Spending money is like getting fat

“Spending money is like getting fat” is a sub-title from a great Techcrunch post about the dangers of raising big rounds. I love the analogy. As with weight, burn rates are very easy to increase but take large amounts of discipline and suffering to decrease. Moreover, just as food is hard to resist when it’s on the table in front of you, it’s hard not to spend money once it’s been raised. Not least because investors and employees will expect you to spend it.

Big rounds have their place of course, and at the margin we nearly always advise companies to raise more money than less, but radical over-capitalisation or accepting large a investment just because it’s easy and the terms are good is generally a mistake.

It sounds trite to say ‘don’t get fat, stay lean’ but it’s harder for companies to stay lean than you might think. The metaphor is with our bodies, but we can pretty quickly see fat on our bodies. That’s not always so in startups where progress is hard to measure and larger burn rates increase the sense of momentum.