"Cash is more important than Mother"

I’m seeing a lot of startups and VCs running low or out of cash these days. I’m reminded of an expression that was written on a blackboard at MIT Sloan when I walked into a classroom to deliver a lecture a few years ago.

"Cash is more important than mother" (CIMITM) is a blunt but memorable adage often used in the entrepreneurial and startup ecosystem to emphasize the critical importance of cash flow and financial management in business. 

Incidentally, Warren Buffett had an equally memorable expression: "When the tide goes out, you can see who's been swimming naked." It suggests that during good times (high tide), it's hard to tell which companies are truly well-managed and which ones are taking excessive risks or have weak fundamentals. But when conditions get tough (when the tide goes out), those weaknesses become obvious.

In the current environment, we're seeing this play out as many startups and VCs that may have relied heavily on easy capital access and generous valuations are now facing harder scrutiny of their business fundamentals and cash management practices.

Here's an explanation of CIMITM which has a bigger focus on cash:

• Cash is Survival: In a business, particularly a startup, cash is absolutely essential – think singular lifeline – to pay employees, fund R&D, sustain operations, and cover overhead expenses. Without sufficient cash, even the most innovative ideas or promising businesses can fail.

• Priority Over Sentiment: While the phrase exaggerates for effect, it underscores that financial discipline and prioritizing cash flow are non-negotiable. It suggests that emotions, personal relationships, or even loyalty (e.g., to a founder's "mother" or comfort zone) must sometimes take a backseat to the hard realities of keeping a business afloat.

• Decision-Making Keystone: The phrase advises founders and leaders to make decisions with cash flow in mind, ensuring they are not overly optimistic or idealistic. Whether it’s hiring, expanding, or investing, all choices should be financially sustainable.

Why CIMITM Pertains to Startups

The world of startup finance is incredibly precarious, despite many founders mistakenly believing it operates logically or as a meritocracy. In reality, managing burn rate is a delicate and critical balancing act fraught with challenges. Startups operate with limited cash –“runway” – and must carefully manage spending, as unpredictable fundraising demands maximizing every dollar. Prioritizing rapid growth over profitability is risky; if growth exhausts cash without a clear path to profitability or new funding, the business risks collapse, making burn rate management crucial.

Today’s Market for Fund Raising

Today there are thousands of startups in the market facing the dual challenges of refining their strategy and securing funding. This isn't meant to be humorous, but it's true: not all of them are AI startups.

Today there are two common approaches prevailing in the market:

• A Small Seed Round: Raising a small seed round (250k-$500k) to extend the company’s runway and achieve milestones before pursuing a larger institutional – Series A – round later.

• A Large Seed Round: Raising a larger round ($1 to $3 million) from super-angels investors for greater financial stability and faster growth, though with higher expectations.

The choice depends on the startup’s stage, goals, and ability to demonstrate traction.

By the way, "gutting it out" until Series A isn't a common approach these days. Seed rounds are more achievable, and Series A demands Product-Market Fit (PMF), KPIs and other stringent criteria. Today securing additional runway via a seed round (steering clear of the term "bridge," which carries a negative connotation) is often a more viable approach.

Balancing the Statement

While "cash is more important than mother" is intentionally provocative, it's important to balance financial pragmatism with other critical aspects of running a business, such as maintaining ethical practices, nurturing team culture, and fostering innovation. The saying is less about ignoring values and more about avoiding financial recklessness.

In summary, CIMITM is a sharp reminder to entrepreneurs that cash flow is the lifeblood of a business and requires constant focus and discipline, no matter how compelling the vision or mission might be.

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