Follow these do’s and don’ts to make the most of your funding without making any lavish mistakes.
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There are thousands of articles about how to get funding for your startup, but very little written about what to do once you’ve gotten it. Fresh off our series B round of $21 million and proudly at the helm of one of Europe’s fastest growing startups, I’m facing this problem head on. What should you do with your seed round, your series A or series B? I can’t hold your hand during this exciting time, but I can help shed the light on some do’s and don’ts.
I lean toward the conservative spending route, and there are a few unfortunate and even lavish mistakes I’ve seen startups make during my time at my previous startup Hotel Ninjas and now at TravelPerk.
Don’t pop champagne bottles.
Clearly, a $450 bottle of Salon Blanc de Blanc is not the first purchase you should make with your millions of dollars in funding. But, neither is your favorite bottle of grocery store bubbly. I don’t believe that funding is something to celebrate.
You’ve just sold a piece of your business. You shouldn’t celebrate this any more than you celebrate your mortgage or the balance on your business credit card.
Customer success, product success, revenue goals and expansion are all worth celebrating, but throwing an expensive party for your team is the wrong way to look at funding, and it’s definitely the wrong way to spend it.
Don’t hire quicker than your culture can spread.
Let’s say that up until this point, you’ve been a team of 50, and now with your series A or series B, you have the opportunity to grow to 100 team members in just a couple of months.
Whether you’ve created a company culture that is “open and creative” or scrappy and persistent, you want to protect that. It’s too easy to underestimate the power of company culture or to assume that it will prevail despite massive hiring.
Company culture is what guides employees when they make dozens of daily decisions on their own. It’s that important.
Company culture is not a thing. It’s not a manual. It’s the people. If you bring in too many new faces all at once, the newbies might be looking to each other for guidance instead of to the champions of your company culture who fully understand and embody your mission.
Don’t raise your operating costs sooner than you’re ready.
Be careful that you don’t let your excitement talk you into moving into a big fancy office. This is a big temptation that I’ve seen startups fall prey to all too often. They think they’re a bigger, more established company than they truly are and so they raise their monthly costs too quickly.
It’s much harder to go backwards than forwards when it comes to operating costs.
Business is risky. Now that I’ve gotten the scrooge stuff out of the way, let’s look at some good decisions:
Do monetize as soon as possible.
I’ve never built an ad-based business, and I don’t think that I ever would. Monetizing with ads does not motivate me the way that solving massive problems does. With B2B, you’re essentially forced to build something of value (that people actually want to pay for) right from the beginning.
Oftentimes, startups that are fresh off their funding rounds decide to prioritize growth over revenue, and they spend that money buying clicks and buying customers instead of monetizing. If you can prioritize growth and revenue at the same time, by all means do that. But, if you’re considering continuing to postpone monetization, stop.
Customer revenue is the cheapest source of capital — you don’t have to pay it back — so figure out how to get more of it as soon as you can.
Do execute on why you took the funding in the first place.
What should you do with your fresh round of funding? The answer to that lies in why you took the funding.
Most likely, there was a core plan. Maybe you’ve achieved product-market fit and you’re ready to expand into new territories (in addition to doubling down on sales and marketing, geographical expansion is how we’ll be spending our $21 million). Maybe you need a more robust customer support team and more engineers.
When you have a lot of money in the bank, you’re suddenly open to more possibilities. Previously, a lack of money kept you focused on your core product or market, but now that you have new funding, you can invest in new offerings or niches.
Unless the detour is based on new information, it’s best to stick to the original plan you set when you felt scrappy and humble.
Do increase your chances of never needing funding again.
We have great investors backing us, some of whom were also early investors in Twitter and Trello. We respect their guidance and advice, and they trust us to make smart decisions.
Funding is great, but it’s still smart to set yourself up for a future without it. If you can formulate a plan that takes you to break-even or even allows you to become profitable, I highly recommend that you follow that. It will increase your set of alternatives and help you negotiate from a position of power if you decide to raise another round.
Increase your alternatives for bringing in capital. It’s a wise move that gets overlooked during the post-funding PR buzz.