Closing that first funding round is a huge deal for startups. But what happens next?
“Founders understand a lot about how to raise — who to target, creating pitch decks and forecasting — but they often lose track of what to do after the money comes in,” Sophie Ehrlich, director of healthtech at Silicon Valley Bank UK and EMEA, told Sifted. “The plan they’ve spent ages working on is done the minute they close. They’ve got to restrategise immediately.”
We spoke with SVB’s relationship banking team, startup founders and VCs about what newly-funded startups should expect, and how to spend and safeguard their cash.
Learn to give up control
Sonya Iovieno, head of venture and growth at SVB, says newly-funded founders often struggle with relinquishing control.
“When it comes to board meetings, it’s really important to identify and respect the roles and responsibilities of those on the board. That can be a hard journey for a founder who is used to being involved in everything,” she says.
Rather than seeing investors as a challenge to your autonomy, Iovieno says founders should lean on board members’ experience and expertise. This could be anything from using their contacts when looking to hire talent to seeking guidance on dealing with regulatory issues as they expand into new markets.
“The advantage of having VCs on your board is that they have done this time and again,” Iovieno says. “It’s a competitive market for investors, so they’ll be looking to add value during the investment pitch. Make sure you follow up on this, post-investment.”
Prepare for difficult conversations
Of course, not all investments progress without hiccups. What if things go wrong somewhere in your startup journey — like a PR disaster, regulatory hurdles or a global pandemic — and you need to have difficult conversations with your investors?
Building up transparent communication and mutual understanding early on of the business’s vision is key, and will save time and energy further down the road.
“One thing investors don’t like is nasty surprises. When things go wrong — which they inevitably will — you want it to happen in a context of communication and transparency,” says Matthew Barker, founder of travel publishing startup Horizon Guides, which raised £325k in 2019 before being hit by the global tourism downturn during Covid-19.
One thing investors don’t like is nasty surprises. When things go wrong — which they inevitably will — you want it to happen in a context of communication and transparency
Founders who are still in the pre-funding stage should prepare by making sure they’re choosing the right investors to work with.
Ali El Kaafarani, founder of post-quantum cryptography startup and Oxford University spinout PQShield, says this was top of mind before raising £5.5m last year. It needed an investor who would not only understand the company’s vision — which is to protect sensitive information from the security threat posed by quantum computers — but also the complicated technology it uses.
PQShield’s team built a picture of their ideal investor and focused on those that could help them with their go-to-market strategy, building relationships in advance with funds they liked.
“This made post-funding conversations around tactical and strategic support much easier, knowing we had that innate understanding on both sides, and allowed me to focus on executing the vision we pitched,” he says.
This made post-funding conversations around tactical and strategic support much easier, knowing we had that innate understanding on both sides, and allowed me to focus on executing the vision we pitched
Spending your £
How you spend the money raised depends on what stage your startup is at, how you’re looking to grow and your current pressure points — all things you should be considering before raising.
“We’re operating in an environment where companies are raising lots of money very quickly so it requires operational discipline to make the right decisions,” says Seth Pierrepont, partner at American VC firm Accel.
“For early stage founders raising a seed or Series A, the quality of your first 10 hires can have a meaningful impact on your chances of success,” he says. “Recent years have also seen marketing and brand building become more expensive. These are all areas it’s important to invest in consistently and early.”
Recent years have also seen marketing and brand building become more expensive. These are all areas it’s important to invest in consistently and early
Kaafarani agrees that market strategy is a good way to spend your first funding. But, he says, money isn’t everything — the most important focus at this stage should be growing your business, and cash in the bank is just one part of that. The expertise of your investors is as important as the size of their wallets, as their added knowledge can help you make these kinds of decisions.
“There’s definitely a case to be made for quality over quantity. Depending on your business, there might be as much value in finding the right investors to partner with as there is in the size of investment,” he says.
There’s definitely a case to be made for quality over quantity. Depending on your business, there might be as much value in finding the right investors to partner with as there is in the size of investment
Ultimately, it’s important to see your first raise as just another step on your journey, rather than the end goal.
“A raise is a useful tool to assist with your journey, but it’s not a validation of the business in the same way customers and revenue is. There’s a danger that a long runway can distract you from the fundamentals or let you kick awkward questions into the long grass,” says Barker. “Get the cash and get straight to work on the business.”
Learn about how Silicon Valley Bank can help your startup accelerate and grow here.
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