Back when Silicon Valley Bank was still pitching a package of financial moves to its customers, it noted in a presentation to its own investors that “elevated client cash burn” was “pressuring [its] balance of fund flows.”
The previously central bank to Silicon Valley told the stock market that while it had anticipated a “modest, progressive” decline in startup cash consumption as venture dollars slowed, burn had “not moderated” in the first quarter of 2023. This hurt its deposit base, which in turn was a precipitating factor in the run that later smashed the bank.
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Reading through the bank’s notes before it failed a few dozen hours later, toptechtrends.com/2023/03/09/it-turns-out-burn-reduction-at-startups-is-more-aspiration-than-reality/”>this column pulled out the burn statistic as the most interesting nugget from SVB’s asset sale and debt shakeup. toptechtrends.com/2023/03/17/svb-financial-files-for-ch-11-bankruptcy-protection-says-it-has-2-2b-in-liquidity/”>Whoops.
Regardless of our inability to note an incipient bank run, the dataset formed an interesting conclusion in our minds: Startups were failing, at least in the United States, to truly reduce their burn rates.
New data paints a slightly more nuanced picture. Thanks to Brex data shared with SaaSletter, we can get a bit more granular. It turns out than when you compare later-stage startup spending cuts with their earlier peers, the bigger startup are doing a better job.
The question, then, is whether that makes sense. Let’s explore.
Cut spend, cut burn
Recall that in the first quarter we saw toptechtrends.com/2023/04/17/tech-investors-obsession-profit-waning/”>late-stage round sizes and valuations fall sharply. Capital flowing into larger, more richly valued startups is in retreat, and unicorns are toptechtrends.com/2023/04/12/turns-out-most-unicorns-today-are-more-myth-than-reality/”>currently wedged between a rock (falling venture capital investment), a hard place (a completely dead IPO market and slow M&A activity for companies of their size), and a rocky hard place (the fact that many late-stage startups are carrying paper valuations that will not convert into new investment at par).
toptechtrends.com/2023/04/17/late-stage-startups-spending-less/”>Late-stage startups are getting the hang of spending less by toptechtrends.com/author/alex-wilhelm/”>Alex Wilhelm originally published on toptechtrends.com/”>TechCrunch
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