Episode #98: Relevance Runway vs Cash Runway, 20VC Venky Ganesan Episode Breakdown On Seed Being An Option

Charles Hudson (0:00)

We've always been a low ownership, high upside firm. And for a long time, to see people were like, nope, gotta have 20% of the company, otherwise can't do the deal. Business model, portfolio construction, let me show you my spreadsheet. Now people are just like, well, if the companies are big enough, it's more important to be in them than to worry about how many basis points of ownership you have. And I think this is the biggest change in venture in my career, which is that there's really just one model in the business right now, which is it's sort of $10 billion company minimum or bust. If you can't demonstrate to people that you have one of those, the probability that you will raise more money to keep going is incredibly low.

Mia Farnham (0:41)

It's the week of October 5th. Welcome to The Learning Corner, a Precursor Ventures podcast.

Welcome to The Learning Corner by Precursor. I'm Mia Farnham and I'm joined by our GP and managing partner, Charles Hudson, where we will be talking through the articles and would read that caught our team's attention over the past week. Our first piece this week is a post on X from Steve Vassallo over at Foundation Capital. The idea is that every startup obsesses over its cash runway. The clock it actually should be watching is its relevance runway. Plenty of companies right now raised a big round a couple of years ago and have years of cash on paper, but the race they're really in is against becoming irrelevant and that is more pressing than any financial pressure out there. He points to data integration and workflow tooling, a layer that got heavily funded over a two to three year window with products that were best in class when they shipped and now a customer can get a good enough version with a few prompts and clod or codecs. His advice comes in three parts. Decide honestly where you are staying independent and find a home while there is still a buyer if you cannot see a path back or assume you will have to reinvent the product more than once, even past 50 or 60 million in revenue, and rebuild the vision because cash by time, but it does not buy motivation. He closes with a statement that nobody can tell you how long your Relevance Runway is. Figure it out before your best engineer does. Steve, in this piece, is likely writing a bit to companies sitting on a lot of cash from 2021 or 2022

Charles, how does the Relevance Runway idea apply at our stage, at the earliest stages? I know we've been talking a lot internally about the importance of velocity and iteration speed, more and more with our founders at earlier stages.

Charles Hudson (2:28)

I think it's really important at Precede and Seed, everything Pre-Series A, because I think a lot of those companies are like, oh, I have a lot of money. I don't need to worry. I have three, four, five years of runway at our current burn. For a lot of these companies, people are the primary expense.

If you have a small team and you don't have some crazy inference or compute spend, a two or three, even a five-month-round, you might have multiple years of runway, which I think can give companies a sense of security. You can just say, oh, well, we're not going to run out of money any soon. A long time ago, I wrote that thing about the last 250K and how short financial runways can actually drive people to have a level of urgency around solving a problem that doesn't always exist when you feel like you have time to solve it. I've certainly met companies that raised a lot of money on one premise, that premise didn't prove to be true, and they've kind of continued to either chip away at the same problem or something else. And I'm like, guys, the market has moved on. Yes, you have runway and you have time, but that money has no insights. That money and runway can't and won't tell you what you should do. It's just the opportunity to stay alive. And for a lot of companies, and like staying alive isn't the goal, building something meaningful is the goal. And if you're not careful, you can miss your window or the market that you're in can move without you.

Mia Farnham (3:45)

I like that quote that he said, you touched upon it just now, cash by time, but it doesn't buy motivation.

Charles Hudson (3:50)

Yeah.

Mia Farnham (3:51)

Steve talks, people can pull off a reinvention on your team. So say at that 250k moment, are likely the same people with options elsewhere. And so I've had that conversation countless of times with founders who assume that once they've raised a specific large amount, talent will come. One, that's not true, not in this market. And then two, perhaps you can attract them to your team, but you have to incentivize them to stay.