September 2024 marked the beginning of a once in a lifetime experiment at Imperial College London.
Working with the college chaplain Andrew Willson, I designed, planned and pitched a vision to turn a COVID test site into a thriving community garden in central London.
Mobilising key-stakeholders, negotiating with funders we managed to secure an unprecedented £39,000, and leveraging this seed funding we continued to build momentum and secured £11,000 from two other grants to support student involvement.
Raising the capital to build an MVP of your vision is a herculean task, building the proposed MVP is even more difficult, but what happens after the funding comes to an end?
How long is your runway?
Your runway is the amount of time your startup has before it runs out of money. This can be lengthened by gaining new funds, whether these be temporary grants or cash flow generated from sales.
Runway is calculated as a ratio of total capital to weekly spending:
This is a vital metric for founders to keep track of. A long runway combined with a clear path to profitability reflects a financially healthy startup.
Most emerging businesses are not profitable upon launch. They require research, marketing, branding and capacity building. Since these areas require investment, a fledgling business will initially be unprofitable. However, investing in these areas is essential to the long-term success of the venture. They require funding from sources like:
- Angel Investors
- Venture Capital
- Business Loans
- Grant Funding
Part of a founder’s role is to ensure that the project becomes cashflow positive comfortably within your financial runway.
How to track your financial spending
For many first time founders keeping track of a lump of money can be an overwhelming task – at least it was for me.
Tracking spending is simple in principle. You add money coming into the bussiness and subtract any money leaving it. However, when you are deep in the process of building your product and delivering your programme, poor financial culture can easily creep in. This can generate errors that slowly add up and place you in an uncomfortable situation.
When asking other business founders how they track spending, I received various suggestions. One Director suggested “Simple pen and paper” using a printable template:
| Amount | IN | OUT | Reason | Current Liquidity |
| £39,000 | X | Presidents Grant | £39,000 | |
| £3,000 | X | Shed + Delivery | £33,000 |
Having a physical A4 sheet always at hand when ordering components or dealing with suppliers makes the process of accounting effortless compared to opening an excel sheet every time.
This method works best when complemented with a digital version that is regularly updated each week to ensure financial tracking is not lost by accident.
How to understand your priorities
If you obtain seed funding, the amount of money might initially seem large. Yet, as the regular expenses associated with business as usual begin to add up, you might discover that the actual operational costs of your enterprise are far higher than you originally predicted.
It is important to maintain a clear definition of which costs are essential to the business and which ones are nice-to-haves.
To sort these priorities out you can use the Priority Matrix. As financial pressure increases you can discard expensive low impact tasks and prioritize high impact low-cost activities.
Case in point – A failed tech startup
I have seen how poor financial prioritization can dramatically burn through seed funding. A serial-founder friend was involved in the early stages of launching a medical device startup. The product was inspired by academic literature and required a physical prototype to test its viability.
To fund this project they secured $10,000 from an angle investor and $5,000 from a business loan.
Their major activities and spending sinks were:
- Hiring a quality engineer to build the first prototype
- Running test-trials to prove viability
- Filing for an international patent
All of these activities were both essential and expensive but they had varying degrees of priority. While their exit strategy was to sell the IP to a large pharmaceutical company, their device would only be worth millions if they could prove that it worked. Therefore, hiring a Top-Tier Engineer and running test-trials should have been Priority One.
While they did hire a founding engineer soon after securing the initial seed funding they also began the expensive procedure of filing for an international patent. This legal process, which can cost north of $10,000, would protect their IP and design from being stolen by faster-moving competitors.
Patents are important for tech startups to ensure that the time and money invested in R&D become a tradable asset. However, when their first prototype was ready for testing they discovered that its design required additional iterations. As there was no contingency budget allocated for additional prototyping, the funding for these costs was taken from the test-trial budget.
By the time the device was ready for testing, their budget had dwindled to a vanishingly small $100. As a result, their testing was limited and inconclusive, which made pitching the design to large pharmaceutical companies an impossible task.
Eventually their startup was forced to declare bankruptcy due to unsustainable financial pressure and their IP was taken as collateral by their original investors. A cautionary tale for any founder with seed funding.
Lessons Learned – Prioritize your spending
The above story highlights how prioritizing your spending is crucial to ensure that you can stretch a limited budget into a longer runway. By carefully prioritizing their tasks, the tech startup could have easily set prototype testing as a higher priority than filing patent paperwork.
If they had done so, the unforeseen expense of iterating the original design could have been accommodated within the existing budget, with sufficient funding leftover to run a series of strong clinical trials.
If these trials were successful at proving the viability of the product, it would have been relatively easy to attract additional investment to cover any patent related legal expenses.
The bottom line
Financial runway is an essential metric for any emerging business that wants to ensure that it can continue operations until it achieves positive cash flow or an exit strategy.
Seed funding might appear large in the beginning, but without careful financial planning and prioritization of tasks, you might run out of money long before you launch your MVP.
In the next article we will explore what happens when you run out of runway. The ins and outs of damage control.
Emilio Garcia Padron is an MSc Applied Mathematics student at Imperial College London, specializing in Computational Dynamical Systems. He is a full-stack software developer and founder of NEA Studios. He is also a founder of RE:GEN @ Imperial, a project aiming to protect and expand Green Spaces on Imperial grounds that raised over £39,000 in funding.
Image: DALL-E
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