Runways. Runways. Runways.
It’s a big term in the startup world but what does it mean?
A runway is how much time you have left: how fast you’re spending cash vs your income.
It’s often a large part of investor conversations. How long is your runway now? How long will it be with this investment?
But what if those questions didn’t need to be answered when approaching investors? What if you didn’t need a runway anymore because you’d already taken flight?
What I’m talking about here is investment into businesses with no model. It’s something we luckily rarely see now, but is always something I’m quite divisive about and for good reason.
The title of this article is something I have actually said to someone who was seeking not only a first round of funding, but a second, still without knowing what their business model was. Essentially, there was no commercial plan yet beyond the data that they were gathering.
Yes, I understand the value of data, but what use is the info you have on 1 million people if those people have never and may never buy something, really?
Of course, there are multiple angles here and arguments to be had for an exit strategy to return the investor cash on a trade sale, but how much will the company without any revenue sell for? You only need to look at Snapchats recent quarterly results which show a loss of $2.05 billion (yes, billion) to see how it’s hitting their share price hard, forcing it below their IPO value already.
The question here really is, are you a business or an idea?
A business, stripped back to it’s most basic should do one thing: sell things for more than they cost to sell. Simple.
Anything that does anything other than that is either a failing business or an idea/R&D project that – if funded by ‘investors’ – is essentially propped up on the money of people who would be better described as philanthropists.
At YENA we do our best to educate the next generation away from the glamorisation of investment.
Yes, investment is often required and as part of your YENA membership we’ll even take a look at your pitch deck, provide advisory notes and send your deck to our mailing list of investors. However, it’s more often the case that I’ll act as devils advocate and question the lean ways that your idea may gain traction or even become sustainable.
Fundamentally, I want to know why there isn’t a suitable route to ensure stability before having investment conversations.
There can be an irony here of some investors being attracted to ideas over bootstrapped businesses, due to their desire to find an elusive ‘unicorn’. But with only 1.5% of the companies valued at over $1bn even achieving that valuation at IPO or sale, is that really an investor you want on board?