Framework Objective
This framework helps founders, venture studio operators, and investment committees decide where to preserve cash and where to invest for compounding strategic advantage.
- Balance short-term runway with long-term moat creation.
- Separate reversible experiments from irreversible capital commitments.
- Tie capital release to operating evidence, not narrative momentum.
Capital Allocation Lenses
- Efficiency: burn multiple, payback period, and gross margin trend by business line.
- Intensity: infrastructure, hiring, and working-capital needs by growth scenario.
- Optionality: ability to pivot, spin out, or consolidate without major value loss.
- Strategic fit: contribution to shared distribution, data, or platform leverage.
Portfolio Segmentation Model
Classify initiatives before budget decisions:
- Compounders: units with clear reinvestment loops and improving economics.
- Options: high-upside experiments with milestone-based funding caps.
- Incubations: strategic bets requiring longer payoff windows.
- Sunset candidates: persistent negative unit economics with weak strategic adjacency.
Quarterly Decision Cadence
- Prepare pre-read with runway view, economics trend, and scenario sensitivity.
- Score each initiative on efficiency, intensity, optionality, and strategic fit.
- Take one action per initiative: scale, maintain, pivot, or sunset.
- Attach explicit kill criteria and next review date to every funding decision.
FAQ
- How often should allocation decisions be revisited?
Run a formal quarterly decision cycle, with monthly exception reviews for initiatives that breach burn or milestone thresholds.
- What is the most common allocation error?
Overfunding low-optionality projects because of sunk-cost bias instead of reinvesting in high-leverage compounders.
- Should every project have the same hurdle rate?
No. Use differentiated hurdle rates by segment, because options and incubations have different expected payoff shapes.