I have a hypothesis, which is that between the three options of:
1. Keeping equity
2. Reducing / eliminating any negative impact on your cash flow
3. Increasing the velocity of your startup / company
that you can only pick two. I drafted up a diagram to help illustrate the point:
To my mind, you can’t ever get all three of those corners of the triangle to align so perfectly that you are able to accomplish each goal simultaneously.
As an example, if you take out any sort of loan / debt, you obviously have put a dent in the future cashflows of your business, however you get to accelerate the velocity of your firm while keeping equity – landing you on the right side of the triangle.
If you don’t want to impact cash flow, or perhaps you don’t have any cash flow to speak of, yet you want to increase the velocity of your company – then you land yourself at the bottom of the triangle within the equity financing realm of the world. Get your pitch deck ready.
And finally, if you don’t want to – or can’t – reduce your future cash flow, and would also like to keep your equity, then you’ll likely need to simply bootstrap your company: that is, self-fund it.
It’s pretty simple. However, if you see any issues with the above mental model I’d love to hear them. Tweet at me if you have any thoughts: @thomasgrush.