A few weeks ago, we closed another round of funding for Alumnify. While this was exciting for our company, I soon realized that my responsibilities would have to change. New tasks show up, and my role as CEO of the company is different from before.
Raising capital is glorified in the startup world. More and more companies are publishing news about their millions of dollars in funding. While most think about all the benefits that come with raising money, few realize the adjustments they will have to make. Here are some of the changes I have made so far; I hope this helps prepare you before you raise your next big round of capital.
1. You have to put more emphasis on recruitment
When you have more money, you now have room to build your team. While you may be one of the most talented people in your company in the beginning, that quickly needs to change when you grow. Now, your goal is to recruit a team that is better than yourself. While this sounds easy at first, recruiting is one of the hardest jobs. First, there's huge competition for top talent. This is especially true for developers.
Second, finding top talent is great, but making sure candidates fit within your company culture is extremely tough. When adding members to your team, you have to make sure you protect your company identity. Your values, culture, and mission all are at risk as you hire more and more people.
Third, you have to be smart about how much money you're willing to give. Investors want you to build your team, but now you have to value the talent you're getting against the runway you're losing. Pay too much, and the capital you raise may run out before you can reach the milestones you want to hit. Pay too little, and you may not be able to get the person you need.
One way we've overcome this is by doing equity trial periods. Find someone who really likes what you're doing and give him or her a 3-6 trial period for part-time work. During this time, give the person a few shares of equity that you both can agree on. If the candidate takes this deal, it shows that he or she believes in your startup. Otherwise, the person wouldn't take straight equity. It also allows you to save paying a salary during that time.
Just because you have more money in the bank, it doesn't mean you need to rush the hiring process. You should put a lot more emphasis on recruiting than you did before. Make sure you take time to find the right person before dipping into your funding.
2. You'll need to know your numbers like the back of your hand
On one occasion, we were at lunch with one of our investors and he looked at me and asked a question about our projections. I paused, began to look over at my co-founder and right before he spoke the investor said, "No AJ, I'm asking you." Embarrassingly enough, I couldn't give a straight answer. I was asked to never meet with that investor again until I had my numbers figured out.
After you raise money, as the leader you have to have the finances down. This doesn't just apply to your burn rate. This also goes for runway, financial projections, and what milestones you want to hit. If you've ever seen Shark Tank, you know that one of the things the investors hate the most is people who don't have their numbers down.
When you first create your startup, you may get away with not having your numbers down. But once you raise capital, it's another story. Even if you're not in charge of budgeting, understand where every dollar is going in your company. Know which milestones you want to hit with your funding, and find out when your company needs to break even. Do it now, so you don't have to learn the lesson the hard way.
3. You'll need to develop strong relationships with your investors
One of the big changes in your role when you get funded is communicating with your investors. Once you raise a round from an established investor, many times that investor will want to help or receive updates from your company. It's important to remember to keep your backers up to date on your progress, as well as reach out to them with any advice.
Early on, I assumed that our investors wanted updates but didn't want me to bombard them with questions. I was wrong. Many investors were once entrepreneurs themselves, so they know the issues you're dealing with. It's OK and expected that you are going to face new challenges and road bumps. If you try to appear perfect to the people who funded you, and then all a sudden your company fails, your investors won't be too happy. Instead, make sure you reach out when you need advice and you continuously update them on your progress.
One way we do this is by adding in a "What we need help with" section to our investor newsletter. That way, our backers know what we're struggling with and can offer us guidance to move forward. When you take funding for your company, you should never just base the decision on the money. Bring people in who can offer you support and mentorship. It'll pay off much more in the end.