Last Updated on
December 30, 2024
By
Excedr
After raising a seed or Series A round, startup founders face a new challenge: managing the capital they’ve secured to achieve the milestones necessary for their next phase of growth. While fundraising often takes center stage, what happens after the round closes is just as critical. How startups manage their cash runway—essentially how long their funds will last—can determine their ability to scale, secure future funding, and, ultimately, succeed.
For early-stage startups, especially in the biotech or life sciences sectors, the stakes are even higher. These companies often require significant upfront investments in equipment, lab space, and R&D, with timelines that stretch far beyond typical tech startups. Balancing these demands while maintaining healthy cash flow is no small feat. Key metrics like burn rate, cash inflows, and outflows must be carefully monitored to ensure the business has enough months of runway to reach the next funding milestone.
In this blog post, we’ll explore practical tips for managing cash runway after a seed or Series A round, covering everything from understanding your financial metrics to exploring financing options like leasing. Whether you’re a startup founder navigating early growth stages or an entrepreneur preparing for the challenges ahead, these insights will help you stay on track and make the most of your funding.
Once a funding round closes, one of the first things founders need to understand is how long the capital they’ve raised will last. This is where cash runway and burn rate come into play. These two metrics act as a compass, guiding your financial decisions and giving you a clear picture of how much time you have before the next funding round becomes necessary.
Cash runway is essentially the number of months your business can operate with its current cash balance. It’s calculated by dividing your cash reserves by your monthly burn rate. Speaking of burn rate, this metric measures how quickly your company is spending money. A gross burn rate focuses on all cash outflows, while a net burn rate accounts for both inflows and outflows, giving a more accurate picture of your financial position.
For startups, especially in capital-intensive fields like biotech, these metrics are critical. The longer your runway, the more time you have to hit the milestones needed to raise your next round. But the reverse is also true—if your burn rate is too high, you risk running out of cash before achieving meaningful progress. For instance, in early-stage biotech, a cash runway might need to last two to five years, depending on the scope of research and development.
To stay ahead, you’ll need to regularly monitor your burn rate and runway. This means creating systems for real-time tracking of cash inflows and outflows, as well as forecasting scenarios to prepare for unexpected changes. These numbers are more than just financial figures—they’re the foundation of your decision-making as you navigate growth.
When it comes to managing cash runway, forecasting isn’t just helpful—it’s essential. After a seed or Series A round, your ability to predict financial needs and outcomes can make or break your chances of reaching the next funding milestone. Forecasting gives you the insight needed to allocate resources wisely and adjust your strategy when conditions change.
At its core, financial forecasting involves projecting cash inflows and outflows over a set period. For startups, this means analyzing revenue potential, anticipated expenses, and variables like market shifts or unexpected costs. The goal is to build multiple scenarios, including best-case, worst-case, and most likely outcomes. Each scenario helps you prepare for the challenges ahead while maintaining flexibility.
For example, biotech companies often face longer timelines and higher upfront costs than tech startups. A financial model that accounts for these factors can help founders plan for research phases, regulatory hurdles, and equipment upgrades. It’s also critical to integrate your milestones into the forecast. This ensures that your cash runway aligns with your business plan and sets clear expectations for when additional funding might be necessary.
If you’re not a financial expert, consider bringing in a fractional CFO or leaning on tools designed for startups. They can help refine your forecasts, highlight risks, and ensure your assumptions are realistic. Remember, forecasting isn’t a one-and-done activity. Regular updates and reviews are necessary to stay aligned with your startup’s evolving needs.
After securing funding, it’s tempting to focus on growth at all costs—but overlooking your operating expenses can quickly shrink your runway. Optimizing expenses is about making deliberate choices to reduce waste, stretch your capital, and avoid overspending while still investing in what matters most.
Start by identifying non-essential costs. For example, review SaaS subscriptions, outsourced services, and other recurring expenses to see where adjustments can be made. Many startups find that small tweaks, such as renegotiating contracts or switching to more affordable tools, can free up cash without disrupting operations.
Next, prioritize your spending. Focus on areas that directly contribute to growth and align with your milestones, such as R&D, product development, or customer acquisition. For biotech startups, this might mean allocating more resources to essential lab equipment, consumables, or clinical trials while delaying less urgent expenses.
Another strategy is to explore cost-sharing opportunities. Early-stage companies in incubators, for example, can share lab space or instrumentation to reduce overhead. Similarly, leasing equipment rather than purchasing it outright can significantly lower upfront costs and help preserve cash for other needs.
Remember, optimizing expenses doesn’t mean cutting corners. It’s about creating a sustainable balance between growth and financial responsibility. With a sharper focus on where your money goes, you’ll be better equipped to handle the unexpected and maintain control over your cash flow.
Every funding round comes with expectations. Investors want to see that you’re hitting key milestones that validate your business model and signal progress. Strategic financial planning helps you not only meet those expectations but also ensure your cash runway aligns with your goals.
Start by defining measurable milestones that demonstrate growth and value. For biotech startups, this might include completing specific phases of research, generating preclinical data, or reaching a regulatory milestone. For other startups, it could mean achieving product-market fit, onboarding a certain number of users, or generating recurring revenue. Whatever the case, your financial plan should allocate resources in a way that prioritizes these objectives.
Leverage tools like equipment financing or leasing to free up capital for other critical investments. For example, instead of spending a large amount upfront on scientific instrumentation, you can use leasing solutions to spread costs over time. This not only aligns with your cash flow but also ensures that you can access state-of-the-art equipment without jeopardizing other parts of your budget.
Effective planning also involves mapping your timeline for the next round of funding. If you anticipate raising a Series B in 18 months, ensure your milestones are achievable within that timeframe. By tying financial decisions to clear objectives, you can better manage investor expectations and position your startup for long-term success.
While securing venture capital may be your primary strategy, relying solely on it can limit your options and shorten your runway. Diversifying your funding sources can provide additional flexibility, reduce financial pressure, and help you navigate unforeseen challenges.
Consider venture debt as a complement to your equity funding. Unlike traditional equity investments, venture debt allows you to raise capital without giving up additional ownership. This is particularly useful after a seed or Series A round when retaining equity becomes increasingly important. Venture debt can be used to bridge gaps between funding rounds or finance large expenditures like equipment or scaling operations.
Another option is leasing equipment instead of purchasing it outright. This strategy is especially valuable for biotech startups that need expensive lab equipment but want to preserve cash for R&D. Leasing solutions reduce upfront costs and provide the flexibility to upgrade to newer technology as your needs evolve.
In addition, explore partnerships with angel investors, grants, or even strategic collaborations with larger companies. These partnerships often come with mentorship and networking opportunities that can further benefit your startup. Incubators and accelerators are also excellent resources for early-stage startups, providing access to affordable lab space, shared resources, and funding networks.
By diversifying your funding sources, you create a financial safety net that keeps your operations stable and reduces dependency on any single funding channel.
Managing liquidity is one of the most critical aspects of extending your cash runway. Without enough cash on hand to cover short-term expenses, even a well-funded startup can find itself in trouble. Ensuring adequate liquidity means having a clear strategy for balancing cash inflows, outflows, and reserves.
Start by keeping a close eye on your cash reserves. Regularly monitor your bank account balances, and consider tools that provide real-time updates on your financial position. This visibility allows you to make informed decisions about spending and adjustments when necessary.
Another key strategy is spreading out large expenses. Instead of paying upfront for costly assets, consider leasing equipment or using financing solutions to break payments into manageable monthly installments. This approach frees up cash for immediate needs while allowing you to maintain access to critical resources like scientific instrumentation or office infrastructure.
Liquidity management also involves streamlining your cash inflows and outflows. For example, set clear terms for accounts receivable to ensure that payments are collected promptly. Similarly, negotiate with vendors for longer payment terms or discounts for early payments, depending on what best suits your cash flow needs.
Finally, establish thresholds for short-term spending. Whether it’s limiting discretionary expenses or delaying non-essential hires, having clear guidelines helps prevent overspending and protects your runway. By maintaining strong liquidity, you’ll have the flexibility to adapt to challenges and take advantage of opportunities as they arise.
Clear communication with your stakeholders—venture capitalists, angel investors, board members, and team leaders—is essential to successfully managing your cash runway. Keeping everyone informed about your financial health, progress, and priorities builds trust and ensures alignment across the business.
Start by providing regular updates to investors. This doesn’t just mean sharing quarterly financial reports—it’s about being transparent about your burn rate, runway, and any adjustments to your business model or timelines. Use data from your forecasts to demonstrate how you’re staying on track or proactively addressing challenges. This kind of visibility reassures stakeholders that you’re in control and thinking strategically.
For team members, clear communication about financial goals can foster a culture of accountability and innovation. Share how cash runway and burn rate affect company decisions, such as hiring, project timelines, or resource allocation. When your team understands the bigger picture, they’re more likely to contribute to cost-saving measures and efficiency improvements.
Your pitch deck is another powerful communication tool. Whether preparing for your next funding round or updating current investors, use it to highlight milestones you’ve achieved, cash flow improvements, and future plans. Tailor your messaging to your audience—venture capitalists may focus on scalability and traction, while angel investors might value long-term vision and impact.
By keeping stakeholders informed and engaged, you create a supportive environment where everyone works together to achieve the same goals.
When your runway starts to narrow, it’s time to prepare for the next round of funding. But raising capital isn’t just about timing—it’s about demonstrating progress, building confidence, and showing that your startup is poised for growth.
To prepare, start by identifying the key milestones you’ve achieved since your last round. These could include significant traction in customer acquisition, successful product launches, or crucial research breakthroughs in the case of biotech companies. Investors want to see a clear narrative: you raised money, hit your goals, and now you’re ready to scale further.
Update your pitch deck to reflect your current financial metrics and milestones. Include data on your burn rate, cash runway, revenue growth, and market traction. Highlight how additional funding will help you reach new milestones, whether it’s expanding your product line, entering a new market, or completing clinical trials.
It’s also essential to refine your financial forecasts and business model. Show investors that you’ve planned for different scenarios and understand the steps needed to reach profitability. If you’re considering non-dilutive options like venture debt or leasing, incorporate these into your funding strategy to demonstrate financial savvy and reduce concerns about dilution.
Finally, start conversations with potential investors early. Whether you’re targeting venture capitalists, angel investors, or strategic partners, the relationships you build before you need funding will make the process smoother and more successful.
Managing your cash runway after a seed or Series A round requires a thoughtful, proactive approach. From understanding key metrics like burn rate and runway to optimizing operating expenses and exploring diverse funding options, every decision you make affects your startup’s financial health and longevity.
By leveraging tools like financial forecasting, leasing solutions, and clear communication with stakeholders, you can extend your runway, achieve critical milestones, and prepare for future growth. Whether you’re navigating the unique challenges of biotech or scaling a SaaS product, staying disciplined with your cash management will set the stage for long-term success.
Ready to take the next step in optimizing your startup’s cash runway? Explore financing options, seek expert advice, and plan for a future that matches your vision. The choices you make today will pave the way for tomorrow’s breakthroughs. If your interested in equipment leasing as a procurement option, Excedr can help.
