2021 Scenario Planning: Start-up Fundraising Part 2 — You Raised Money, What’s Next?
- After receiving a major investment, entrepreneurs often struggle to get to the execution phase that should follow.
- Build the right team to help accomplish your goals.
- Establish a communication process with the board and investors during this stage.
Need help assembling the right team for your start-up?
Congratulations! You survived the fundraising process and brought new capital to your start-up. As mentioned in part one of this series, fundraising is difficult, time-consuming, and a potential obstacle to your overall execution and strategy.
Once fundraising is complete, it can be intimidating to see millions of investors’ dollars in the bank account. Some entrepreneurs are unsure where to focus next. Your next steps may differ by industry or by whether your company is at the seed, Series A, or Series B round of funding, but there are several common overarching themes and approaches to consider.
Mobilize and execute
Ironically, the most intuitive post-fundraising step is where some entrepreneurs struggle. After bootstrapping to this point, it is difficult to suddenly invest and spend on execution. However, investors expect just that, and new entrepreneurs may be surprised to find there is pressure to spend quickly. Investors did not invest millions in your company for you to limit spending. They want you to utilize the new capital in a way that mobilizes your strategy for achieving the high-growth numbers you promised in your pitch and financial model, whether that is through new hires, equipment, application development, or all of the above.
This does not mean spending blindly or without regard to strategy. Advertising and marketing spend should still be measurable and consistent with your commercialization plan. New hires and other moves to support growth should relate directly to your plan. The spending and capital deployment plan should already be part of your financial model or short-term forecast. Remember, the purpose of raising capital is to enable your high-growth plan. Sitting on that capital, hoping you will hit those same numbers without investment, could cause investors and the board to lose trust.
Upgrade your infrastructure and back office support
After a Series A raise (and certainly after Series B or later rounds), new investors will likely evaluate current service providers and functional professionals. Law firms will be reviewed for their experience, their ability to facilitate M&A activity, and their resources when facing patent litigation or other common legal challenges for start-ups.
Similarly, internal or outsourced accounting and finance teams will be assessed in their experience and proficiency with the start-up company cycle. They should also be able to provide the management team with value-added strategy and finance support, beyond classic accounting.
Then, consider your company’s long-term goal. Is it acquisition? IPO? A long-term sustainable company (where investors are provided a proper exit)?
Create a team of finance and accounting professionals, lawyers, and HR and IT professionals with experience supporting companies on that journey. Most start-ups may find it’s more cost-effective to outsource accounting, legal, HR, and IT support until they’ve secured multiple rounds of funding or until they’ve surpassed $50 million in revenue.
Leverage your team and your time
Entrepreneurs and start-up teams are infamous for wearing multiple hats. While admirable, consider that your time is extremely valuable. What you and your teams used to do as a badge of honor is no longer worth your time as you continue to grow and receive outside investment.
Calibrate where you and your leaders spend their time, and consider the balance of specialists versus generalists. Both are important in the start-up lifecycle. After a fundraising round, the balance often tilts more toward specialists.
Focus your time and energy on activities that bring a high return on investment, not on sales calls from third-party vendors, negotiations on your office’s internet package, or other administrative tasks. Spend your time wisely. Delegate tasks to the team or hire someone to assist with administrative items, so you can focus on strategy and creating value for investors.
Establish regular communication with the board and investors
Establish trust with new investors or a new board, as soon as the round closes. While most agreements call for a regular cadence of board meetings, consider providing more frequent updates. Some start-ups communicate 30-, 60-, and 90-day non-financial goals to investors. Give your investors comfort in knowing what they can expect from you and that you understand the accountability expected.
Unfortunately, new investors, especially venture capital firms, tend to hold you to the same performance and reporting standards that their best companies have achieved. Perhaps their previous meeting with another start-up included met or surpassed sales targets, innovative financial analytics, and a polished board deck and presentation. Fair or not, expect these experiences to evolve into expectations for you and your company.
As you prepare for board meetings and investor updates, surround yourself with experienced leaders and professionals who have done this before. A board meeting with new investors is the time to instill confidence in your leadership, since you will be held accountable for picking and training the right leaders to execute your plan.
How we can help
The world sees new start-ups every day, but very few are successful in raising outside investment. Once you reach that stage, you’ll need to rely on financial professionals with direct start-up and high-growth company experience.
CLA’s consulting CFOs work with you to help you navigate the challenges that come from high growth. Whether it’s communicating key metrics to the board and current investors, building a budget or forecast that incorporates the original investment thesis, or navigating the changing tax environment, CLA professionals have the experience to help start-up companies transition into long-term businesses.