How to manage your capital as a startup

Startups have the luxury to experiment, pivot, and push innovation over the limits — unlike very well-established businesses and enterprises. On the downside, when it comes to money, startups face the pressure of making every cent count. So, how do you manage your startup capital?

These are the rules of the game when your capital is relatively small, and often not even yours as a startup, but your investors' or VCs'.

We looked into the art of managing startup capital right from the source. We are talking about those who earned, lost, and recovered their financial resources.

In 2019, TechCrunch gathered 250 startups from over 50 countries at TechCrunch Disrupt Berlin. TechCrunch is one of the most important publishers reporting on the business of technology, startups, venture capital funding, and Silicon Valley.

All the startups were eagerly exhibiting their digital products during Startup Alley. On top of that, a shortlist competed for the well-known Startup Battlefield Cup and its $50,000 prize.

So, what a great place to learn how to pitch your startup and manage your investment, right?!

That is exactly what we did.

Here’s an insightful summary on how to manage your capital. You'll also find the view of the startup that won the Startup Battlefield Cup of 2019.

1. Market Research

Spend your startup capital wisely from the very beginning, and start with in-depth market research.

We know the three Fs (friends, family, and followers) are a popular source of early feedback. But take it with a grain of salt — it is not the most reliable way to scale.

Talk to your (potential) buyers and run interviews.

Build a professional survey with simple, clear questions, and send it to your target audience. This way you get specific, useful answers.

Also, run a detailed competitor analysis. It gives you an overview of your market, and it will shape your product and business decisions. Don't hesitate to use experts' services for that.

Already launched? Even better. You now have a product worth updating and adjusting to your growing audience. Market research helps you do that, and it is a must step of any product development process.

2. Technology/Product Development

Congrats! You have your investment (or your first paying customer). But whatever the source of the capital, there is an expectation of a better product built with it. So how should you spend your startup capital here?

Wait — don't rush into overstuffing.

Be a conscious business owner. First analyse, set, and prioritise the updates the product actually needs.

Take a look at your market research for ideas.

Now, evaluate the team you already have and its potential. One new hire may be an excellent way to scale up, and far more reasonable than 10 new team members you don't need.

We are pretty sure you have some brilliant developers on the team, since you built such a great product. Give your experts a hand and bring in a project-based team when you need it — whether for a quick MVP or to scale up faster. With an AI-native approach across product design, engineering, and QA, Wolfpack Digital can ship an MVP in as little as 2–4 weeks, so your capital goes further and you validate faster.

Not sure what your build should cost? Get a fast ballpark with our AI app cost estimator before you commit budget.

As a bonus, that leaves you extra money for equipment and tools to complete your tech solution, especially if it is a hardware one.

3. Legal & Accounting

Most startups have a CEO and a CTO, but they rarely have a team member who is an expert in legal and accounting. Yet founding a startup means dealing with plenty of processes and paperwork tied to the business, investments, expenses, and fees.

Here is one example. Raising a priced Series A round typically runs from roughly $50k to $100k or more in legal fees (often the single largest line item in a raise), and the startup usually covers it. Most founders have no clue how to handle this.

This kind of service (or skill on the team) takes basic but painful paperwork off your plate. It will save you from surprise bills or liability issues down the line.

It is as clear as day that these are the most common startup expenses to plan your capital around.

But how would you manage startup capital of, say, $50,000?

The winner of the Startup Battlefield Cup, Scaled Robotics, shared their ideas with us. This Barcelona-based construction robotics startup is on a mission to digitise construction. With TechCrunch Disrupt Berlin over, they planned to invest the $50,000 prize in one of these:

1. add one more person to their team;
2. use the prize for a pilot deployment;
3. buy hardware.

No matter the struggle your startup faces, follow the advice of Bharath Sankaran, Co-Founder & CTO at Scaled Robotics:

"Money, unfortunately, is a startup's lifeline. You have to be very judicious and thrifty with how you spend your money. For an early-stage startup, "If it doesn't directly contribute to your product, don't spend on it". So any money spent on things that don't result in employee productivity and well being should be looked at very carefully."

As a startup, your dreams are limitless. Your cash reserves are not.

And with the first cash flow, it is hard to resist the temptation of building the appearance of a solid business.

Focus on business growth and revenue, even while working from a modest office, a coworking space, or a coffee shop. (Or bring us on as your strategic partner to build a scalable version of your product.) A strong team, a great culture, and a nice office will follow once you have a powerful product and a solid base of clients.

Ready to turn that capital into a product? Read the secret to building an MVP that has it all.

May everything you do make cents!