Watch Your Burn Rate, says Akamai Co-Founder - and Don't Learn the Hard Way

Since founding Cervin Ventures an investor, Preetish Nijhawan has taken all the lessons learned from his wins and failures as co-founder of Akamai and Ivita Corporation to mentor the best founders in the world. His sweet spot is with early stage B2B software companies raising $1MM to $2MM, and in January, he brought these hard-earned insights to the Startup Grind Fremont audience.

Having seen success (Akamai) and failure (Ivita) in his startup journey, Preetish provided great insights where to meet your cofounder, building your startup at the right time, being smart about burning venture money, and rocking sales, while remaining sane as an entrepreneur on the road to success.

Looking for Co-Founders in Unusual Places

As an immigrant MBA student at MIT Preetish was always short on money. When they could not afford to send his son to the daycare at the cost of $1,000, he and his wife opened up a day care in their home.

At day care, the father of the first child to be admitted was Daniel Lewin. Danny was a researcher at MIT and had done some terrific research in network optimization. This relationship at daycare grew in friendship and later into partnership. Preetish and Danny became co-founders of their first startup Akamai that went on to become hugely successful.

“Educating the Market” is Path to Failure

After success at Akamai Preetish started Ivita Corporation, they were confident in the product and its success but they failed miserably. Why? According to Preetish, the reason they failed at Ivita was that the product they were making required educating the market about the need. If you are a startup and are educating the market about the needs, then you will not be able to succeed - you'll simply run out of money.

Watch Your Burn Rate!

The experience at Ivita was the most important learning Preetish provided: managing burn rate. In the age of startups raising billions of dollars, the art of managing burn rate is lost on most first time entrepreneurs. Preetish gave some great examples of recent down rounds (Square, Good Technologies) and some companies that did not survive due to high burn rates.

To reinforce the idea he told us the story of Taxi4Sure - a cab sharing company in India. Ola Cabs, a competitor, raised $200MM and to remain relevant, Taxi4Sure needed to match the raise to compete effectively. Hence, they increased their burn rate, mostly through driver incentives. Their next round had to come fast and large. An incident with an Ola Cabs driver in India dried up the funding, and resulted in short circuiting the path of Taxi4Sure.

A lower burn rate gives you time to survive, giving you a longer runway to pivot, to compete,  and that is the biggest friend of an entrepreneur.

Hire a Sales Lead as per your need

Most of the startups fail since they fail to sell and Preetish provided some great guidance on this topic. There are three stages in a startup revenue growth cycle and startups need three different type of sales guys.

1. For a company with 0-$5MM in sales you need a hunter. This hunter is great at cold calling and is a master of salesforce. He is a go getter and is a great conversationalist.

2. For a company with $5-$20MM in sales you need a guy who can do the dirty work as hunter but is also good at building the team and train them.

3. For a company with >$20MM in sales you need to hire a sales manager. This guy should be great at managing and building teams. Cold calling skills are not that important at this stage as you have mastered the process and is easy to coach new sales folks.

Oh, just one more thing: you will most probably end up firing your first VP of Sales. 

Are you a company for Cervin?  

Cervin likes to invest in hungry founders who have great teams. Their idea of an ideal team is a first time founder who has shown enough leadership to convince few more people to quit their job for the journey. Also an undue advantage in form of technology or connections goes a long way in securing Cervin’s money.

Hot Space - Anything that makes Mobile experience optimized (battery life, Form factor, etc..)

Not so Hot Space - Enterprise security

Preetish concluded by talking about importance of recruiting right. As per him for a company to grow the first few recruits are the most critical since they form the culture of the company and can be the difference between the success and failure.

If you have a great team of cofounders, who have a great idea and watch burn rate like a hawk; congratulations you have taken first step towards success.

This piece was written by Abhishek & Punkaj - active members of the Startup Grind Fremont Community.