I love this founder/startup quote:

“If your business is the right business, then money will never be an issue.”

Now guess who said it….

Yep….Adam Neumann, founder of WeWork.

I have gotten away from writing about startups and startup life and am going fix that starting today.

One great voice on startups is Eric Feng founder of Packagd and former partner of Kleiner Perkins. He recently wrote a post titled ‘ The Importance of Timing in Startup Fundraising‘.

Do not be fooled by the term startup as it applies to your early stage or late stage startup. The media still calls gigantic companies like Airbnb and Pinterest startups.

As someone who both trades and invests in public stocks and invests in early stage startups this sentence rang true…

This is an important structural advantage that startups have over public companies. In the public market world, investors control when the company prices. But in the startup world, the company controls when they price. And control means that startups only have to ask the question “what are we worth?” when they think the time is right.

Eric goes on to try to answer ‘when is the right time?’

The journey of startup fundraising can be described as a process of risk removal. At the very beginning when a startup is just formed, the entire company is a collection of risks as there are no assets, no products, no customers, nothing but risks. These risks are generally consistent for all startups and fall into these groupings:

1. Team Risk: can the founder(s) recruit a team to carry out their vision for the company?

2. Implementation Risk: can the team build the product they need to fulfill the company vision?

3. Market Risk: if the product gets built, will anyone use it?

4. Monetization Risk: if people are using the product, will anyone pay for it so the company can earn revenue?

5. Scale Risk: if a few people are using the product and there’s a little revenue being earned, can you grow to lots of people using the product and lots of revenue being earned?

6. Profitability Risk: once you have a lot of revenue, can you turn that into profits that can sustain the company?

Entrepreneurs then go raise financing to remove each of those risks, one group at a time. These startup financings fall into discrete moments (with their own class of stock) which we commonly refer to as Series: Series Seed, Series A, Series B, Series C, and so on. Not only are these Series fairly universal across all startups, the risk expectations for these series are also fairly consistent across investors. In other words at each Series, investors are actually expecting to see certain risks specific to that series —  that’s why they call it “venture capital”. You’re a brand new startup just getting underway? It’s expected that all 6 risk groupings are present. But as your startup matures, investors will expect fewer remaining risks. By the time you’re a unicorn startup preparing to go public, Profitability Risk is probably the only remaining risk grouping that investors will tolerate (if that).

Back to your startup and Eric once again…

A company’s runway is therefore the ultimate deadline as there is no future beyond that date. Even if a company had well laid plans around when would be the best time to fundraise, those plans get superseded if their runway is coming to an end. In other words, when a company is out of runway, they lose control over when they price.

I’ve personally stared down ultimate deadlines and it is not pleasant. Most entrepreneurs, if not all, will face this ultimate deadline.

Eric’s advice is great if you want to focus on keeping the ultimate deadline at bay.