Phase 10
Set your company up for future success
Fundraising Masterclass
Many founders make severe management mistakes after the closing of a financing round. We will discuss these and provide insights how to prevent them. And we will provide insights how to make sure that your startup could get a next fundraising round easily if needed.

Typical management mistakes post-funding

We have been through this many times: You are relieved that the financing round is over. You can get your focus back on the business. And you have the money to do all the things you and your team have wanted to do for a long time.

What can feel quite good is actually highly dangerous. Here’s why:
  • The pressure is down: KPIs have been crucial during the fundraising round. Everybody knew that sales or other targets needed to be reached to make it happen. Now that the round is closed, things are a bit more relaxed.
  • Costs will go up immediately: Over the last year, nobody asked you for a salary raise. Nobody wanted to do projects that did not have an immediate return. This is very different now: the team asks for higher salaries, more benefits, for hiring new people, buying better tools etc.
  • People get distracted: The last and most dangerous factor is the loss of focus. Various projects are coming up (again) – after all, now you actually have the money for these.
Many startup CEOs are in a good mood and give in. The plan on how to triple your valuation done in Phase 3 is now far away. But then the CEOs wake up 12 months later realizing that they have done lots of great things but are far from reaching the value inflection points that would actually triple their valuation.  

Fine-tune the plan to triple valuation

Make sure you don’t belong to the group of CEOs described above. Instead, start breathing life into the plan you elaborated in Phase 3. This must be done with the team to get full commitment.

We suggest planning a two day workshop with an agenda as follows.

Day 1
  • Set the scene
    - Mission/vision: Repeat where you want to go in the long term.
    - Present the targets that you want to reach over the coming 24 months.
    - Present the base plan created in Phase 3 – the objective is to challenge and improve it over the coming two days.
    - Discuss why it is crucial to reach the two year targets.
  • Do brainstorming sessions (1 hour each)
    - Unlimited funding: Could we reach objectives within 12 months if we had all the money in the world?
    - Hiring: If we could hire any person in the world: Whom would we take? What difference could these persons make?
    - Saving potential: Could we reach the plan within 24 months with half as much money as planned?
    - Risk: What are the key risks of missing the 24 month target? Sort them by probability and impact. Discuss how to mitigate the top 3 risks: Can we double down on certain key projects? (e.g., hire two sales teams in two different geographic locations).
    - What should we stop doing to become more efficient? Projects, internal or external reporting, processes, meetings, events, … – create an atmosphere where everything can be challenged.
Day 2
  • Fine-tuning: Work out a solid plan together, with projects, key hires, etc.
  • CF planning: Make sure you have the budget to reach the plan over the coming 24 months. Make sure there’s enough cash for at least 36 months, to be on the safe side!
  • Stop or delay things: Make a list of things that the team agrees not to pursue anymore or to put on hold until the key objectives are reached.
If your startup has less than 100 people, we recommend doing this process with the entire team. You need all of them to be fully behind it to make it happen.

Set ambitious milestones/OKRs and review after 3 months

Now that you have a solid plan, it is time to break it down into smaller pieces. Most tech startups use OKRs to do this, but any system that defines objectives, tasks and responsibilities is fine. Keep it simple. It is much more important that your startup is able to “live out” a certain system than forcing itself to follow some exact methodology or complex system which doesn’t actually work for them.

Once you have aligned and set these milestones, you will fully focus on execution. As always, do periodic meetings and continuously keep the defined milestones on your radar.

Planning your first post-financing quarterly meeting
It is crucial for the quarterly team to meet three months post-financing. This is where you start seeing whether the updated strategy works or not. You will obviously not be able to see all of the impact just yet, but it should be very clear whether or not things are moving along as planned.

Review all the company OKRs in an all-hands meeting. Celebrate the ones that are going well and be radically transparent about things that are not working as planned. While you can still turn things around in the initial 1-2 quarters, you will realize that the money raised is burned very quickly if you can’t get the desired traction. It is in this initial phase after a financing round that you have everything in your hands. This phase decides whether your startup becomes a great success or whether you are going to run out of money without the prospect of a financing round at a significantly higher valuation.

Great CEOs are very strong leaders post-financing. Everyone realizes after a few quarters that tripling valuation is much more difficult than planned.
  • Reading: The book Radical Candor is one of the best books about leadership and feedback culture. Every startup CEO should read it.

TO DO'S

  • Break down your plan into actionable milestones/OKRs – with a focus on the first 3 months.
  • Schedule the 3 month all hands team meeting (at least 1 day-long).
  • Support your team in reaching as many OKRs as possible!

Hire great new team members

After a funding round most startups will hire new employees to make their plans happen. From experienced VPs that can bring certain areas to a new level, to lower level employees that support you from the ground up. You may potentially also want 1-2 independent board members. These hires should be done quickly to increase chances of fulfilling the aspired plan.

One of the most important things is to hire the very best possible talent for these job openings. No CEO would disagree. But as already discussed in Phase 1, most startups are terribly bad at recruiting. Most hires are erratic and unambitious.

So here is the secret: you should be as good at hiring as the very best companies in the world – Google, or McKinsey. You obviously don’t have the brand strength and compensation packages they have. But you have a sexy tech startup where people can make a real difference. So there is no reason you should not get the very best talent: we have consistently hired people who had offers from some of the most renowned companies, but preferred to work for a tech startup.

Hiring is very similar to fundraising: it’s about executing a great process. We recommend doing it as follows:
  • Define job profile: Define the requirements very precisely. What does the person you are looking for need to be wildly successful? Does such a person even exist? Discuss with a few people who have such a job role, and with some VCs who may have already seen this play out. Fine-tune this until you think the profile makes sense and is realistic.
  • Get 100+ applications: Post the job opening on all relevant platforms. The 2,000 bucks spent on this are the best investment you’ll ever make – think about how much the right person can impact your startup. Directly reach out to people who could be a fit. Hustle to make sure you really get great applications.
  • 15-minute video call with the top 10: Go through all the applications and select the 10 you like best. Schedule a 15 minute video call with all of them, where you find out why they applied, check the specifics of their profile, discuss compensation (you don’t want to find out in the third interview round that you are way off from each other on this point), and tell them why you are excited about a potential joint future.
  • 2 hour meeting or video call with the top 3-5: Fully understand their CV, do a case study (you will be surprised how quickly you see how someone actually thinks and works – and that results can be very different from what you expected – both positive and negative), discuss the job opening incl. expectations, compensation, Q&A, next steps.
  • 2 hour team meeting with the top 1-3: Present the final candidates to the team, make a final decision.
In the early stage, it will be you managing this process. Over time you may get an external recruiter and/or internal HR resources. Considering that you will hire lots of people as you grow quickly, it is crucial to have efficient hiring processes. Here is a great article describing how a tech company efficiently hires software engineers.

Relationship with shareholders

Keeping your shareholders happy is crucial. If they are happy, they will support you – introduce you to B2B partners, potential employees, amplify your LinkedIn messages etc. Even more important, they will participate again in future financing rounds. We know from previous phases how crucial this support can be.

How do you make shareholders happy? Obviously the best thing to do is execute and reach the aspired milestones. But a solid communication structure is also important. They should be close to what is happening, support you in tough times and celebrate your successes. Here is an example of such a communication structure:
  • Monthly reporting: The monthly report should contain 1-5 key numbers of your business (e.g., nr of app downloads, MAUs and paid subscriptions in a B2C company), supported by a short email explaining key developments. The CEO should be able to do this within 1 hour and send out the email within 2-3 working days after the end of each month. It is ok if the numbers are not 100% accurate – the exact figures will be in the quarterly report.
  • Quarterly reporting: The quarterly reporting should provide some solid financial insights. A cash flow statement can be ok in early stage companies; over time it should be a P&L enriched with some key figures from the balance sheet (liquidity, potentially AR/AP, inventories). Similarly to the monthly report, the quarterly report should come with a short email from the CEO describing key developments. The quarterly report should be sent out within 15 working days after the quarter’s end. Within one week after sending out the numbers, we recommend scheduling a 30 minute shareholder call where the CEO and CFO describe key developments (10 minutes), followed by a 20 minute Q&A.
  • Annual report: The annual report should not include any business surprises – this would have already been communicated in the monthly reports. But a solid annual report is required for tax and legal reasons. Make sure you have a good accountant or CFO and make sure you comply with all regulations. The annual report should be sent out within 3 months after the year’s end at the latest, followed by the general assembly to which all shareholders are invited.
  • Ad hoc communication: A nice periodic email from the CEO can achieve a great deal – e.g. if you got positive media coverage, reached a milestone, or received a great customer review. Trust your gut feeling here, and don’t exaggerate.
Depending on your shareholder structure and the location of your shareholders, you will want to add informal calls or meetings with specific shareholders.

We have often experienced that the less trust investors have in the management, the more reporting they want. This is a vicious cycle: the CEO spends more time on reporting and managing shareholders and less time on generating business impact. Rather than going down this death spiral, a tough discussion is needed in this situation: reporting needs to remain simple – but at the same time results need to improve. If this does not happen, it is better to change management structure than to increase reporting requirements.

TO DO'S

  • Define your exact reporting structures, and have them approved by the board.

Build a strong network of potential future investors

Now that the information is still fresh in your mind, it’s time to clean your long list with a view of the next round. Save the spreadsheet as a new file, and reclassify the entire list as follows:
  • Stage 2: All investors who you feel could be great for your next round. These are the ones that told you they liked your case but thought it was too early for them to invest. Send them the media release of the past financing round, together with a short personal email saying you’re looking forward to staying in contact.
  • Stage 1: These are all definitely potential investors, but also people regarding whom you don’t have much certainty, and maybe not even a personal contact yet.
  • Stage 0: These are the ones you don’t think will be a future fit. Don’t delete them! You never know what might happen in the future – there may be a convertible loan, a down round, a spin-off, or the need to check previous write-ups. In these cases you’ll be happy to have a comprehensive file in place.
Now that you have a solid base list you should try to keep the Stage 2 investors excited about your progress and add potential new investors to the list. Here are the most effective ways to do this:
  • LinkedIn: Most startups don’t use LinkedIn to its fullest potential. We suggest making about one post per month with meaningful updates about your industry. It should be things that are of real interest to your business contacts or indicate major progress, and not just “boring company advertisement”. Obviously the angle of how your own startup is relevant to the news should always be present – but put things on a higher level. Such posts should be written by the CEO, not the PR agency.
  • PR: Make sure there are frequent relevant media releases about your startup, and that they are covered by key media in your industry. Having a great PR agency is crucial. As this is a people’s business, you may need different partners in different countries if you are international. It is typically better to go for boutiques rather than large international agencies so long as your budget is small.
  • Conferences: You need to know the organizers of the key events in your industry, and be present there. They may showcase innovative companies at such events, organize online events or provide other formats for your company to increase visibility.
What should you do if investors reach out? As you increase your profile, investors will start reaching out proactively and ask to schedule a call to learn more about you. With the exception of the case where the email comes from a partner (not an analyst!) of one of the most renowned VCs, you should not do this — respond with the following email: “Thanks for reaching out! We are currently laser-focused on scaling our business, but will be happy to get back to you once we start thinking about our next financing round”. Put such investors on your long list.

What is needed to kick-off your next financing round?

There is no mathematical formula to tell you when you can or should do a next financing round. In some cases it is more attractive to go for break-even, get a loan from a bank, or try to get acquired by another company.

The following things should have happened before you start considering a new financing round:
  • The valuation of your startup has increased substantially: The pre-money valuation of an upcoming financing round should be substantially higher than the post-money valuation of the round you just closed. What does “substantially” mean? In the previous phases we have worked out a plan to triple valuation within 24 months. Most shareholders would be very happy if you reached this. Depending on the risk profile of your startup and investors, an increase of 50% could be ok; some aggressive early stage investors may target 5x. If you have done solid investor diligence, you should understand what your shareholders are looking for.
  • You have an attractive equity story: Raising an additional round should generate much more value than going for break-even. What would you do with additional funds? Grow faster? Expand geographically? Develop an additional product to open a new market segment? Acquire another company? Like in your previous round, these questions should be answered clearly, and result in an equity story that is attractive for investors.
Fast-growing tech startups with high ambitions typically raise new funds within 18-24 months.

TO DO'S

  • Define trigger points for considering a financing round much earlier than actually needed.

Consider raising funds much earlier than needed

The best time to raise funds is when you don’t need them. So while you should now have enough money to run your business for more than two years, you might wanna consider fundraising before the end of this time period. This is frequently and aggressively done in Silicon Valley, but not so much in the rest of the world, where entrepreneurs and investors tend to be more conservative.

Let’s say you close an important B2B deal within 6 months after fundraising, or see that your B2C business is growing at great speed. This is a perfect time to think about a new financing round, even if you don’t really need the money (yet). Don’t be afraid to go out with a 2-3x higher valuation, even if the last round was only closed 6 months ago. Contact us if you would like to have a chat about such options – we are happy to connect you with CEOs in your space who have done this, and support you in raising funds from some of the world’s best investors.

    TO DO'S

    • Define trigger points for considering a financing round much earlier than actually needed.

    Final note: It’s about the journey, not the destination

    The objective of creating a unicorn or doing a Nasdaq IPO can be a big motivator. These web pages provide insights on how fundraising can help you get there. However, it would be naïve to focus too much on this: first, the chances that you will ever do a Nasdaq IPO are minimal. Second, even if you do, this will not make you happier than you are now. Lying under a palm tree in the South Sea drinking Piña Colada gets boring after a few months — for some of us, after a few days. 

    So while a future exit can be a big motivator, founding a startup is about the journey as much as the destination. Nobody should choose entrepreneurship to secure themselves an easy lifestyle. But you should equally never forget that there is more to life than building a startup. Stay sane, and keep being a nice person. And let’s use entrepreneurship to make the world a better place!