Cash Crunch Hurting Your StartUp PMF?
DRIVER,a startup connecting patients with clinical trails: We ran out of cash
The company that sought to match patients with clinical trials shut down just two months after its launch. The company let go of all of its approximately 85 employees on Oct. 16. About 60 percent of those employees worked at Driver’s headquarters in San Francisco; the rest were based in Shanghai, New York, and Boise, Idaho.
The company had been trying to raise another round of funding this fall, but it wasn’t making money fast enough to convince investors to give it the capital it needed, said Dr. William Polkinghorn (Driver CEO and co-founder).
However, exciting the idea of a startup may sound, it is not easy to establish it. No one understands it better than the founders themselves. The bank loan, credit from family & friends, and then pitching the idea to investors is an overwhelming process.
Only 0.05% of startups make it to the cut and raise seed capital.
Although you have reached a milestone, the real challenge comes next - Achieving the product-market fit in the initial capital you have accumulated for your startup and raising more capital!
What determines success in the seed-stage is meeting the expectations of your target audience at the right time. Also, it is crucial to improve the product as and when you get feedback. Not achieving the right product-market fit makes it difficult to raise investment in the next series.
Thus, increasing the runway to prove concept & product capabilities is what startups need. However, the limited funds raised by a startup become an obstruction! Often it is observed that startups burnout cash before achieving product-market fit.
Usually, 18 months is the magic number for most B2B startups. The time when they achieve the product-market fit & are off the ground.
Also, the time between the two funding rounds is around the same 12 - 18 months. However, the odd part is that most startups have just enough cash for 6 months!
Rovio, the makers of Angry Bird: It took Rovio 6 years to achieve the product-market fit Rovio was founded in 2003 by passionate students who had won video-game making competition. The games they made were good, but they did not find the right way to distribute them.
In 2009, Rovio was on the verge of bankruptcy & left with only 12 employees. They’d made 51 titles before Angry Birds, but the model was quickly proving unviable. And then Angry Birds was released on the app store on December 29th, 2009. The game was a hit in the UK, US and made it to the top charts within a few days after the release.
So, how can startups optimize their spend to increase their runway?
Typically, a startup spends its cash on payrolls, infrastructure, operational costs, marketing & sales, and professional consultations. While a startup cannot do away with marketing, sales, and consultations, it can cut down the funds utilized to pay salaries and provide the right infrastructure. If a startup cuts on these two expenses, it saves costs and gets extra time to develop its product.
Did you know? Payrolls and infrastructure can cost a startup 60-80% of its seed funds!
One way to optimize this spend is by having your own team in India, which is a thriving hub of startups. With quality talent and english speaking engineers available, you can acquire the best talent at lower costs than their western counterparts.
A team in India will cost you approximately half of what it would cost in the US, including salaries, infrastructure, HR, operations, and compliance.
Salary comparison of a team of 5 experienced engineers between the US and India
U.S. - $550,000 to $650,000 per year
India - $130,000 to $160,000 per year
How does Braves help you in setting up your own team in India?
Braves help global technology companies incubate their own offshore development teams in India. The team in India is an extension of the onshore team and works collaboratively to achieve their goals.
With 17+ years of experience in technology recruitment in the US and India, we know how to build a team of high performers. Our fully managed operations model and people-driven policies have helped clients scale their teams with high employee retention rates of 85%.
Ready to build your team in India or have more questions? Please fill the contact form. One of our sales directors will get back shortly.