Congrats, you just closed a round!... Now what?
As much as this newsletter focuses on actions and frameworks that will help you secure outside investment, the reality is successful fundraising is just one small part of the startup journey. The stress you feel preparing to raise will of course fade away once you close a round of capital, but the majority of your problems will not.
Many founders will share similar stories of a few moments of bliss and satisfaction after finishing a fundraise before reality sets in. The one problem you solved is quickly replaced by new problems including worrying about the next fundraise in 12-18 months.
The biggest thing to know is that other than the immediate need for capital, raising money does not fix any problems you had before. If you didn't have product-market fit, convincing investors to give you money does not mean you actually had product market fit. If you had a badly organized team with terrible processes beforehand, raising capital does not mean your company is suddenly a well-oiled machine. If you had problems as a leader, more money in your bank account will not instantaneously change you into Satya Nadella.
Here’s the key: once you close capital, one of the first things you should do is take stock of issues that need to be addressed and create plans to solve your problems.
If you were in pursuit of product-market fit before raising capital spending, you can’t skip steps. Don’t move to scaling your product just because you have the money to do it. Keep executing the process to find product-market fit.
If you are self-aware and know that you need to improve as a leader, get yourself a coach and mentors.
Great. Thanks for reminding me of our problems. What can I do?
Here are a few ways you can take advantage of your momentum right now to address your problems.
A company that has just finished raising capital is in one of the most attractive positions possible. You probably went through the common evolution of a round that went from no one interested in investing to finding your lead and then having everyone want to invest.
With the round newly closed, there is still a bunch of excitement around you and the company - you’re the belle of the ball and you should take advantage of it.
All the firms who invested in you will be excited they got into the deal,l but they won’t be in 3 months. Find time to connect with the main investors at those funds while you still have their attention. Just 15 minutes together will help you 1) understand the value they bring to the table and 2) establish a more memorable impression of you in their heads. 1 will clarify what help to ask for and 2 means they’ll be more likely to deliver on those requests.
But I really want to rest. Fundraising was so hard…
Yes, I hear you. But post-fundraise is one of the best times to put in a little work to make your next raise way easier.
Start creating relationships with investors who looked at the deal but were better fits to lead your next round. After you close, take the time to reach out to investors that didn’t make it into the round and set up a casual conversation. Pro-tip: if you were requiring people to submit their email addresses before viewing your deck, you can do this much more efficiently with a mail merge / mass email. Remember that VCs invest in lines not dots so taking this opportunity to set up a line for your next round is worth the effort.
And do you have room to squeeze just a bit more funding in? If you’ve filled out your round and seriously don’t need to take on more capital… it’s possibly the most opportune time to add strategic capital. The opportunity to invest is a gift since other people aren’t getting in. At this point, you don’t care if you attract more capital, but if you could get the CEO of the biggest potential acquirer to invest…maybe that’d be valuable? If you’re building dev tools and you could invite the community manager of a dev group to invest $5k…would you?
Having a highly sought after investment in a round is an incredible way to connect with high profile executives who you could consider not only as angel investors but potentially as strategic advisors or board members. David Ciccarelli, who raised $18M for his company Voices.com, said this:
“In retrospect, I wish I built out our board with independent board members sooner rather than later. Our independents, who are software executives themselves, add so much value and a lifetime of experience that having their insights earlier would have beneficial. If there are CEOs out there delaying this search, consider this a gentle prompting to commence immediately.”
Lastly, now that you’ve closed this round of funding, use your extended runway and resources to begin establishing good habits. If you don’t already, here are two habits I implore all companies to embrace after closing a round of funding:
- Be great with investor communications. Sending a regular investor update ensures you are on your investors’ radars and they know how to help. Investors want to help but they can’t if they don’t know what the opportunities to help are.
- Manage by the numbers - improve your company’s ability to manage by the numbers. This means understanding how money goes in and out. This means knowing how your company is performing based on non-financial numbers (KPIs). And it means planning how the company operates based on all these numbers. Oh, and if you don’t know how to do this well..don’t pretend like you do. This is not the time to fake it until you make it. Raise your hand with your investors and ask for help.
Bonus question - should you announce a round? This is not a straightforward answer. Here’s my opinion - if you're a pre-product-market fit company my answer is no. I don't think you get a lot out of announcing a round other than inviting competitors to think about you. It can also make it psychologically more difficult to pivot if you need to because you may feel committed to a direction that you announced to the media.
If you have found Product-Market Fit however and raised a substantial amount of capital, announcing can be great for recruiting and to crowd out competitors too late to the game.
Whatever you do, don’t stop at the false peak of getting money in the bank. Take these recommendations and keep pushing for a few more steps.
