You Got Funded, Now What?
Getting funded is an important milestone that’s worth celebrating. However, getting funded isn’t a finish line, it’s a beginning.
The steps you take after getting your investment are more important than the money you raised.
After you share your obligatory press release and celebrate with your team, what should you do next?
Here are 10 steps to take after raising money, in no particular order.
1. Deliver on Your Promise
When you pitched your investors, you told them what you planned to do with the money you were raising. Once the money is in the bank, your top priority should be to deliver on that promise.
Ask yourself, “what steps do we need to take to deliver on our promise?”
Whether you planned to use the investment to build your team, test new acquisition channels, or something else, execute on your plan.
2. Set Your Next Goal(s)
In order to get funded, you likely had certain goals you aimed to reach. Now that you’ve reached those goals, you need to set your next goal to work towards.
Your goals will likely depend on the stage of your startup.
For instance, if you just raised a seed round and you’ve found product-market fit, your next goal might be to prove your revenue model works.
If you have a proven revenue model, your next goal could be to establish a consistent acquisition strategy.
Not sure what your goals should be? In our startup funding guide, we outline what milestones you should reach depending on your funding round.
Learn more: Startup Funding Explained: Pre-seed, Seed, & Series A-D
3. Re-Align Your Team
After you raise a round of funding, there’s undoubtedly a lot of excitement and energy running throughout your company. While that can be motivating, it’s important to make sure your team is focused and aligned on what’s to come.
Be transparent about what the new funding round means not only for the company, but your team as well. That means ensuring everyone understands and is aligned with the new goals.
For instance, if your new goal is to reduce churn by X%, every department should come up with initiatives to help. Marketing could shift its focus to customer marketing. Customer success can double down on resolving tickets faster. Engineering can work on fixing product bugs.
When everyone is marching towards the same goal, you get there a lot faster.
4. Update Your Financial Model
At Finmark, we’re huge advocates of regularly updating your financial model. However, we realize that a lot of startups only update their model when a major event happens, like raising a new round of funding.
It’s easy to skip this step, particularly if you’re an early startup. But once the money is in the bank, you should update your model accordingly.
Your balance sheet, cash actuals, budget, forecast, hiring plan, and everything in between should be updated to include the new investment and your plans for how you want to spend the money.
If you’re using a tool like Finmark, this is super easy. If you’re using a spreadsheet or template, it might take more time. Either way, updating your financial model should be a top priority after you raise money.
5. Decide How Much Goes to Reserve
Just because you received $5 million in funding doesn’t mean you need to spend it all immediately.
If 2020 taught us anything, it’s that you never know what’s going to happen in the future. Having money set aside in capital reserves can allow your startup to stay in business in case of emergencies or when unexpected expenses pop up.
Capital reserves aren’t only for major economic events. What if your growth strategy doesn’t go as planned and as a result your revenue growth is slow or churn is higher than expected? Capital reserves can give you some breathing room to course correct without the fear of running out of money.
6. Avoid Unplanned Purchases
You probably made a detailed plan of what you were going to do with your new funding. You knew exactly how much was going to new hires, marketing expenses, new services, and other categories.
However, for some reason those plans can change once the money hits your account. Having access to millions of dollars can make it very tempting to make unnecessary purchases that weren’t in your plan.
You know exactly what I’m talking about.
Buying new office equipment, expensive software a salesperson pitched, upgrading everyone’s computers, and the list goes on.
It’s easy to be fiscally responsible when you’re on a tight budget and don’t have the funds available. The companies that truly stand the test of time are the ones that are able to have control even when their funds aren’t so limited.
7. Plan For Your Next Round
Believe it or not, this is a good time to start thinking about your next round.
I’m not saying you need to update your pitch deck and start talking to investors. But you should start thinking about what you want to achieve between this round and the next so that you know when it’s time to start raising money again.
Here’s a good way to think about it: “Once we do XYZ, it’s time to raise our next round.”
The XYZ could be a certain amount of monthly recurring revenue (MRR), market share, or even something more qualitative like establishing product-market fit.
What you’re doing is specifying indicators that you’re ready for more funding.
This way, you’re not just fundraising because you’re running out of money and desperate. You’re fundraising because the money will help you get to the next level faster, and since your business has achieved certain markers, it’ll make pitching a lot easier.
8. Don’t Forget About Investor Updates
How would you feel if you loaned someone a bunch of money and then they ghosted you?
Would you feel confident that you’d get the money back, or would you be worried and concerned?
Well, that’s exactly how your investors are going to feel if you stop communicating with them the minute their funding comes through. Regular investor updates can go a long way in instilling confidence and building trust with your investors.
You don’t have to send them daily emails letting them know what you’re doing with the money or to get advice on every decision. However, monthly or quarterly updates let investors know that you’re making progress and that their money isn’t going to waste.
That way, when you’re seeking your next round, you can reach out to your existing pool of investors and they won’t hesitate to write another check.
It’s also helpful to set expectations for when you’ll update investors early on. If you let your investors know you’ll send out monthly updates, there’s less of a chance that you’ll be bombarded with emails from them every week checking in.
As for what should be in your investor updates, keep it simple:
- Major wins and achievements (major customers you’ve acquired, revenue growth, etc.)
- What progress have you made since the last update?
- Current financials and any changes to your forecast (Finmark makes this easy)
- Any major obstacles or hurdles they can help you with
Long story short, don’t ghost your investors.
9. Start Hiring (in Phases)
Hiring is often one of the most common reasons startups raise money. What makes it even trickier is that in most cases, you’re hiring for completely new roles that don’t currently exist in your company. That’s why it can be better to hire in phases instead of bringing on waves of new positions you think you need all at once.
This gives you time to assess the impact new roles will make and where the gaps are.
One of the biggest mistakes I’ve personally seen startups make after getting funded is over-hiring. The end result is a bunch of employees they don’t really need, an insane burn rate, and unfortunate layoffs.
Something else to keep in mind is that you should start the recruiting process as soon as possible when you know you’re about to get a new round of funding.
As we mentioned in this guide, the hiring process can take months. Think of all the steps involved with hiring one new employee:
- Creating job listings
- Reviewing resumes
- Sending offers
- Ramp time
Now multiply that by however many employees and departments you’re hiring for. You also need to consider the fact that not every new hire will work out, which means you’ll end up repeating this process for certain positions.
That’s a lot of moving parts and a lot of time. The sooner you can get the process started, the better.
10. Measure Growth From Your New Benchmarks
Every time you raise money, you now have new benchmarks for your next round. Your current and future investors will want to see what you’ve done in between each fundraising round to determine whether or not it’s a sound investment (a.k.a. does this company know what they’re doing?)
Start by deciding which metrics are the biggest measures of your growth, and make them your priority. These will be the metrics you report on in your investor updates and to your team.
If you’re not sure where to start, here are a couple of resources:
- How to Find Your North Star Metric (80+ Examples)
- 13 Startup Metrics to Keep a Pulse on Your Business
- 10 Financial Metrics Every Startup Should Track
Fundraising is Only The Beginning
Always remember that raising funds is just part of the journey and a means to an end. If you want to continue to grow your business or get more funding in the future, you need to be smart about how you use your capital.
Finmark gives you the tools you need to plan for growth. From forecasting revenue to creating a hiring plan and budgeting for expenses, our software makes financial planning easier than ever for startups. Try it free here.
This content is presented “as is,” and is not intended to provide tax, legal or financial advice. Please consult your advisor with any questions.