The Money Runs Out on Tuesday
I have come within two weeks of not making payroll twice. The first time I told nobody. The second time I told everybody. I will get to which one was the mistake.
Nobody writes about this part honestly, and I understand why. It does not photograph well. The startup press wants the round announcement, the logo wall, the founder in a hoodie explaining how he saw the opportunity that everybody else missed. What it does not want is a man in his forties refreshing a corporate banking portal at 6am on a Sunday to see whether a wire from Singapore has cleared. There is a particular flavour of insomnia reserved for the founder who knows the exact balance of the company account to two decimal places, and I have never seen it in a pitch deck.
Let me say up front that running out of money is not automatically a failure of the business. Sometimes it is — sometimes the market told you no and you did not listen. But plenty of good companies have come very close to zero for reasons that had nothing to do with the product, and plenty of bad ones have never come close because they were funded far beyond what their idea deserved. Cash and quality are correlated, but they are not the same thing, and I wish somebody had told me that at the time.
Runway is the only number that is precise and fictional at the same time
You will put a runway number in your board deck. Eleven months. It will be calculated to one decimal place, which is where the comedy lives, because that number is built on a forecast that assumes two things that are not true.
The first is that your revenue arrives when the model says it arrives. It does not. In consumer fintech in Asia I learned that a user who signs up is not a user who is funded, and a user who is funded is not revenue you can spend. Between the app install and the cash landing usable in your account sits a KYC queue, a bank’s own settlement cycle, a payment processor’s rolling reserve, and a chargeback window that can claw money back months after you booked it. We once had a payment partner freeze a meaningful slice of our processing volume for weeks over a compliance review we had never been told was happening, on funds that were unambiguously ours.
The second is that your costs stay flat. They do not, because you are a founder, and every month you find one more thing that is obviously worth spending money on.
So your eleven months is seven. And your seven, if the raise takes longer than you think — and it will take longer than you think — is the reason you are reading a blog post about this.
The Tuesday
Here is what it actually looks like, because I do not think anybody describes the mechanics.
Payroll runs on a fixed date. In Hong Kong that is not a suggestion, it is a legal obligation with penalties attached. So you work backwards. You need the money in the account two working days before, which means the wire has to leave the sender four working days before, which means the investor has to sign three days before that, which means the lawyers need to close a week before that. And every one of those steps has a person in it who is at a conference, or on holiday, or waiting on somebody else’s signature.
You start doing arithmetic constantly. In the shower. In meetings you are supposed to be running. You watch the balance the way a man watches a heart monitor.
And then you do the thing every founder does, which is defer your own salary. I want to be honest about this: it feels enormously noble and it accomplishes almost nothing. In my case it bought about eleven days. What it actually cost me was the ability to look calm, because you cannot stop paying yourself and simultaneously project to your team that everything is fine. Somebody in finance always knows.
What it does to your judgment
This is the part that genuinely worries me, and it is not the money.
When you are inside ninety days of zero, your decision-making changes in ways you cannot feel while it is happening. You stop asking whether a user is a good user and start asking whether they will fund an account this week. You take the distribution deal with the terrible economics — the affiliate payout that erases eighteen months of that customer’s lifetime value because it moves this month’s growth number and the growth number is what you are pitching next week. You hire the mediocre candidate who is available immediately over the excellent one who needs to serve three months’ notice.
And you take the money from the investor you would not otherwise take money from. I have written before about bad VCs. The uncomfortable truth is that the worst investors in Asia are not stupid — they are patient. They know exactly what your bank balance looks like, because you told them in the data room, and they know that a term sheet delivered in month ten is worth considerably more to them than the same term sheet delivered in month four. That is not evil. It is just the market. But you should understand that every week of runway you burn is negotiating leverage you are handing over, and by the end you are not negotiating at all. You are accepting.
The Asia part
Two things made this harder here than it would have been in California.
The first is that there is no real bridge culture. In Silicon Valley the inside round is a normal instrument — existing shareholders top you up, everybody understands why, and it takes three weeks. In Asia I found existing shareholders were “supportive,” which is a word that means nothing and costs nothing. They will tell you they will follow. What they will not do is lead, and without somebody leading, the round does not exist. Venture debt was similarly theoretical for most of the years I needed it.
The second is that shutting down is also expensive. Statutory severance, notice periods, lease obligations, the deregistration process itself. You cannot simply stop. If you wait until the account is nearly empty before deciding, you will discover you no longer have enough money to close the company properly, which is a genuinely absurd position to find yourself in. Even dying is expensive in Hong Kong. Count in weeks
Once you go below six months, stop reporting runway in months. Months round and comfort. Weeks do not. Twenty-two weeks concentrates the mind in a way that “about five months” never will, and it forces the weekly cash meeting that you should have started a year earlier.
Tell your team early
This is the one I got wrong the first time and right the second, and the difference was not close.
The first time I protected everybody. I carried it alone for four months, slept badly, and told the team only when the solution was already in place. I thought I was being a good leader. What I was actually doing was denying adults information about their own livelihoods, and when it eventually came out — and it always comes out, because somebody sees a lawyer’s invoice or notices you have stopped hiring — what they remembered was not that I solved it. What they remembered was that I knew for four months.
The second time I told them at the point I became genuinely concerned. Not a crisis speech. Just the numbers, the plan, the date by which we would know. I lost one person, who had a mortgage and a young family and made an entirely rational decision that I respected. Everybody else stayed, and several of them found costs I had missed. It turns out that people who are trusted with a hard fact will frequently do something useful with it. I have said before that you should be transparent about risk and not just reward. This is what I meant.
Know your floor
Decide now, while you are calm, the number at which you stop. Write it down. Tell your co-founder. Because you will not be able to make that judgment at the time — nobody can assess their own situation clearly at week three of a wire that has not arrived — and a decision made in advance by a rational person is worth ten made in the moment by an exhausted one.
I leave you with this. The money never runs out on a dramatic day. There is no board meeting where somebody stands up and says it. It runs out on an ordinary Tuesday, quietly, while you are doing something else entirely, and the only person who notices is you.
Do the arithmetic today. It is going to be worse than you think, and you would rather find that out on a Tuesday you chose.
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