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📣 7 Commandments of Startup Finance
Founders Factory Startup Bulletin #29
Welcome to the Founders Factory Startup Bulletin—“Created for founders, by founders”.
We bring you a round-up of startup and investment stories, key learnings from founders, and insights from the Founders Factory team.
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Why do most startups fail?
There’s a multitude of reasons, from struggling to find product-market fit to founder fallouts to getting outcompeted in the market. But if you interpret this literally—the exact reason why startups fail—in almost every case it's because they run out of money.
Now of course, there are another multitude of reasons as to why a startup runs out of money. And really, if there’s one thing a startup founder should be mindful of at all times, it is their financial position. But that doesn’t mean it needs to be something you spend sleepless nights worrying about.
Following some foundational principles of finance can help you retain strong control over your financial position, allowing you to focus on more exciting aspects (your vision, your product, etc). To help with this, our expert finance team shares their commandments for building financially robust startups.
Also in today’s Startup Bulletin:
News from the Founders Factory portfolio
Our top recommended reads
New roles on our team
📣 Seven commandments of startup finance
1. Optimise for cash in the bank at all times
If there’s any mantra you should be repeating ad infinitum as a startup founder is this—cash is king. At all times, cash should be front and centre of your mind. Ultimately is the one key resource that enables you to do pretty much anything else as a startup.
First thing to note: there’s a difference between cash and profit. Cash is literally the liquid currency (and equivalents) you have, e.g. Your bank balance. Profit, meanwhile, is revenue minus all expenses over a certain period. This is a critical difference: profitable businesses can still run out of cash, while loss-making businesses can continue to operate as long as they have cash.
2. Finesse your cash flow
In short, perfect the speed at which you bring money in and delay how fast payments go out. This goes back to commandment #1: cash in the bank is better than numbers on an invoice.
There are many ways you can finesse this. Building good supplier relationships will help you negotiate longer payment terms—this can improve over time (credit terms are often shorter if your business has no prior trading history). At the same time, negotiate short payment terms with your customers to get cash in the bank as soon as possible.
3. Build and lean on a robust financial model.
It won’t help you predict the future, but it will give you a pretty good idea of your financial health for the near to medium term future, as well as how key decisions may impact this. We’ve written extensively on this before.
4. Understand the three principles of treasury management
With regards to where you store your financial resources, you have many options to consider. Relative benefits include:
Security (how secure are my funds?)
Liquidity (how quickly can I access my funds?)
Yield (what will my funds earn me?).
We often like to add a fourth—operational friction (ease of use of chosen platform). A banking platform with difficult UX may not be such a problem when you are making a handful of transactions a week: but if you scale quickly, the last thing on your to-do list will be changing banks.
5. Diversify your treasury
Don’t put all your eggs in one basket. Many startups nearly found this out the hard way earlier this year—be sure to take advantage of the FSCS deposit protections (covering up to £85k per entity per bank in the UK) and FDIC insurance (covering up to $250k per bank in the USA) in the case of a bank failure. We’d recommend at least two banking relationships, more if you’re holding large funds (e.g. after a recent fundraise).
6. Outsource where possible
Remember, laying strong foundations doesn’t require financial expertise. And you don’t have to do everything yourself. Much of startup finances is manual and time consuming, and can easily be outsourced to an external provider. These include:
Tax filings and claims
Internal financial reporting
Statutory financial reporting
7. Don’t let your taxes be taxing
Tax can really work for your cash position. There are two key considerations for startups here:
VAT. Unless you are a B2C business with highly price-sensitive customers, register for VAT as soon as you can. In the UK it is obligatory to register once your business is turning over more than £85k per annum, but by registering sooner you can reclaim VAT on your expenses
R&D Tax Credits. This can help you claim back for costs of R&D activity which involves overcoming scientific or technological uncertainties, including salaries, contractor fees, even some utilities
📚 What we’ve been reading
What is a startup dealmaker? (PreSeed Now)—meet the people who connect startups and investors
The 3-Person Unicorn Startup (NFX)—how AI has transformed the makeup of early startup teams
What comes after SaaS? (Every.to)—how generative AI can pave the way for ultra personalised apps
Transformers: the Google scientists who pioneered an AI revolution (Financial Times)—the story of the team who published the groundbreaking paper into AI
Defying the Orthodox (Deciens)—a myth-debunking vision from the early stage fintech investor on why we’ve all been doing VC wrong
🚀 News from the Founders Factory portfolio
We announced our partnership with leading Italian investment banking Mediobanca to build and fund 35 fintech startups over the next five years. Read all about the partnership in The FT
Materials Nexus announced the close of their £2m seed round led by Ada Ventures. The business, led by Dr Jonathan Bean, is looking to accelerate the R&D process of next-gen materials (more efficient, less carbon intensive) through AI and quantum mechanics
Blue Action Accelerator, our vehicle to support and scale ocean and coastal innovation, has made its first investments—ACUA Ocean, a hydrogen powered unmanned data collection vessel (see above), as well as more to be announced…
Olly Betts, our fintech sector director, appeared on the 11:FS Fintech Insider podcast, to talk about our Mediobanca joint venture, Natwest’s Allison Rose and the role of female leaders in fintech, and how AI could transform financial services
Creator Fund, our deeptech university VC fund, has expanded its student investor model to seven new European countries, including Estonia, Sweden, Poland, Germany, Switzerland, and Spain. It is now the largest student-focused VC fund in the world
Planet Positive Lab is up-and-running, now over halfway through the 10-week programme. Its cohort of nine startups spans AI, physics, microwave technology, and more—stay tuned for more on this announcement
Opportunities in tech
🛠️ Roles at Founders Factory
Events and Programme Coordinator (London/Hybrid)
Accelerator Product Coach (London/Hybrid)
Interim Finance Manager (London/Hybrid)
🛠️ Roles in our Venture Studio
Entrepreneur in Residence at Project Ogma (London/Hybrid)
Entrepreneur in Residence at Financial Longevity Startup (London/Hybrid)
Founders Factory Office Hours Berlin (August 25th)—we’re looking to meet early stage founders in the Berlin/Germany ecosystem. While we have a preference for meeting founders in-person, we’re able to offer remote slots for those unable to make the trip. Find out more & apply here
See you next month 👋