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Community Speak

It's Winter For Startups! Here Are Five Ways To Extend Your Runway

Written by: Prashant Vijay 21/11/2016 4 minutes read
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Over the last few months, funding in the startup eco-system has slowed down, especially for Series B and beyond. It is estimated that about 3,000 startup jobs have disappeared just as at least $20 million of late-stage funding has dried up this year. A speculated mismatch between promised versus actual delivery has made investors latch on to the ‘wait-and-watch’ approach cautioning start-ups to resort to discipline and explore austere approaches to make ends meets. The new age adage- Winter is here, is hitting close to home as several startups have withdrawn their placement offers made to students in premier education institutes. 

Founders and leadership teams are under pressure to cut costs but keep the growth engine running. To that end, there are avenues available that can slow the burn-rate while not hampering long-term prospects. Here are few things you should think about:


While this is a new-ish animal in the Indian eco-system, its been around a while in the traditional small business arena for eons. Call it SME lending, Bridge Loans or Venture Debt — the concept is the same, and exactly what it sounds like — raise money from professional lenders, secured or unsecured, depending on your situation and terms available, and keep your lights on. 

Deferred Compensation

For your senior (read expensive) hires, an interesting structure can be using deferred compensation, which is different from the traditional variable compensation. Here, the employee is guaranteed the deferred part, and it is not dependent on their performance, but instead paid out in the future, to help manage the business’ cash-flow. This can be coupled with variable compensation. E.g. someone you want to hire earns Rs. 100 per year and she expects at least a 20% raise. You can structure this is Rs. 60 fixed, Rs. 40 deferred, and Rs. 20 variable, linked to individual and company performance.

Salary Catch-ups

Again related to senior /expensive hires, say someone is currently earning Rs. 1000 per year and you’re finding it difficult to afford them, and there’s no way you can afford to give them a raise in their last compensation. Given this is a senior level hire, you can offer them Rs. 100 this year with an equity kicker, and a guaranteed compensation of say Rs. 1,300 next year, which covers both an increase that they would have expected to get from changing jobs, and an annual increase at the end of the year, which is more modest.

Referrals and partnerships

While at a high level this doesn’t clearly strike you as a meaningful source, it can add up. If you’re at a stage where you have a decent sized customer base, there are probably many startups who haven’t captured these customers yet. Providing access to these customers via mailers, or any other form of marketing can result in referral or commission fees which can add up quickly.

Leveraging consultants instead of full-time hires

Imagine this, you’re in a cash crunch, and a heavy hitter head of sales can make the difference and push you to the next league, but hiring her might decrease your runway by half, given her large salary. This is where you can leverage the power of independent consultants, freelancers or part-timers, and the non-permanence of their costs. While you might have leveraged freelancers before in the tech or design space, you can find consultants and freelancers in any business area, from marketing to sales to strategy, who can serve as pinch hitters.

It remains to be seen how the startup stalwarts respond to the impending winter where they either conserve and grow or simply perish. 

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