What happens after a startup raises money, focusing on post-funding expectations, financial management, and planning for an exit.
What happens after a startup raises money, focusing on post-funding expectations, financial management, and planning for an exit. It advises against overspending and emphasizes the importance of refreshing budgets and understanding financial projections to ensure the company delivers on investor expectations and achieves a successful exit.
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…