup you most likely won’t need full-time finance help – and you can get a fractional CFO firm like Enduring Planet to help you.

Plus, ask whether you really need a physical space for engineers to work in, or if they can do their jobs remotely somewhere else. You can even look outside the domestic talent pool and outsource work to global talent, which will be much cheaper with no loss in quality. 

2. Avoid fixed costs
If you sign up for a lot of fixed costs, you’ll find yourself on a treadmill of burn – and it’ll be very tough to get off. This might include personnel, a big office, vendors, or marketing firms on a retainer. It’s better to pay one fixed cost upfront, or look for options where your payments will grow as you do, than get locked into payments you might struggle to afford later on.

Be wary of over-optimizing

While these methods will help you reduce burn, they also run the risk of obscuring the fact that your business isn’t actually viable. Sometimes, the market for your company just isn’t there, and you could go deep into the red before you realize that. Take the big shots while you can, and increase your runway as much as possible – but have the intellectual honesty to admit when a win isn’t on the cards, and remember that the decision you make will impact your whole team. 

Nate Williams is the Founder and Managing Director of Union Labs VC. Prior to UNION, he was an EIR at Kleiner Perkins focusing on opportunities in DeepTech (IoT, Robotics, AI/ML, Autonomous Vehicles). Before Kleiner Perkins, he was CRO & Head of Business at August Home, Inc. a leader in Smart Home Access which was acquired by Assa Abloy in 2017. Nate was the CMO & Head of Business at Greenwave Systems and Senior Director of Marketing & Business Development at Google subsidiary Motorola Mobility (following their acquisition of 4Home where he was the CMO & Head of Business). He earned an MBA from The UCLA-Anderson School of Management and a Bachelors in Communication Science from The University of Connecticut.

Nate is a competitive cyclist and a co-founder of three elementary-aged kids. Raised in the suburbs outside NYC, Nate now resides in the suburbs of SF.