Startups that are not venture capital (VC) funded and are looking to get VC funding, should have a minimum of 24-months worth of cash in the bank or secured revenue, in order to close investment, says Kalon Venture Partners CEO Clive Butkow.
Talking in a Zoom video with Virtual Actuary’s Adi Kaimowitz yesterday, Butkow said because the market is illiquid, startups worldwide are struggling to meet their targeted raises.
“Term sheets are being modified to be more favourable towards the VC than towards the entrepreneur. So, it’s definitely a venture capital market rather than an entrepreneur’s market.”
“You know, a few months ago the entrepreneurs were the kings, and the VCs were the beggars, right now the VCs are the kings and the entrepreneurs are the beggars. It’s very sad for the entrepreneurs, but it has completely changed.
Startups that want to get VC funding, need at least 24-months of runway, says Clive Butkow
“If they want to raise capital they are going to have to look at their valuation. They’re going to have to be a lot more agile and flexible, or else they are not going to raise capital.”
‘Cash is king’
In the discussions that Kalon Venture Capital has held with each of its eight investee companies, the first question the VC asks is always how much cash the startup has available.
“Right now if you’re not a VC-funded business and you want to get VC funding, you need a minimum of 24-months runway, up to 36 months worth of runway.
“Most of our companies if they just spend what they’re spending now, they may be on 12 months worth of runway.
“So, the first thing I’ve asked them is to do is to come up with a re-budget and show me how you can get to a minimum of 24 months, maybe a 30 or 36 months’ (of cash),” he says.
He said he has also pushed the heads of his eight investee companies to cut whatever overheads they can — including rent, staff and other operational costs that are not core to the business.