It’s an obvious question. And if you’re looking for startup investors you’d better be able to answer it well, and quickly too. No wandering eyes. No doubt. If you’re doing a pitch, have a slide for it. And be specific.
I liked this from Ben Yoskovitz’s Instigator Blog on Use of Funds:
…most descriptions of “use of funds” are incredibly generic and standard, typically involving the following: hire key personnel, product development, sales & marketing. Hhhm…the phrase, “No shit Sherlock…” comes to mind.
And on the other hand, there’s this about that, from Perfecting Your Pitch, by Guy Kawasaki’s Garage.com Ventures:
It should be clear from your financials what your capital requirements will be. On this slide you should outline how you plan to take in funding—how big each round will be, and the timing of each—and map the funding against your key near-term and medium-term milestones. You should also include your key achievements to date. These milestones should tie to the key metrics in your financial projections, and they should provide a clear, crisp picture of your product introduction and market expansion roadmap. In essence, this is your operating plan for the funds you are raising. Do not spend time presenting a “use of funds” table. Investors want to see measures of accomplishment, not measures of activity.
So go figure. There are two opposite points of view from two good sources.
I’m amazed, meanwhile, how often I see people pitch startups to investors without having a good answer to that question. I expect an instant answer, without hesitation, and if it’s a slide deck there should be a slide.
And that doesn’t mean that anybody necessarily believes what you say. It’s all educated guessing. But details add credibility. And if you can’t answer that question, what do you think your audience is thinking?
There is a standard way to calculate starting costs.