Maintain significant runway buffer when carrying payroll - funding can evaporate instantly
Companies with large employee headcounts face catastrophic risk when funding falls through. Service businesses especially need runway buffers because payroll is a fixed cost that cannot be reduced quickly. Expected funding rounds can collapse at the last minute, and if you have no buffer, you face overnight shutdown.
When to use
When scaling headcount with VC/investor dependency; when converting contractors to employees
Don't do this
Growing headcount to match revenue without maintaining cash reserves for funding gaps
3 Founders Who Did This
Had capital reserves that enabled waiting, doubling down, and continuing to work through 18+ months where costs exceeded revenue
Had real students and staff payroll obligations but operated on donation pledges that came sporadically rather than reliably
After $100K investment from Jason Calacanis, spent recklessly: $5K LinkedIn automation, $4K/mo apartment, overpaid writers. Hired salesperson instead of leveraging Mat's proven sales abilities.