BESSEMER CLOUD COMPUTING LAW #10:

Cloudonomics requires that you plan your fuel stops very carefully.



There is no denying that the cash flow characteristics of a Cloud business are wonderful in the long term, but can be lousy in the short term. Cloud companies require you to fund research, development, sales and marketing upfront in return for a multi-year stream of revenue. This typically demands enough investment capital (over stages) to fund 4+ years of runway before a company can achieve positive cash flow (GAAP profit is even longer). Imagine you are flying a private plane from Silicon Valley to Wall Street (which sometimes is the figurative or literal goal), and you need to stop a couple of times for fuel (investment capital) for the trip. It is critically important that you plan your equity and debt financing events in advance to maximize value and minimize dilution.

There have been many promising Cloud startups that stepped on the gas too early and were wiped out as a result. Always model the business with a comfortable cash cushion and recognize that m