How Much Should I Invest In My Startup?

"Do I bet the farm or hold it all back?"

We often wonder whether every dollar of our personal savings should be going toward our startup, or toward our safety.

On the one hand, if we don't bet our cash on our startup, we're starving the very thing we need to grow with. On the other hand, if we spend that money, we'll never be able to sleep at night knowing our safe landing has been pulled away.

So do I spend it or save it?

Don't spend it all. Seriously — don't.

There's a point at which depleting all of our savings and personal cushion works against us. We start shifting our focus from "growing the business" to "surviving personally" (more than it already is!) and at that point, we're in a downward spiral.

How much do I keep in savings?

If possible, at least a month's worth of expenses, and hopefully two.

That said, most people don't even have that much savings without their startups, but if you're one of the few who does, that would be the "minimum viable savings".

The savings should be enough to get you to the point where you could get another job if things go totally sideways (and they often do!)

When will I be able to put those savings back?

Plan on "probably never" because statistically, that's the most likely outcome.

Investments in a startup need to be considered "found money" if that money comes back. This isn't a bank loan that's got some level of security. This is a totally un-secure investment that's about as risky as it gets. If you pull money out of your 401k, for example, assume you're permanently changing your retirement plan.

What does that say about my commitment if I don't invest it all?

It says that you're committed enough to invest your personal capital but smart enough to understand that life isn't guaranteed, but your bills are.

The more we leverage ourselves personally as Founders (and we all do), the more we force ourselves into strained relationships and regrettable decisions.

A Founder with some cushion is a more dangerous Founder than one that is completely desperate because she has options, not choices.

In Case You Missed It

Startups don’t go bankrupt — Founders do (podcast). Wil and Ryan dig into how Founders are often so focused on their startup’s finances that they overlook their own ability to stay afloat in the process

3 tips to get your startup’s finances in order. You can be the person forming great ideas, but you don’t have to be the one to manage it. Matt Wool, General Manager with Acceleration Partners — global affiliate marketing agency to brands like Adidas, Rebok, and Target — breaks it down.

Start slow to move fast. Will Herman — active angel investor, corporate director, and startup mentor who’s managed 5 companies resulting in two IPOs and two corporate sales – discusses how for most startups, moving slower will help them grow faster.