VC Question: What is your runway?
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What they mean
The investor is asking are you about to run out of money! They are trying to figure out who has the negotiating leverage. Unless you have a lot of alternatives, meaning competitive pressure for the deal (a hot deal) the investor could even be sneaky, let you run out of runway and then offer you money on worse terms because you have no alternative. This actually happens.
They’re also trying to understand how fast you need to move on this deal. If you have a lot of runway, then you as the founder have a lot more negotiating leverage. As we said before, investors want to give you money when you don’t need it. Slack raised a lot of money when they didn’t need it, so they wouldn’t have to raise when they did. They got good terms, so why not?
If you have 12 months of runway and you’re talking to investors about raising more, this is quite compelling. Perhaps you want to raise the money because traction is going so well that it makes sense to triple down on what you’re doing.
This is not the time to have a heart to heart, girlfriend chat about your stress. You are never stressed for cash, more would just be nice…
What you need to say
“We closed our round four months ago. I know you were a founder before, so you get how much fun fundraising is! We still have 14 months of runway on our current burn rate. The market is adopting our product far faster than we had anticipated.
We have identified scalable marketing channels and our onboarding is automating flawlessly. We’re talking to the market since if we can get strong terms, it makes sense for us to triple down on what we are doing.
We have no need to close a round, but if the right partner sees the opportunity as we do, we think this is a perfect time to more aggressively penetrate the market.
We don’t want to get into bed with people we don’t like. We can’t divorce our investors! Fit matters. We are sound you out ????”
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