What happens after you raise money? What’s next after your startup closes a round of funding from investors?
The last few months may have had you consumed with the fundraising process. Now that to-do item has been crossed off of your list, what should you be focused on now?
What post-closing items should you already be working on now to keep up the momentum?
You may have a few extra seconds to breathe and pat your team on the back for a successful fundraising campaign, though this is when the real work starts. As soon as the documents are signed and the wire hits the bank, it is time for a new sprint.
Here are the items you should already have been working on so that you can hit the ground running, without wasting any precious time or lead over your competitors. Not to mention keep these investors happy so that they’ll stay actively involved in helping you, be there for the next round, and be spreading the word about your venture to others, including more investors.
Putting The Money To Work
If investors just wanted their capital to sit idle they would have left it in their own bank accounts or under their mattresses. They took all this risk and went through all of this effort and expense to grow and multiply their money.
Every day capital sits idle in your accounts means there is even greater pressure to generate much higher multiples on that money on the days you are actively deploying it.
Too much pressure leads to poor decisions, and often choices that sabotage the sustainability and longer-term potential of your venture. So, the sooner you start deploying and leveraging those dollars the better.
While the fundraising process can be an off again, on again rollercoaster, waiting until the transaction is closed and funds are in the bank to start taking the next steps is going to put you far behind in the game.
You need to be thinking ahead, planning ahead, and taking all of the actions in the background that enable your company to start getting the most out of that funding the moment it shows up in your account.
So, what should you be working on? What happens after you raise money?
Refresh Your Budget
Now that you have the money in the bank make sure to readdress your budget and spending. You now have the exact figures on the funds you have brought in, as well as any extra debt service if any of those funds were in the form of debt financing or convertible notes.
Recast your spending allocations. Where will this money be made available? Which departments will have access to how much of it? What happens after you raise money?
How much of this money needs to stay in capital reserves and in working capital to keep you afloat in emergencies or through unexpected expenses and interruptions of income.
Make sure you are accounting for any new debt or financing commitments you are taking on, including new contracts, financing, salaries, benefits, leased space, taxes, etc.
Where will the bulk of this money be funneled to multiply it, versus ending up in sunk costs? Knowing where to say no to spending and increasing budgets may be just as important as where to say yes.
Don’t forget any new expenses associated with this money. That may include accounting, communications with investors, enhanced security, etc.
Keep in mind that in fundraising storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Plan Your Path To Your Exit
Pretty much any money raised beyond a friends and family round is a commitment to pursuing an exit. Your investors need some form of liquidity event to realize their gains. Until then paper gains and proposed valuations are really meaningless.
They are going to want to know how you are strategically mapping your way to that event, and the actions you are taking now that will specifically position your company to achieve an optimal exit.
This could be via an IPO and going public, or it could be through a merger or getting acquired. You may need to develop relationships with potential acquirers, raise more funding to get bigger, or buy up other businesses to become a more attractive target company for the best acquirers.
Make sure you have a rough timeline for this so you have something to aim for. Figure out this information so you know what happens after you raise money.
Even if your new cohort of investors plan to be mostly hands-off and passive, they are going to want to know what is going on with their money and investment.
Silence will kill you. It will make them nervous. They’ll start imagining all kinds of things.
You also don’t want to be fielding random calls or be overwhelmed with emails and texts demanding updates. Nor do you want to burn investors because you can’t keep up with these inquiries and actually make the progress they want at the same time.
Set expectations. Let them know how you’ll be updating them and when to get ahead of this issue.
Earlier stage startups that are going really fast may have enough content to send weekly investor updates. Later-stage startups may only be sending updates monthly or quarterly.
These updates will briefly detail what’s been happening since your last update. What have you achieved? Then address the current situation and what you are working on right now. Followed by your latest forecast for what they can expect ahead.
Include any issues you are working on, are stuck on, and how they can help. They should want to help, and can’t if you don’t let them know where they can be of value. You should be ready with information about what happens after you raise money.
This can be time-consuming. So, delegate investor updates to someone on your team. Send them the bullet points to convey, and have them weave it together into a great message, and email it out to your investors on schedule.
One of the top reasons for startups to raise funding is to expand hiring and build out their team. This may be to secure top talent for key positions to dominate your space with the best possible team. Or it can be scaling talent to exponentially grow the business, or move into new areas.
Depending on your stage, this new funding may make it important to hire a new CPA, CFA, or choose a new accounting firm. You may be hiring new executives, frontline salaried staff, or on-demand freelance help.
While making strong hires and building company culture with team members who will stick with you for years has its benefits, it can be more important to make sure you are hiring specifically for your company’s needs for this next sprint and phase.
As a startup, your company is completely changing every 6 to 18 months. That requires completely new levels of talent. You may be able to instantly hire freelance remote workers online. Though executive searches can take a lot longer.
Whoever you are hiring, don’t wait until after the funds hit the bank. Be running the recruiting and filtering process in advance. Know who you will hire. When the funds hit the bank you can immediately make those offers. If you don’t get ahead, it could be months before you are really getting value out of that capital by the time you onboard them and they are producing results.
Be ready to hire more people than you need too. Many hires simply won’t work out. No matter how great your screening process, some will just slip through the cracks and prove not to be a great fit, or life issues will pop up and take them out of the running. Make sure you budget for this extra expense too.
Even as you’re preparing regular reports for your investors, you’d also prepare questions that entrepreneurs should ask their investors.
Choose Your Growth Metric
Your new investors are looking for growth. Prospective investors for your next round are going to be looking at the growth you achieved between rounds, and what you accomplished for your latest cohort of investors with the money they bet on you. You might need to answer questions about what happens after you raise money.
Choose the one growth metric you are going to obsess over and highlight in your reporting.
This may be:
- Gross revenues
- Gross profits
- Net profits
- Customer acquisition
- Active users
- Sales units
- Revenue per employee
- Other impacts made
Get Your Team Refocused
Your existing team was likely heavily focused on your recent fundraising round in one way or another too. Make sure they are regearing and refocusing on what’s most important now. Which levers should they be pulling and metrics should they be focused on moving the needle on?
What are the milestones you promised these investors? What milestones must you achieve for a new round of investors to believe in you enough to fund you?
Make sure these goals are extremely clear to your teams at all levels. If you don’ they are almost certainly going to be working on the wrong things.
Marketing & Sales
Marketing and sales is going to be a huge part of your success in using this money well and getting to what should be next.
Again, it is far better if you are already ahead of the game and can hit the ground running in this area. Have your marketing and sales team ready. Have your market research refreshed, strategy updated, and have content already being created and approved to be published.
This applies whether you already have a product and sales and are just using this money to scale or are moving into new geographic areas, or you are still in the development stage. You can still be pushing pre-sales, developing distribution channels, and acquiring contracts for future sales.
The truth is that you can spend tens of millions on trying to perfect a product in advance of selling and then sell zero. You may even be way off on product-market fit unless you have been selling, getting an MVP into customers’ hands, and gaining feedback to iterate with.
Buy Out Early Investors
This may also be a wise time to buy out earlier investors and repurchase company stock. You may have earlier co-founders, friends or family investors, and angels who just aren’t adding value. They are getting the benefit of all you are doing, without any contribution.
It may be more profitable to cash them out now and preserve that stock for investors with more value-add potential in the future.
Also, look at how your investors are likely to act and vote ahead. Maybe your direction has changed. Maybe you’ll be making some choices they won’t agree with. Or you know they may be problematic when it comes to a new round or inking an M&A exit deal.
It may be more pleasant for everyone to remove them from the cap table with a good return on their investment today.
Start Raising Your Next Round
Savvy entrepreneurs are already planning their next round before they close the current one. They are taking this into consideration when laying out their pitch decks, forecasting financials, and setting target milestones. It even matters when it comes to which investors you allow to participate in this round.
You have to be thinking ahead. Firstly, in terms of what expectations you should be setting for these investors if they may be a fit to participate in the next round.
You have to set goals you know you can achieve so that you build trust and confidence with them. This is even true if you just want referrals from them to a new set of investors. You may have to answer more questions about what happens after you raise money.
Then consider what impact these investors on your cap table may have in terms of appeal for the next set of investors in a new round of funding. Will they build credibility? Will they share similar values and timelines and visions for an exit?
Already be making a target list of investors for your next fundraising round. Be building relationships with them right now. Then by the time you get to that active raise, you will already have a warm connection, and will have proven you do what you say.
Be sure to recalculate your cash burn rate and runway. How long will it be before you run out of money if you don’t close on a new round of funding. Establish a timeline and countdown for preparing materials and launching a new campaign.
Get your team to work on updating all of your fundraising related materials, data, and online assets. This includes your pitch deck, business plan, and virtual data room. As well as publishing press releases on the closing of this round, and updating your LinkedIn bios, company website, and other profiles to reflect this funding and the investors you’ve attracted. Be prepared with the relevant information about what happens after you raise money.
You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.
Hopefully this post provided you with some perspective as you are looking into what happens after you raise money.
Note I cover this topic in detail in the video below What Happens After You Raise Money.
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FULL TRANSCRIPTION OF THIS VIDEO:
Hello, everyone. This is Alejandro Cremades, and today we’re going to be covering what happens after you raise money. Before we get started, make sure that you hit that Subscribe button, and this way, you will never miss out on any of the videos that we roll out every week.
Raising money is not a milestone. It’s a stepping stone because after you raise the money, then you need to deliver. There are expectations, and you need to follow through. In today’s video, we’re going to be breaking it down for you and giving you guidance so that you understand what happens after you get that money in and you’ve closed your round of financing. So, with that being said, let’s get into it.
You’re going to need to put the capital to work. That’s the most obvious one. You’re going to have to start hiring. You’re going to have to start putting it into marketing, advertising, and you’re going to be having those meetings that are called the board meetings with your current investors so that you can get a line as to how you’re actually implementing and executing on your roadmap that you’ve already presented and got approved by them for the next 18 to 24 months.
That could be the type of hires that you’re going to be doing in terms of the seniority level, those roles that need to be filled. It could be the channels that you’re going to be using like whether it’s LinkedIn Ads or Facebook Ads or Google Ads, and what’s going to be the amount of capital that you’re going to be deploying every month to that as well as other things that you promised on the use of proceeds during your fundraising process.
You’re also going to need to refresh your budget. Now that you have this new money in, basically what you need to do is understand what every month is going to look like. What is the money coming in looking like, and what is the money coming out looking like?
In many instances, unfortunately, you see companies that start spending, spending, spending, they lose grasp on the numbers, and they end up going out of business. They realize they’re running out of money faster than they thought. You do not want this to be your case, so that’s why it is time to refresh the budgets and to understand the numbers moving forward.
Now, you’re going to need to plan your path to the exit. The investors are giving you the money because they want the money out with returns over the course of time, whether that is three years, five years, or seven years. But they are expecting that you are going to go through a liquidity event, which is what is going to give them the money back with returns.
This could be in the form of an IPO, an initial public offering, where you’re taking your company public. It could be a secondary sale of shares where they or you, existing investors, are in a position to share their shares to new investors. That’s what a secondary sale of shares is. Then, also, a pure acquisition, an acquisition where there is a larger player, they can send that wants to buy you out, and that could be either in stock or in cash. But the investor is going to want to know what the roadmap and the path are to get to that specific event.
Then, you need to get very good at investor updates. Entrepreneurs make the mistake of raising money, and then they neglect the investor. They forget about their investor. Then, they make the mistake of going and calling that investor when they need more money. Then, it takes time to get them up to speed, to catch up with them, so that they know what’s going on, and that’s a mistake.
You want to send investor updates every month where you are sharing with them the progress of the business, how they can get involved, how they can help, how your metrics are performing over the course of time, perhaps putting it into perspective or in comparison with the month before or with the quarter before. That could be your customer acquisition, revenue increase, milestones that you’re accomplishing, and basically, to get them excited.
In many instances, those investor updates are going to help you over time because one of those investors may get excited with how you’re executing, and they may preempt a potential financing round where they say, “Look. She is executing very well on the promises that she made. So, I’m going to jump in, and I’m going to lead this round because this company and this team has potential.”
Investor updates are really fantastic, and then they’re going to also help you a lot when you need people to give you their signatures. Whether you’re going through a subsequent round of financing or whether your company is getting acquired, if you’ve done a good job with the investor updates, you’re not going to have to spend time and time on the phone with people to help them understand what’s going on with the business, which is going to slow you down where you’re trying to chase everyone for signatures and getting those very quickly. So, investor updates are a critical component.
Now that you have the money, you want to start hiring. Don’t go too crazy. You can actually use tools like Upwork, where you’re getting people where you don’t have to get the full-time engineer, or the full-time financial modeler, or whatever that is. Use tools to help you in reducing cost.
Don’t go crazy on a hiring spree because that money is going to dry up very soon. Be very conscious; have that roadmap on what the key hires are that you actually need to bring on board over the course of the next 18 to 24 months. Have a clear idea on when you actually need to onboard those during that roadmap.
Again, you want to hire A+ people. Don’t try to hire your friends. Try to hire the absolute best because, as Jim Collins says, a good company is essentially that startup that is in a bus that found the right people in the right seats on the bus, and those were the right individuals that got the bus into the direction of success.
Also, choose your growth metric. What is that metric that you’re tracking over the course of time that is very telling when it comes to the actual health of your business? How is your business performing? Are people going to get excited when you tell them about that specific metric? Some of those metrics that you can use are the following:
- Gross revenues
- Gross profits
- Net profits
- Customer acquisition
- Active users
- Sales units
- Revenue per employee
- Other impacts made
You’re also going to need to get your team refocused. Remember, every company goes through different phases in their lifecycle. Every lifecycle and every phase go in parallel, too, with the financing cycle that you just did or that you have in front of you.
For this specific reason, you’re going to have a different set of milestones to get to the next phase, to unlock that next phase. So, it is time to regroup with your team and to get aligned to understand what needs to be done in order to unlock that next phase of the journey of your business.
Get your marketing and sales team ready. You’ve obviously been doing a lot of bootstrapping before, which is basically trying not to raise any money and use customers’ money, and you’re like, “I’m moving the wrong direction,” and you die. Now, you don’t have to try to find the organic growth.
Now, you have money to actually spend and to understand your metrics, to understand your customer acquisition cost, to understand your lifetime value, and to try to optimize those metrics to increase the efficiency of that sales funnel that you have developed for your business on how you’re actually able to bring people in.
Now that you have the money, you need to deploy in a way to really understand better what it actually takes to get your customers in and how you can speed it up so that you can increase the impact on the output on your metrics.
Start raising the next round because many, many times, you need to know that it could take longer than what you anticipated. It takes time to build trust. So now that you’ve disclosed the money from a specific set of investors that were interested in investing in a company at your stage, now you’re going to have to target a completely different scope or profile of investor that is going to be at your next stage.
You’re going to have to build the relationship. You’re going to have to build the trust, and that’s going to take time. It’s going to take time with those updates that you’re sending them on the progress, so try to start early, as early as possible, literally, as soon as you have that money in the bank because you are also, by having money in the bank, going to have leverage.
You’re going to have leverage for the negotiation, for the amount of runway that you have, meaning how much money you have in the bank to support the operations over the course of, hopefully, the next 12 to 18 months. That’s going to help you and put you in a very good position of strength toward those people that you’re going to want to be targeting.
The key takeaway is that after you raise money, it’s time to get to work. There are expectations. You’re going to have to report to those people that trusted you, that believed in you. It’s not the time to celebrate. It’s not the time to go on vacation. It is the time to get to work because those people deserve that you deliver on your promise.
Hopefully, you liked this video, and if that’s the case, hit a Like. Then, also Subscribe to the channel so that you don’t miss out on all the videos that we’re rolling out every week. Also, let me know how you’re thinking about what happens after you raise the money. Leave a comment below. And if you’re raising money, send me an email at email@example.com. I would love to help you out. Thank you so much for watching.