The Fatal Pinch

Paul Graham’s essay The Fatal Pinch identifies a dangerous financial situation startups face: having significant runway yet burning cash rapidly while revenue stalls.

The Danger

This “fatal pinch” typically occurs months before collapse. Three converging factors make fundraising extremely difficult:

The company now spends more than during its initial funding round
Investors demand higher performance standards for funded companies
The venture now reads as a likely failure rather than an early-stage bet

The Self-Reinforcing Trap

“The less you need further investment, the easier it is to get.”

Founders overestimate their chances of securing additional capital, causing complacency about profitability—which ironically decreases their ability to raise funds.

Survival Strategies

If already trapped:

Eliminate deadweight: Fire people you already knew should be let go.

Generate revenue aggressively: Consider short-term consulting work or pivot your sales approach to emphasize customer needs.

Reduce headcount strategically: Fire skilled people only if overhiring caused the crisis; otherwise prioritize revenue generation.

The Silver Lining

Successful companies have survived near-death experiences by recognizing the danger early and taking decisive action.

My Takeaway

Always know your path to profitability. Don’t assume you can raise more money.