Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups

Imagine being a founder who just closed their first round. In the blink of an eye, this person is responsible for managing anywhere from $500K to several million dollars.

Now imagine they do not have a whole lot of experience managing a P&L.

What are the chances they burn through that cash faster than expected? High. The chances are high.

At Hustle Fund, we have seen this pattern play out hundreds of times across our portfolio of 600+ companies. And the founders who manage burn rate well are almost always the ones who survive long enough to find product-market fit.

Elizabeth Yin has noted that Hustle Fund's thriftiest founders, usually by necessity because fundraising was always hard for them, tend to do the best. They crank out good business practices and watch cash like a hawk. They know precisely how much money is coming in and going out.

Here is what investors should be watching for and how to help.

The Talent Spending Trap

The number one category startups overspend on is talent. And look, we get it. Founders who have raised a round need to hit milestones so that they grow at venture-scale rates. But too often we see founders hiring too quickly, at salaries that are too high, without clear deliverables in place.

When a founder has runway in the bank and milestones to meet, it is tempting to just get bodies in the door. But this is where things get expensive fast. And expensive without direction is just wasteful.

We encourage founders to take a role from zero to one themselves before bringing on a full-time employee or even a contractor. They should clearly understand what excellence looks like and what specific deliverables are needed before hiring for that position. That lets them work backwards to create clear goals and avoid the over-hiring trap.

We also recommend that founders leverage equity when putting together compensation packages. People typically join startups for the ownership opportunity, not because the base salary competes with Google. Rather than trying to match Big Tech salaries, startups should aim for a balance between cash and equity.

If your portfolio company is hemorrhaging cash on headcount, this is the first place to look.

The Marketing Money Pit

Startups will almost certainly need to spend on marketing. And they should. But there is a huge difference between strategic marketing spend and throwing money at paid channels without understanding what works.

The most common mistake we see: founders prioritize product development and then dump money into paid ads before understanding their conversion funnel. They should be testing positioning first, ideally in organic channels, to determine what messaging leads to the highest conversion rate. They should aim for consistency and test often. Only then, once they have figured out their messaging and funnel, should they pour money into paid channels.

The founder who spends $50,000 on Facebook ads before knowing their conversion rate or customer acquisition cost is not investing in growth. They are gambling with investor money.

The Slow Bleed of Infrastructure Creep

This one is sneaky. Startups can quietly accumulate expensive tools, software subscriptions, office space, and services that eat into runway without anyone noticing until it is too late.

A $500/month analytics tool here. A $2,000/month CRM there. A coworking space upgrade because the team "needs a better vibe." Individually these feel small. But they are recurring costs that compound, and they add up shockingly fast.

The best founders we work with operate lean by default. They use free tools until they genuinely outgrow them. They negotiate annual contracts for discounts. They question every single recurring expense. That discipline is not sexy, but it is the difference between 12 months of runway and 18.

What Investors Should Actually Do

You are not running the company. But you can absolutely influence how founders think about cash.

Ask about burn rate in every update call. Not in an interrogative way, but as a normal part of the conversation. "How much runway do you have at current spend?" should be as routine as asking about revenue.

Help founders think in terms of milestones per dollar. Instead of "we need to hire five engineers," the framing should be "what is the minimum team needed to hit our next fundraising milestone?"

Connect founders with operators who have managed through cash-constrained environments. One conversation with someone who has actually had to make payroll on a tight budget can be worth more than any spreadsheet.

Elizabeth Yin has said that reducing burn and prioritizing revenue has never been more important. Founders who manage cash well give themselves options. Founders who burn fast give their investors anxiety and themselves fewer paths forward.

If you want to learn how to evaluate burn rate, help founders manage runway, and build a portfolio with staying power, Angel Squad's community of 2,500+ investors tackles these exact topics in weekly sessions. Check it out at Angel Squad.

The startups that survive are not always the ones that raise the most. They are the ones that spend the smartest.