STARTUP FINANCE

PITFALLS
AND HOW TO AVOID THEM
Early Stage Later Stage
Pitfalls Pitfalls
• What #s? • Outsourcing
• How often? • Hiring too quickly
• Low Expenses • Raising while low
Pitfall #1

Not knowing what

to look at
Know This: Calculate This:
• Bank Balance • Burn
• Money coming in • Runway
• Money going out • Growth Rate
• Default Alive?
Burn : $
Money out - Money in

July 2019
Expenses = $25K
Revenue = $10K

$25K - $10K = $15K

Runway : # of months
Bank Balance / Avg Burn

July 2019
Balance = $150K
Burn = $15K

$150K / $15K = 10 months

Growth Rate : %
Money In (Month 2) - Money in (Month 1)
Money In (Month 1)

July 2019 Revenue = $10K

August 2019 Revenue = $12K

($12K - $10K) / $10K = 0.2 = 20%

Default Alive : Boolean (Y/N)
If expenses = constant
If revenue growth = continues

Do you have enough cash 


to reach profitability?
http://growth.tlb.org
http://paulgraham.com/aord.html
Pitfall #2

Not looking often

enough
How often should you look at
your numbers?
• Every quarter
• Every month
• Every week
When someone asks,
you should know 

your numbers.
Pitfall #3

Under-Representing
Expenses
Expenses do not remain constant
• Undervaluing your own time
• Hiring people doesn’t just 

cost their salary
• Assuming paid acquisition 

remains constant
Don’t ignore to make
runway look better.
Pitfall #4

Out-sourcing
responsibility
Who is responsible for your
numbers?
• Bookkeeper
• Accountant
• CFO
• CEO
Everyone is responsible
for the numbers.
Pitfall #5

Scaling too quickly

Every hire is an
investment.

Are you getting ROI?

The best startups do
more with less.
You should avoid
hiring until PMF.
More employees do
not help you
reach PMF.
Pitfall #6

Letting runway get

too low before
fundraising
Assume you’ll never
raise money again.
Seed stage money is
to help you reach
PMF.
Series A and beyond
expect sustained
growth.
Your runway gives
you leverage.
https://blog.ycombinator.com/advice-startups-running-out-of-money/
How to not run out of money
• Know your cash balance and runway at all times.
• Understand how your expenses are going 

to increase over time.
• Understand that a high ratio of 

revenue : employees is a better metric 

than # of employees.
• Assume you’ll never raise again, 

so have a plan for reaching profitability
Thanks!
Kirsty Nathoo
CFO, Y Combinator