1/ As budgeting time rolls around again, CEOs will hear a lot of “grow faster but spend less”, “I know this one start-up that does it”. We want to make sure each of our startups burns the right level of capital for their situation. Founders, a thread on burning your equity.

2/ Clearly, all startups are not created equal. Some are “hot” and sadly, many are not. Within our portfolio, 2 near identical businesses on paper will attract different valuations based on a combo of team, market, tech. Why would they follow the same rules on how much $ to burn?

3/ The current efficiency metrics are a good place to start, but they are, well, insufficient. COST OF CAPITAL is key. The CEO of a ‘hot’ business raising money, say, at twice the industry multiple should deploy capital more freely, at the expense of efficiency.

4/ We are using ‘EQUITY BURN’ to help our CEOs: the dilution a company would suffer if it had to theoretically raise money just to fund the next 12 months of burn. For example, if you are planning to burn $10m this coming year and recently raised at $100m post, Equity Burn is 10%

5/ In our data sample, most companies' Equity Burn is clustered around 6%. What about growth? Adjusted for growth, companies burn 1-7% of their equity each year with most clustered around 4%. The lower, the better. How else can you use this benchmark?

6/ We have observed “11x RULE”. We found that for every 1% of equity a company burns, it should get back 11x in growth. This means if your Equity Burn is 5%, you should grow at 55%, if it is 10%, your growth should be 100%.

7/ To read more about 11x Rule, head to the post by the author, my partner @normanfiore:
https://tinyurl.com/SaaS-11-x-Rule . We are early in our data journey on this topic and welcome any founders that want to participate by confidentially pooling their data!

8/ Dear SaaS investors & friends, would also love to hear your thoughts on this! Keen to share with as many of you as possible, so here is a start: @shomikghosh21 @loganbartlett @afc @atkurland @edsim @chetanp @chalfs @scott_sage @vivekramaswami @yanda @Jacob @graceisford @chrija

9/...and more (I am running out of characters and steam here!), so appreciate a share for the Twitter collective wisdom & magic: @davidu @HarryStebbings @alexferrara @alexlimbo_ @anoushkavaswani @YasminRazavi @josh_coyne @jerrychen @SarahNoeckel