Four things to do as soon as you close your funding round
Raising money for your company is no easy task. You might as well compare it to climbing Mt. Everest. It takes vision, planning and grit to make it to the summit.
When you finally close your funding round the weight off your shoulders is a sweet taste of victory. Not only do you believe in the vision of your company, investors do as well! The cash they are giving you is their sign of support for your mission.
Once the wires start hitting your bank account it is time to put your growth plan in motion. You should already have the pieces in place to hit the gas pedal. But often founders get so heads down on raising capital, it can take some effort to shift the gears and go back to building.
In this post we are going to outline steps to help with the transition from fundraising back to building.
Planning With Purpose
“If you fail to plan, you are planning to fail” - Benjamin Franklin
The elementary nature of the quote should be obvious. But you would be surprised how many do not put pen to paper to create their plan of attack.
Imagine a battle time general not knowing how they are going to react to the ever changing battlefield. Or a sports coach not knowing how they want to manage being down by 2 with the game clock nearing 00:00.
In the above situations time has been spent preparing how they will respond. For the general, being unprepared results in lives lost. For the coach, depending on the game, they could lose their job.
A prepared founder helps stack the odds in their favor. That’s why it is important to look at the moving parts of your business and decide how your new funding will be used in each area. We are going to discuss some of the “parts” most companies need to address. Your company may have more or less "parts" but the ideas can be used as starting points universally.
HR / Talent Planning
In all likelihood a company will start with two founders. One who focuses on strategy and management (CEO). The other focusing on technology (CTO). Once a funding round is complete it is time to consider expanding.
Step 1 is to create a vision of what the team will look like over the next 18 month period. You can call it your talent plan. Do you need to ramp up tech hires? Does the CEO need a right hand person to take routine tasks off their plate?
In the early stages you can accomplish a lot of hiring needs by bringing on someone with cross functional talent i. e. they come onboard for business development but can help out with finance and recruiting.
One trap founders fall into is hiring too fast and ultimately needing to wind down those quickly built tech or sales teams. This is not only a time suck but a waste of resources (cash).
The key, at the minimum, is to have a defined hiring vision and to massage it over time. Be sure to make someone the DRI (directly responsible individual) for hiring and recruiting. This way at least one person is always eyes and ears on the lookout for talent to fill the spots needed.
With new cash resources, comes new responsibilities. Surviving financially as an individual requires a budget. The same goes for a company post raise.
Start by plotting out what you expect your next 18 month financial model will look like. Revenue, expenses, etc. For many this will seem like a near impossible task. Especially if the founding team has no background in financial models or business.
The key here is just to get to work on it. Initially you will likely not need a dedicated person to handle this process and certainly not a full time CFO.
In fact, in a recent guest post Andi Ruda of Rainbow CFO wrote a guide titled, “How a Startup Founder Can Be Their Own CFO. She gives you a straight plan to getting started with the help of everyone's favorite research assistant - Google.
Once that initial 18 month model is built. Start to focus on the KPIs that are going to matter to YOUR business. Remember, all business models are not the same. What might be worth following for a SaaS company, may not be the same for a DTC company.
To help you determine what KPIs you should be following we recommend reading this guest post from Andrew Gauthier of Mighty CFO titled, “Live or Die By Your KPIs”. He breaks down a process to make sure you are focusing on the right items.
Like HR and talent, managing your finances will need to be massaged and shifted over time. The key is to start with an 18 month vision and manage it as time goes on.
During your fundraising process you picked up a strong bench of advisors and board members. Do not be afraid of using them as a sounding board or for idea generation. They wrote checks because they believe in you and your company. That means they have a vested interest in supporting you.
Bounce both your talent and financial plans off of them. If you did your raise correctly these people will have great insight into how your talent and financial plans should be built. Leverage them for all their worth.
Do not neglect the power of investor updates. Investor updates are ideal for specific “asks” of your investors. i.e. you need help with finding a specific type of recruit. Or maybe a second pair of eyes on your financial projections.
The key here is to realize that having their support is crucial for your business and future raises of capital. View them as teammates and not overreaching overlords.
To get a feel about how investor / board dynamics can play out read our blog post titled, “What Everyone Ought to Know About Raising Equity”.
Now that you have the talent plan, financial plan and board support locked in. Let’s talk about your playbook for allocating your raised capital.
Having a plan around how to allocate the capital is of utmost importance. This can include things like:
- How cash will be allocated to initiatives that enable you to hit your KPIs (growth, head count, etc)
- How much money will be kept in your operating bank account (cash burn cushion)
- What your idle cash can be invested in
- Who is going to monitor the use of the cash
The purpose of this plan is to provide the company with a playbook of HOW to manage the corporate cash.
You will likely think of your cash in two buckets. The first bucket is your cash dedicated to growth and operations. The second bucket is where you park your cash until it is needed.
The financial model you define will help you with the allocation of capital in the first bucket (growth & operations). For the second bucket, you can get started with InterPrime’s Standard Investment Policy for Startups (SIPS).
The SIPS is ready to be used immediately and can be customized for your specific company. Furthermore, as your company grows, the SIPS can be adjusted. By using the SIPS your company will have clear direction as to how your idle corporate cash will be managed. It will also make sure your investors know you are being a good steward of their funding.
To learn more about the SIPS and download your free copy click here.
You did the hard work and closed your fundraise. Enjoy that feeling for a brief moment because the next leg of the journey starts quickly.
If you planned properly you will already know how you will allocate those new resources to hiring. And will know how to monitor your business and KPIs thanks to your financial model.
Your board and advisors are behind you so leverage them. Investor updates are a great way to tap their expertise and knowledge. Get an investment policy in place sooner than later.
Remember - even the best laid plans will need adjustments over time. The key is to have a plan first, then make course corrections as needed.
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