You Just Raised $10 Million. Now What?
There are few feelings more intoxicating than raising millions of dollars from a well-known VC. The cash gives you power to exercise control by expanding your team, buttoning up your premises and further experimenting with both online and offline/brand campaigns.
Besides the dollars in your SVB account, your company logo now sits next to those of legendary companies on the walls of Sand Hill Road offices. Bona fide celebrities and athletes were clamoring to get onto your cap table during the last round. Reporters who wouldn’t answer your calls are now reaching out with high frequency for panels, interviews and an occasional event-sponsorship opportunity.
This rush of attention and power can often disorient founders. Often. they had been pitching a vision about growth to convince investors, but may have had less clarity regarding the nuts and bolts execution required by their plan.
This is where expensive mistakes get made.
It’s important to manage the horse race between fear and greed. You’ve shown enough progress to raise “real money,” but that doesn’t mean you’ve got the Midas touch.
This post is intended to help you navigate the champagne problems that come with having millions of dollars in your bank account. You need to manage the gap between the peak of hope, where your company is presenting a compelling vision of how it can shape the future, and the peak of reality — the metrics you’ll need for the next raise, acquisition or even an IPO.
Building The Team Without Killing The Culture
The most important thing you can do at this stage of your company’s growth is to hire effectively. Just when you thought your selling days were over, you find that they’ve just begun. Recruiting extraordinary executives, especially rare birds like a killer CMO, is a taxing endeavor.
Too often founders treat this like an extension of their recruiting process for a talented engineer or designer. It’s easy to trawl LinkedIn and create a wish list of your top 50 candidates, narrow down the list, request intros and make offers. It’s even easier for these candidates to say no.
Don’t take no for an answer. If there is someone you think can take an aspect of your business to the next level, use some of your funding to send that person (and their spouse) first-class tickets to your city, put them up in the best hotel around and get them to come to your office.
Then sell like mad. Think of Jerry Maguire shouting “Show me the money!” Don’t squander your hard-won dollars, but recognize that this is what you raised the money for: To amplify with the best talent you can find. You need to marshal the same guerilla tactics for hiring that helped you compete with entrenched incumbents on product and distribution. Fortunately, you now have the benefit of a bigger war chest, and hopefully some excellent PR.
A Quick Note About Specialization
Startups pride themselves on having employees that can wear many hats. This isn’t a trait you should surrender. However, as you scale, specialization is important. I see this acutely in companies looking to hire CMOs or VPs of Marketing. Most startups at this stage tend to have done a great job at online acquisition, yet have trouble with classic branding. They hold out hope of finding an exec with experience in both, but more often than not, they can’t find this rare combination.
Don’t waste your time trying to find this person. Treat the two disciplines differently. Your quant-focused marketers might be better off reporting to a member of the founding team or some other functional head. Make sure to keep the CMO looped in, but don’t set them up to fail by putting them in charge of an area in which they’re unskilled, nor ask your team to report to someone who can’t appreciate what the group does.
Founders need to set the pace, be aware and be present.
My colleague Micah Rosenbloom recently learned that at Apple, the engineering team hired a Ph.D. who specialized in an extraordinarily esoteric field of fan design. Most startups can’t afford that level of focus, but as you grow, specialization is worthwhile in the right spots.
CFO searches tend to be a bit easier, but there is a trap of thinking you need to find THE person who can take you public. Don’t worry so much about that. Find a person who can take you through the next two years of growth. You probably have more pressing concerns, like producing proper budgets and honing your metrics.
You want to show that the financial housekeeping is nicely taken care of. Ideally, the person you hired can grow into the additional responsibilities, or you can augment the team with a specialist later.
How To Hire Above Your Trusted Contributors
Managing the egos of your current team members can be difficult. You might have a peer who has been an amazing contributor who “heads up marketing.” They might even have designs on being the CXO when the time comes. Unfortunately, they don’t have the skills or experience required.
This is tough to manage. After all, if you can be CEO fresh out of college, why can’t they grow into the VP role?
There’s no easy way to manage this. You might end up losing people. The key thing to showcase when bringing in new hires is how much more skill, experience or gravitas that person brings to the table. By definition, the more obvious that is, the easier it is for the team to accept the new guy.
Maintain Culture, But Keep An Open Mind
Your pace of hiring will accelerate rapidly, and this could create a clash with your existing culture. Veteran employees will feel threatened. New arrivals may present ideas that seem antithetical to your freewheeling culture.
Managing this transition requires maturity. Often, the traits that got you to your current state are in opposition to the ones that will get you to the next level. You’ll need to introduce some level of overhead that may ruffle some feathers among your earliest hires — who joined you in part for the freedom that comes with startups. New hires might be stymied by entrenched cliques, and possibly may be less comfortable with unclear reporting structures.
This is a delicate problem to manage, but the key thing to keep in mind is performance. Screen for performance ruthlessly when hiring. Hold everyone, old and new, to metrics. If you can make it clear that everyone is rowing in the same direction, you’ll be surprised how formerly warring tribes can find common ground. As always, founders need to set the pace, be aware and be present.
Reviewing Lawyers And Finance Roles
With a large influx of capital, you can expect your new investors to kick the tires of your service providers to see if they pass muster at the next stage.
In the case of accountants, moving to a Big Four firm is a smart idea. Whether you raised $10 million in a Series A or $50 million in a Series B, starting to create a trail of proper audits will only help you raise the next round of funding or prepare for the heightened scrutiny of an IPO.
Law firms will also get reviewed. Many VCs have relationships with top-tier legal thinkers and will push you to move your business to them. There’s nothing inherently wrong with this. Having a team that has successfully defended major patent litigation or facilitated M&A activity is never a bad thing, but I advise all the founders in my portfolio to trust their guts. If your lawyer has gotten you this far, and provided they are not a family member, be careful before you swap them out.
You can make a big impact without becoming a “big company.”
The big picture here is that you should start thinking a bit more about the “end game” of your company, even if it still feels far off. Not bankruptcy, but by taking money and earning a higher valuation, you’ve narrowed your options significantly. Think about who your short list of acquirers could be. What are the milestones that would set you up for the next funding round? Internalize the reality of what it could mean to prep for an IPO. Make sure you have the right people around the table with you to prepare for this part of the journey.
Grow slowly: SeatGeek is one of the most exciting companies in the Founder Collective portfolio; Jack Groetzinger recently admitted he didn’t have a full-time employee in charge of finance until after raising $103 million dollars in venture capital. He also hadn’t hired a CMO, despite transacting hundreds of millions of dollars in GMV. You can make a big impact without becoming a “big company.”
Cultivate A Trusted Peer Group
Pressure from investors becomes more pronounced in this phase of your company’s growth. Whether it’s them asking you to hire faster, spend more on customer acquisition or moving your business to a law firm they feel more comfortable with.
Ideally your early stage investors will help you manage these new board dynamics. It’s one of the reasons we’ve designed Founder Collective around the seed stage of funding. We want to be totally aligned with our founders and be able to offer them unbiased counsel as the company grows.
I advise all the founders in our portfolio to cultivate a network of peers that can help them navigate these tricky power dynamics. Find people who were in your shoes a year ago and use the PR bounce your funding will create to connect with them. Try to set up a lunch to hear their stories and learn from their challenges and collective wisdom. We’ve seen how having 2-3 unaffiliated peers who are a year or so ahead in the fundraising process can help founders scale the learning curve more quickly.
The Nuts And Bolts of Managing A Billion-Dollar Valuation
Be skeptical about exotic “services.” If you’ve raised intelligently, your company is at the “peak of promise,” and many will want a piece of it. Trade marketing groups and service providers will come out of the woodwork. It will also make you an attractive target for exotic financial services.
You’ll be exposed to weird instruments, like “mezzanine venture debt.” This mechanism offers downside protection for companies with high valuations, but costs millions of dollars. Your lead investors might even be pushing them on you.
In certain cases these offerings have merit, but if it isn’t really clear to you, get comfortable pushing back.
Minding The Store
It’s easy to forget that fundraising is meant to help your business grow, but it’s not a value-generating act by itself. So in the midst of fundraising, and the growth that will come after, don’t forget to mind the store.
As you get ready to announce your funding, make sure the commercial parts of your team are poised to take advantage of the bounce you’ll get. Funding should make it easier to recruit and build, but it should also give you a bounce in customers.
Your new big-money board members will subconsciously hold you to the same standard that their highest-flying, pre-IPO company has achieved.
Think broadly about your PR strategy. Many tech founders are focused on publications like TechCrunch (which is great!), but if you’re building a product for moms or the elderly, reach out to broadcast news organizations and other media that your customers consume.
Likewise, arm your business development team with news that will help them finalize strategic alliances they’ve been working on for months. A big fundraise should give you leverage across multiple aspects of the business.
How To Ramp Marketing Realistically
Money is invested to be spent. It may well have been raised against amazing performance on a particular acquisition channel. By all means, max that channel out — but have metrics in place to prevent you from going overboard.
Don’t over-extrapolate your success in one area to another. You might be crushing Facebook ads, but approach Twitter and every other new channel with the same experiment-driven tendencies that you used in your earlier, cash-strapped days.
Most importantly, avoid the tyranny of incrementalism. My partner Eric Paley spelled this out in detail in another post, but the gist is that you should carefully spend the money you raise, not let a slow process of bloat rob you of it. Spend the money you raised freely, but follow a sober, high-conviction, thorough business plan at this stage.
Transition To Coaching Mode
A word of warning. Your new big-money board members will subconsciously hold you to the same standard that their highest-flying, pre-IPO company has achieved.
The last board meeting they attended featured a team of seasoned operators presenting. The board deck had been delivered to them well in advance with great formatting. They likely feel confident in that company.
Then they’ll visit your office. You might ask your head of growth to present, where an introvert with a huge talent for cranking the heck out of paid acquisitions will stand awkwardly in front of a screen, fumbling through a spreadsheet that has a couple of typos that you pray your investors won’t notice.
The first time this happens, it’s forgiven for sure. But when the pattern repeats at the second, third and fourth meetings, the board will start to worry a bit more about your judgement or ability to recruit. If you’re putting raw people in front of your investors, who are you sending on customer calls?
Thriftiness is a virtue, but don’t be afraid to splurge on a trip to IKEA as you grow.
If you’re going to have a contributor on your team present to the board, coach them up beforehand. Sit with them and have them present to you first. Tell them where to sit, how to address the people around the table. If they avoid eye contact, correct that. Steve Jobs and his top lieutenants did this kind of prep for their keynotes. Take a few minutes to do the same, and don’t set up your great people for failure. Numbers and performance count most, but it’s relatively easy to avoid giving your board easy cause to judge your performance as a leader.
Directors and VPs will be held accountable for results. You’ll be held accountable for picking and training the right directors and VPs, and that they’re being trained appropriately.
Investing In Space
Startups often fetishize the cheapness that marked the early days of their startups. The office chairs plucked from dumpsters, tables made from salvaged doors and so on. Thriftiness is a virtue, but don’t be afraid to splurge on a trip to IKEA as you grow.
If you’ve raised $10-50 million, you’re going to be trying to recruit people who currently work in decent surroundings. Don’t scare them off by holding on to a lease in the dicey part of town. You’re trying to lure people from more prestigious, probably higher-paying jobs. Your growth curve will entice them for sure. Don’t go overboard, but equally, don’t make them fear for their safety in a dimly lit office in a “developing” part of town.
I detest overly fancy offices, but something that is clean, well-lit and somewhat insulated from the rougher parts of urban living can help you recruit. If it has some character thrown in, even better. Hire a cleaning service so toilets aren’t filthy. Don’t be afraid to spend a few dollars more per square foot to get something you’d be proud to call home.
You don’t have to hire a street artist to create graffiti murals, install a keg of cold brew or invest in nap pods, but don’t cut corners that will cost you a dream hire.
Be Prepared To Capitalize On Your Venture Capital
The important takeaway is to be prepared to act fast when you announce a major fundraising announcement. It’s a tool you’ll only get to use a few times, and the halo that comes with it is perishable. Money can last years, but buzz has a shelf life.
Featured Image: Russell Werges
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