Congratulations on finishing your funding round! Raising capital is a huge achievement and can be a mammoth undertaking so it’s worth taking a moment to celebrate.
Unfortunately, that was only the beginning. Of businesses that raise a series A, only about half will survive to their series B, and that figure continues to decline throughout each round of funding. So if you plan on being one of those businesses that survives, thrives and continues to scale, now is the time that will really determine your business’s success going forward.
So how can you ensure that success?
Planning a way forward
During the fundraising process you will have done some planning to identify how to best leverage your new capital for growth, but now it’s time to flesh out these plans.
At the moment, you are doing more than growing your business. You are writing the history your next potential investors will look at for evidence of how effectively you can scale. It is very easy to spend money haphazardly as your business progresses, but with so much to spend on, if you are not careful you will accidentally sink all your money into initiatives that have little chance of maintaining the high growth you will require. Don’t find yourself out of runway in 24 months time without the expected growth to show for it.
Good planning will be vital to make sure your business stays on track. Managing your cash flow is integral to this, along with clear strategic objectives. A useful frame for considering your planning process might be through the agile project planning processes often used in product development and through OKR frameworks.
Waterfall models require that you work out detailed plans first, and then simply action everything in a logical order. This allows for easy creation of budgets, timelines and milestones, but can run into trouble if you fail to accurately identify all of your requirements and potential problems accurately at the outset. It is also very unresponsive to feedback – risking that what you develop might be a poor fit for the market.
Agile models by contrast are quite loosely planned but very responsive to feedback from users, customers or markets. This can ensure product-market fit, or in the case of other objectives, that the solution you arrive on is a better representation of the challenge as it looks now, rather than how it appeared to you 6 months earlier when you started planning. It does however mean that you will need to be more careful about documentation and keeping track of spend, so that you can show your investors and stakeholders where money is being spent and how effective its use is.
While planning is very important, it is also vital that you build flexibility into your strategies. Depending on your funding stage you will be doing more or less market iteration, but with the market volatility stemming from COVID-19, Brexit and global supply chain issues, responsiveness and flexibility are more vital than ever. You may also find your requirements changing with the make-up of your team, feedback from customers or data from sales.
What is important, then, is that you identify metrics and desired outcomes now, and then build in reporting. This way, you can take a look at your initiatives and objectives at the end of each month and assess whether you are seeing the right outcome, and if not, what you can do to help it along. It will also help you identify which initiatives you may want to drop. Working out what success looks like now is a really valuable exercise for the future, allowing you to plan in a results-focused manner.
There are a wide range of areas to focus on when allocating spend. Some of these will depend on the specific needs of your business, but others are broadly expected at different stages of funding.
- Post-series A, the greatest challenge is usually to prove consistent product-market fit. This generally leads to GTM focused spending, but shouldn’t come at the expense of constructing the internal infrastructure that will let you continue to scale effectively. By series B, your business will need to look much more mature in terms of team structure, consistently performing product lines and risk management, so don’t forget to balance your spending against these longer-term aims.
- Post-series B the biggest areas of challenge tend to be team development and market share acquisition. Now you have proven your business basics, it’s time to use them to scale up, and this means acquiring as much of the market, and the team to facilitate this, as quickly and effectively as possible.
- Post series C, most scaleups are looking to expand internationally and align the business with an exit strategy, sometimes through an IPO. This comes with a whole host of oversight and reporting requirements, which can take a long time to get right. Building a board is a significant endeavour, and it is often best to start early to allow time to find the right candidates.
Outside of these general maturity categories, we have seen fundraising spend fall into a few broad categories. We asked our businesses in H2 of 2021 how they planned to allocate their new capital and collected the results here for you.
As you can see, in line with the series-based concerns, the greatest portion of planned spend is on product development, scaling and building teams. However, it is also useful to note that many businesses still allocate budget for personal development, risk management and other factors which can bring much more long-term risks and benefits.
Unless this is your first raise, you will likely have experience in reporting to investors. However, this is also something many established scaleups struggle with.
Reporting can form an onerous burden if you are not organised. We have seen many businesses which are forced to take up to a week out of BAU every time they need to report to their investors in order to gather all of the requisite information. This can cause a huge strain on the business during this period, as time that should be spent contributing to business growth is instead spent on admin.
To prevent this happening, if you can work out in advance what information you will need to satisfy investors, you can build this data collection into the weekly duties. By making sure this task is inbuilt into your business’s daily life, you can massively cut down on the time it absorbs, as well as ensuring data accuracy.
With most businesses expecting to hold board meetings every 1-2 months, you ought to be able to plan for them a reasonable time in advance. It is good practice to send round a Board book or summary of the basic financial information, short operational reports, and any other information that might be pertinent to the discussion. This gives your investors time to look it over before the meeting, cuts down on pointless rehashing, and brings everyone up to date. From there, it is easier to have a productive meeting. It also makes it easier to plan for these meetings, as if you set out what each board book is likely to contain as a template, everyone can be made aware of what data their department will be required to produce and for when and in which format.
Circulating this information ahead of time also gives all the participants time to digest it. This ought to result in more productive discussions, and help you plan out meetings properly. If you have bad or difficult news, you also need to discuss that ahead of time with your board on an individual basis, as you don’t want to spring that on them in a group environment where it will be more difficult to manage emotions.
Much like you, your investors and other stakeholders are likely very busy and tend to appreciate a well-managed meeting, so do the planning necessary to ensure a well-structured discussion. Meetings that run over for hours just lead to stressed and frustrated participants, and can sour relationships. Work out a system for planning them within your business, and hopefully you can also avoid a stressed and frustrated team.
Establish good habits now and, whether you are meeting with a handful of investors or holding full board meetings, you can lighten the burden for your business, your investors and yourself.
Whether this is your first venture or your fifth, there will always be skills and experience gaps in your team as you grow. While you can fill these gaps by trial and error, acquiring experience the hard way, this can be expensive in terms of both material and time.
Businesses can often spend a great deal of time and energy pursuing flawed strategies, and one way to cut down on this is to hire in this expertise. By finding the right advisory help, you can identify challenges before they become problematic, upskill your team, and speed through your strategic objectives. Hiring external support can also really increase your credibility with investors, by showing a willingness to fill skill and expertise gaps. The real challenge is finding the right support.
This ultimately is a two-fold problem. The first challenge is identifying exactly what you need, whether it be an informal mentoring relationship, an interim position filled, or a specialist in the particular issue you are having. For example, businesses trying to expand internationally can often really benefit from the advice of someone who’s done it before, and can identify pitfalls and key areas of focus ahead of time.
The second challenge is finding these people. A lot of people find advisors, NEDs and interim CFOs or other external help through their networks, but this is often challenging and extremely time consuming and can lead to poor fit between advisor and business. Invigorate can take a lot of the struggle out. We look at your business’s requirements and search out and vet advisors on your behalf with our extensive advisor community – ensuring that you can find the right people with the right expertise.
However you find your external support, you should take the time to set out your expectations and relative commitments beforehand. Any third party being introduced to your business will need a clear understanding of what you require from them – from contact hours to expertise and area of focus – to ensure a productive relationship. If you would like more information about managing advisor relationships, or even on how to get added value from them, we have a host of articles on our website to help you.
Preparing for your next round
The average round provides runway for about 12 months, and it’s an unfortunate fact that the better you are at deploying this capital and scaling quickly, the sooner you will need to raise again. As a result, many businesses find themselves bouncing from round to round, with CEOs having little chance to manage the business under the fundraising pressure.
You can start work now though to try and mitigate the burden of your preparations for the next round – and to increase your chances of another successful raise. For example, by keeping on top of your data and metrics and simply keeping your data room updated, you can significantly reduce the amount of work you will need to do next time.
It is also worth staying in touch with investors – not just the ones who invested in you, but with anyone who was interested in your business. By doing a little networking, you can keep these leads warm in preparation for your next round, where you might find them more amenable to investing.
Keeping on top of this networking, and continuing to research new investors, will also allow you to find and warm up introductions to new investors, before you are desperate for them. This means that you will have a list of potential investors ready and waiting when you start your next round, and they will be more positively disposed to your business.
Each round of funding has different requirements, and expects your business to have developed in a certain way. Sometimes businesses can run afoul of this, rushing to investors with a pitch deck, before realising that they don’t have the right expertise in their team to comfort investors, or that they are lacking customer data.
If you do your research ahead of time, it will allow you to grow with these requirements in mind, and reduce the probability of a last-minute rush. A good place to start is the articles we have written on rounds A and B, but there are a wealth of resources out there.
It’s a long road ahead, but your business is in a great position to take advantage. Hopefully, by remembering the things we’ve outlined above, you will be well on your way to scaling success!
Remember, if you are struggling with any aspect of the post-fundraise marathon (or even the fundraising bit) Invigorate has a network of advisors specialising in all these areas ready to help you problem-solve and accomplish your strategic objectives. Contact us here to have a chat about what we can do for you.
Or if you are still wading through the fundraising process, check out our other articles to make sure you have all the knowledge you need to smash your funding targets.