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- ♞ How to spend money
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How do investors expect founders to spend cash?
A key factor many investors consider when deciding whether to back you is how you manage money. A big part of this is ensuring you spend on things that help the company move forward and increase the business's value.
Many founders (especially first-time founders) spend on things that aren’t vital to the core business. Here are some general guidelines to use when determining how to allocate spending based on what investors will be looking for.
This advice doesn’t apply to deep tech companies. It is primarily for SaaS businesses.
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Don’t spend pre-revenue and pre-raising. Most investors hate founders who overspend early on. With AI making it easier to build products and social media helping to attract customers, there isn’t a reason to spend more than $10k to bring a product to market and find product-market fit.
Don’t buy a tech team. You shouldn’t need more than two developers max until you have product-market fit. Those individuals should be on your founding team. If you need to hire developers before you reach product-market fit then there is significant risk in your company that those employees could leave and the company won’t be viable.
Don’t hire full-time. If you don’t have revenue or funding, you should use contractors. People with expertise that you can buy instead of full-time team members, who can be more expensive and often need to learn on the job.
Don’t spend on marketing till you have a proven channel. Most founders waste money “testing” marketing. You should be able to find a channel that works at a low/negligible cost, then pour money into it once you’ve proven it works.
Do you follow these spending rules? |
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Onwards and Upwards,
