Cash Is King But …
For many startup companies, it’s lifespan is measured by its burn rate, the rate at which it spent its existing capital. If we ask people how to prepare for the next high tech downturn, most people will probably say a strong cash position. But the problem is we don’t know when the downturn is coming and how long it will last? If the recession lasts much longer than the cash you have on hand, it won’t matter anymore.
This is what Ben Horowitz found out when one of Loud Cloud’s biggest customers Atriax was bankrupt. As a result, they were not able to raise more cash through private investment. This leaves them with no choice but to sell the company.
The key learning is having a strong cash position is always a plus but it might not be as important as having customers with a strong balance sheet. Companies with a pipeline of customers with strong financial health will have a much better chance of surviving the downturn. Read More...
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