Case 044Down rounds, distress and runwayCore
As CFO of Yantravik Industrial SaaS, quarterly revenue has just fallen 30% from Rs 30 crore. Which levers do you pull, in what order, to take runway from 9 months to 18?
1The situation
Yantravik sells monitoring software to factories. Revenue was Rs 30 crore a quarter, Rs 10 crore a month; two large customers paused this quarter and revenue has fallen 30% to Rs 7 crore a month. Monthly costs are Rs 14 crore: 60% people, 20% cloud hosting, 20% marketing and other. Cash is Rs 63 crore and customers owe Rs 18 crore of receivablesInvoices sent but not yet paid. They are revenue already booked, waiting to become cash..
The board wants 18 months of runway so the company can raise its next round from a position of strength rather than need. Treat the revenue fall as lasting, and assume costs can be cut by these amounts: marketing by half, cloud by 30% within a quarter, people by 15% after notice periods and severance, the rules for which you would confirm for the staff's locations.
2Your task
What is runway now, what monthly burn does 18 months require, which levers get you there, in what order, and what do receivables do and not do?
Quick check
What monthly burn does an 18-month runway require on Rs 63 crore of cash?
Worked solution
Try it on paper, then open one step at a time.
30-second answerThe answer to give first
Runway is 9 months, and 18 months needs burn to halve from Rs 7 crore to Rs 3.5 crore a month, so Rs 3.5 crore of monthly savings. Pull receivables first because it is cash this month, then marketing (Rs 1.4 crore), then cloud (Rs 0.84 crore), then people (Rs 1.26 crore), which together reach Rs 3.5 crore of burn and 18 months. The Rs 18 crore of receivables adds about 5 months of cushion but fixes nothing: it is cash, not a lower burn.
Step 1What is the runway, and what does 18 months require?
A household whose salary is cut asks two questions: how long will the savings last, and how much must spending fall so they last long enough. Runway is cash divided by burn: Rs 63 crore over a burn of Rs 14 crore less Rs 7 crore, Rs 7 crore a month, is 9 months; before the hit it was Rs 63 crore over Rs 4 crore, about 16 months. Eighteen months means Rs 63 crore must cover 18 months of burn, Rs 3.5 crore a month, so Rs 3.5 crore of monthly cost must go, or revenue must come back, and you do not plan on revenue coming back.
Step 2Which levers, and in what order?
Order by speed and by damage, and pull the fast, harmless ones first. Receivables first: Rs 18 crore is owed to you already, and collecting it is cash this month with no cost to the business, provided the customers are solvent. Then marketing and other, Rs 2.8 crore a month, cut by half for Rs 1.4 crore: it stops the same day, and in a quarter where sales have slowed the spend was buying less anyway. Then cloud, Rs 2.8 crore a month, cut 30% for Rs 0.84 crore by rightsizing servers and renegotiating commitments, which takes an engineering quarter. People last: 15% of Rs 8.4 crore is Rs 1.26 crore a month, the largest lever, the slowest to show in cash because of notice and severance, and the one that costs the company capability it will want back.
| Lever | Saving | Shows in cash | Months added | What it costs the business |
|---|---|---|---|---|
| Collect receivables | Rs 18 crore once | This month | +2.6 at today's burn | None, if customers are solvent |
| Marketing and other | Rs 1.40 crore a month | This month | +2.2 | Slower new sales next year |
| Cloud | Rs 0.84 crore a month | One to two quarters | +2.0 | Engineering time spent on cost, not product |
| People | Rs 1.26 crore a month | One quarter, after notice and severance | +4.8 | Lost capability, morale, severance cash |
Step 3Why do receivables not fix the problem?
Because they are a one-time inflow against a monthly outflow. Rs 18 crore at today's Rs 7 crore burn is 2.6 extra months; at the Rs 3.5 crore burn after the cuts it is 5.1 months, and either way next month the burn is back. Collect them anyway, and tighten terms, invoice on signing rather than go-live, offer a small discount for annual prepayment; those are revenue-side levers that bring cash forward without cutting anything. But a CFO who reports 11.6 months of runway after collecting receivables and calls the problem solved has moved the cliff, not removed it.
Say the limitation and the judgement. Halving marketing slows next year's sales, so the 18 months are bought partly with growth; the model also assumes the two paused customers do not return, and if they do, the people cut was unnecessary. The order of pulling levers is as important as the list: a company that cuts people first, before collecting what it is owed and trimming spend that has no human cost, pays the highest price for the same months. Board and investors will also ask what revenue would have to do for the cuts to be reversed; have that number ready: at Rs 3.5 crore of burn, every Rs 1 crore of monthly revenue recovered is about 7 more months.
Where candidates lose it
The common loss is reaching for the people cut first because it is the biggest line. It is also the slowest to show in cash, the most expensive in severance and the hardest to reverse; receivables, marketing and cloud come first because they are faster and cheaper.
The second is adding the receivables to the runway and stopping. Rs 18 crore collected at a Rs 7 crore burn is under three months; it buys time to make the cuts, it is not a substitute for them.
What the interviewer asks next
- One of the paused customers offers to return at a 40% discount. Do you take it, and how does it change the plan?
- How would you decide which 15% of people, and what do you tell the rest?
- Cloud commitments are locked for a year. What else do you cut, and how much?
- The board suggests a Rs 20 crore venture debt line instead of cuts. What do you say?
Asked at Silver Lake, Technology, Media and Telecom, San Francisco, 2022 (Wall Street Oasis): If revenues get hit in a quarter, what would you do as the CFO relating to cash flow preservation?
Company names and figures are illustrative.