
Benchmarks for Startup Spend and Cash Burn - hdubugras
https://brex.com/blog/state-of-spend
======
Animats
_" 82% of startup failure is due to cash flow problems."_

That seems unlikely. That may just mean that 82% of the time, the founders
don't pull the plug until they totally run out of money.

"Cash flow problem", as a real term rather than an euphemism, has a very
specific meaning. It's when the _business is profitable_ but there's a lag
between paying out cash to buy needed labor and materials and receiving
payment for goods and services. Manufacturers and farmers have that kind of
problem.

~~~
maneesh
Ahh, the dreaded Cash Conversion Cycle (or "Succeeding yourself to death") I'm
a wearable device founder, and it's AMAZING watching how often this happens to
my hardware friends. Especially once they begin raising serious amounts of
capital.

I had a friend who got into Walmart -- he was ECSTATIC. His product was a
smart electronics product, and quickly shot up to being a heavy seller.

It sold so well---that he was bankrupt within six months.

Why? Because he paid his supplier upfront. Walmart didn't pay him until 60 or
90 days after sell-through. After the first run, Walmart wanted more, his P&L
(accrual) showed profit, so he took a loan. Then another. Then suddenly he
couldn't get any more loans. And he couldn't get a hold of product. And
because of his fixed costs, there was no way to future payables could save
him.

So common, and no one seems to know about it.

~~~
gautamnarula
What should he have done? Negotiated a 60-90 day payment cycle with his
supplier?

~~~
jacobush
Turn down the Walmart offer...

~~~
ptd
Accepting the offer is selling your car for gas money.

------
hdubugras
Hey HN -

Henrique here co-founder of Brex (YC W’17). I wanted to introduce the HN
community to some new data we gathered at Brex as part of our new blog.

We specifically looked to highlight data that is not available to other
startups.

\+ We focused on startup cash burn rates by funding stage (pre-seed, seed,
Series A, etc.) because for many startups there is always this question about
how much you should be burning.

\+ Separately, we looked at some of the most popular vendors for startups on
Brex in categories like cloud services, CRM, rideshare etc.

\+ We analyzed the size of the "stealth" startup market. For Brex, it was hard
being in stealth for over a year and it's helpful to know just how many of you
are out there

\+ We looked at regional trends in startup cash burn to help startups adjust
their benchmarking for their locations

Note, we were careful to aggregate the data and only share things we thought
could actually help startup founders and early employees

Let me know your feedback!

Henrique

~~~
vlovich123
Doing a COL adjustment/average employee salary to burn rate could be
interesting to normalize the data. In other words is the salary of engineers
driving the disparity or are there other factors behind the burn rates.

~~~
hdubugras
Exactly. Our plan going forward is to start breaking down burn by major
factors like salary, rent, vendor spend.

Another interesting one we're looking at is the breakdown of burn by industry
and stage. We can also then compare the major factors across these breakdowns
to give really good comparisons for startups.

~~~
vlovich123
Other interesting normalization metrics to consider is # of FT employees,
contractors & revenue.

~~~
hdubugras
Yes, all worthwhile normalizations!

------
iaw
> _Top startups who “graduate” (a success metric) from raising another round
> of funding from pre-seed to series a burn more than the benchmarked
> average._

Startups that spend more money need to raise more money, I don't know what I'm
supposed to take away from this fact.

~~~
hdubugras
But startups don't just raise money because they need it, they also have to be
given it. That said, there is a question of what parts of this are causal that
we plan to tease apart in future analyses.

~~~
iaw
> they also have to be given it

How many startups needed to but were unable to raise capital in successive
rounds? If the failure rate of successive raise attempts is low then I'd
suspect that the driving factor would be the desire to raise capital.

Given that we've been in a record bull market for nearly a decade and there
are signs of slowing, it may be hard to extrapolate these findings to the
future. It would be interesting to try to model what things would have looked
like on this data set at lower levels of investment. This type of information
would be hugely valuable if there is an investment regime change occurring.

~~~
pixelmonkey
Matriculation/graduation rate from round to round seems pretty low (that is,
new funding failure rate is high), based on this chart cited by pg:

[https://twitter.com/paulg/status/781743196963540992](https://twitter.com/paulg/status/781743196963540992)

Tracked down the original post here:

[https://mattermark.com/startup-graduation-rate-
surprisingly-...](https://mattermark.com/startup-graduation-rate-surprisingly-
low/)

~~~
hdubugras
Great data here, thanks! Yes, part of the difficulty of this analysis is the
low number of graduates makes it hard to see what's causal.

------
james_s_tayler
Just gonna leave this here

[https://youtu.be/JjjUj1ypVmI](https://youtu.be/JjjUj1ypVmI)

~~~
hdubugras
Obviously belongs on every real HN thread

~~~
james_s_tayler
For any given discussion on HN there is usually a song of his that applies.

------
a13n
It's definitely an interesting report of some of Brex's aggregate data, but
certain statements are inaccurate and misleading. Not sure if this was
intentional or not.

For example:

> CRM: 61% of startups use Copper (formerly) ProsperWorks for their CRM

Then below:

> CRM: Salesforce 13.0%, Pipedrive 26.1%, Copper 60.9%

That adds up to 100%. So startups don't use any CRMs other than those three?
Bullshit. Therefore that "61% of startups use Copper" statement is also false.

Also weird that they think Intercom is customer support software, cause it's
more of a CRM for us and everyone we know.

~~~
sbr464
Maybe they are not including the numbers of unknown and/or didn’t enable crm
integration, etc? I know my second company uses Brex, doesn’t use one of those
3, but only has our accounting software linked to Brex, not our crm.

~~~
hdubugras
Exactly.

------
gavinh
The "all light grays" color scheme in the "Design Project Management" pie
chart is very difficult to understand.

~~~
hdubugras
Thanks, we'll make that clearer in our next iteration.

