In the early stages of a company, I'm all about celebrating the moments. App launched? Break out the balloons. First week-over-week shot of real growth not subsidized by employees and their family members? Roll in a drink cart.
Closed that first massive funding round?
I've written a lot about what I think entrepreneurs should do to pursue a potentially transformative investment. But as someone whose company recently closed one, it's a good time for me to talk about what a moment like this really means for a business. After all, the dynamics around an eight- or nine-figure funding round have changed in recent years. Thanks to massive investments being made throughout tech and other high-growth sectors, what used to be perceived as a quasi-liquidity event is now simply the point at which the stakes get real.
Indeed, closing a big funding round is not the "Champagne wishes and caviar dreams" victory lap many think it is. For the leaders of a hypergrowth startup, it's a moment of all-too-brief exhilaration followed by a sobering bolt of reality--like tunneling out of a maximum-security cell and right into the middle of the prison yard.
But most importantly, landing a serious investment will immediately initiate one of the most critical periods your company will ever experience. With all monetary obstacles temporarily cleared from your path, you'll finally start discovering the answer to a potentially terrifying question that's been festering in your subconscious since you first fever-scribbled that middle-of-the-night business plan or typed your initial line of code: Is this thing really going to work?
Here's how to approach the post-funding crucible to give your business its best chance to do just that.
Use your money moat.
Throughout the early growth of your company--when it's most vulnerable--survival often depends on the layers of protection you can establish around it. A killer brand that stands out in the marketplace is one of these moats. Another is the quality of your product. But more than ever before, capital itself ranks as one of a young company's most critical forms of defense.
And while a big equity raise can put serious distance between you and your competitors, wars aren't won simply by playing the protection game. Truth is, the most important aspect of an infusion of funds isn't the cash itself; it's how you maneuver behind the cover it provides. With a healthy funding round behind you, you'll now be able to aggressively turn the screws on your business--not for the purpose of attracting investors, but to make an all-hands-on-deck push to position it as a true disruption.
Force a behavior change.
Obviously, there's a long, uphill climb between setting out to be a disruptor and actually becoming one--a journey that an adequate amount of capital will allow you to at least begin. And while the challenges will come at you from all sides, success will have a singular determinant: your ability to force a change in an entrenched consumer behavior.
When did the computer change writing term papers forever? At which point did the address book get supplanted by Facebook? These outcomes didn't happen overnight, but you can bet the entrepreneurs pushing these transformations had their sights on them from the get-go.
The same needs to be true of your company in this moment.
Fact is, any company taking down a newsworthy funding round is inherently not in the business of turning $1 bills into $2 bills. Instead, they should be probing for evidence of a potential shift in a consumer behavior and tickling whatever faultline they find underneath it from every angle imaginable. And when the ground begins to move, they better be ready to ride with it.
The disruptive moment you're after has little to do with industry penetration, either. Tesla still represents less than a half of 1 percent of the new car market, but they're unquestionably disruptive in that they made getting an electric vehicle a viable and attractive option--even for luxury buyers.
Meanwhile, Uber became a disruption at that invisible, yet tectonic moment when getting into a car with a complete stranger went from being a last resort reserved for instances of roadside stranding to something we all unquestionably started doing as a matter of ultimate convenience.
You don't need to be dominant to be a true disruption, but you do need to plug deep underneath the existing habits of your potential customers and start sending out Earth-shaking pulses designed to shake up the behaviors above.
Whether you're recruiting for partners or people, they think about their contribution in the same way an investor thinks about giving you cash. For early-stage companies, this means most of the risk that prospective employees associate with joining you amounts to questions about whether you'll get the capital you need to grow your company into a real, working thing.
This reality makes the aftermath of a big equity raise the perfect moment to take that risk off the table for a moment and go after the kind of talent and partnerships you could only have dreamed of attracting just a few months before.
Aggressively hiring at this stage makes sense for you for two big reasons. One, the press around your raise hopefully has you looking pretty darn irresistible to the people you want in your organization. But, more importantly, you're perfectly positioned to offer incredible upside to new hires by leveraging equity and without having to inherently overpay like you might at a later point in your company's maturity. In a way, it's the perfect inflection point where your potential to create value has never been higher and fiscal discipline still ranks as a critical (and accepted) part of your strategy.
Master your new storylines.
In a previous column, I covered the three storylines an early-stage entrepreneur needs to weave into every investor pitch, from how they'll level their operating expenses over time, to how and when their gross revenue will spike, to their plan for taming customer acquisition costs.
These narratives will continue to be important after a big capital raise, but will now be joined by a new class of equally important considerations.
First off, how scalable is your business? If you've been white-gloving every customer experience in a way that's unsustainable from a growth perspective, you're probably going to need to find a new way to serve the soup.
Also, how price-sensitive is your business? If you experiment by inching prices up, do your customers scatter with the wind? If so, it's time to dig into why that's happening and put all your energy into diagnosing and addressing it.
Another key storyline you'll want to get a handle on is your plan to access debt as you grow. After all, every dollar of equity invested in your business is essentially collateral that, depending on your industry, can unlock access to between $5 to $10 in debt capital. And the more throughput your business has, the better leverage you'll have around that math as you grow.
All these storylines tend to manifest over longer periods than the storylines that dictated your company's early existence, which could often be portrayed in weekly snapshots. But these multi-year narratives will become more critical with time, meaning you'll have to internalize them pretty immediately. Because when someone goes from a potential investor to an actual investor, they're the stories they'll want you to drill down into and doggedly test.
Go fast and fly.
Every business decision you'll make as an entrepreneur can essentially be boiled down to how you decide to control the Golden Triangle of time, cost and quality. If you push the time it takes to build something while cutting the cost, you can rest assured quality is going to suffer.
On the other hand, you can often meet tight, critical deadlines by paying more to buy both time and quality--but only if you have good leadership and a clear vision for what you want to do. And the reality is, this is a forcing function that you'll have to rely on again and again after a big fundraise.
Make no mistake, delivering killer results in a short amount of time will be your new normal. Timelines will get compressed and expectations will be higher than ever before. And why wouldn't they be? You're fully funded. You didn't get an extra gear to drive less. More than any other, this is the time to prove your business model by testing the outer limits of your potential--a prospect that will never be cheaper or as valuable as it is right now.
After all, once the money hits the bank, you're no longer a lone snowboarder carving your own majestic path across an endless expanse of entrepreneurial white space. You're now a twitchy, go-for-broke alpine ski jumper, strapped with a helmet and perched high on a finite stretch of runway above a sea of eyeballs straining to see if you crash or fly.
Now is time to go fast and take the leap--and getting out over your skis is the whole idea.