After countless strategy sessions, hours upon hours spent talking to potential users about your product concept, and weeks of sleepless nights preparing investor pitches, you’ve done it: You just raised your first seed round. Congratulations! Now, take a moment to breathe… if you’ve made it this far, you’ve definitely earned it.
Unfortunately, if you’re a first-time founder, securing your first funding round is often only the beginning of the struggle. The stakes are high… fail here, and you could feel like you’ve wasted months, if not years, of your life. And, more importantly, your failure means you’ll be letting down the investors who supported you as you pledged to succeed.
Too often, it’s during this seed stage that startup founders over-hire and under-deliver. Building a great company doesn’t mean immediately moving to a fancy office and staffing up like crazy. In fact, bringing on a CTO with a $200,000 annual salary requirement probably isn’t the right move if you haven’t even adequately validated your product concept. Amateur moves like this are a sure way to ensure you never see that Series A.
When it comes to seed rounds, you truly do reap what you sow. In our experience, we’ve found that there are a few key actions that, if applied correctly, will slow your burn rate and ensure you’re investing your hard-won capital intelligently to effectively to grow your company.
A steady, calculated burn can increase your chances of success over the long term. If going back to the drawing board isn’t an option for you, then we encourage you to follow these steps right away so you can make the most of your seed funding.
Make the Most of Your Funding Announcement
Before you jump into the logistics of spending your investment, take time to recognize others’ contributions. Whether it’s a team dinner, a thank-you note, or a happy hour, showing appreciation with a heartfelt message will ensure those around you know how much you value them. Your success thus far isn’t about you … It’s about all the people who worked together to get you to this point.
Leverage Your Investment For Publicity
Your funding round is an opportunity to call attention to your company. Some founders like to announce right away so they can secure interest from future investors and hires, while others like to tie the announcement to a product launch. Whatever you decide, get your team on board with a strategy and set up a plan to maximize press impact. If you don’t have a team member with some experience in publicity, hiring a PR agency or consultant can help you make a splash.
Protect Yourself and Your Company
Find an Accountant
You’re not ready to invest in a full-time financial officer right now, but you do need to start working with a third party that can help you properly manage your money. Quickbooks and similar products are helpful, but they can only get you so far, and the financial expertise you’ll get from an expert is totally worth it. If your company’s business model is a little unusual (every marketplace-type business falls into this category, as well as some SaaS businesses), make sure your accountant has some experience with similar types of businesses.
Invest in Directors and Officers Insurance
Commonly called D&O Insurance, this type of insurance protects people from claims made against them while serving on the Board of Directors. This is important because there are numerous complaints that people can make against a company, and these individuals can target leadership accordingly. If you’re not familiar with D&O insurance, you can read more about it here. It’s not only wise to have it, but any documents you’ve signed in order to secure your seed investment will likely require it.
Take Care of Legal Logistics
Ensure Employees Have Signed Sensible Nondisclosure Agreements and Letters of Employment
In the early days of startups, it’s easy to let these important legal documents slide by while focusing on the day-to-day aspects of running your business. But, as a fully-formed company backed by investors, it’s essential to make sure any and all contractual agreements are documented and in writing. Otherwise, you may find yourself in the midst of a complicated legal battle where founders and early team members dispute the specifics of their agreements. This can lead to expensive financial settlements.
Properly Document Your Capitalization Table and Share Everything Your Investors Need to Know
Investors will rely on you to provide legal documentation of the funding round, including a finalized capitalization table. Provide this quickly so there are no questions about who owns what in the startup. Not only is this just a smart thing to do, but being on top of it will provide evidence that you’re ready to be an effective CEO.
Discuss Any Patents With A Patent Attorney
If you think you have worthwhile intellectual property, document it. Talk to a patent attorney about what goes into filing, how much it costs, and how long this process might take. Typically, once content that describes a patentable invention publicly appears on your website or elsewhere, you have only one year to start the patent process in the US. In some other countries, any public disclosure will make the invention unpatentable, so be very careful and approach legal counsel with any questions. We’re not lawyers here, so make sure you talk with one who can give you sound legal advice.
Develop Thoughtful Hiring And Employee Retention Strategies
Develop a Tiered Hiring Structure
Budgeting compensation plans in advance can save you from the painful realization that you might be spending too much to fill a particular role. By developing a clear hiring plan and allocating resources accordingly, you can ensure you won’t max out your human resources budget before filling your team headcount. This will also allow you to get board approval in advance for any non-executive roles.
Structure Competitive Compensation Plans
Your team has worked diligently to get you to this point. Now, it’s time for you to reward them accordingly. At FounderTherapy, we recognize that startup equity for a non-executive or non-founding employee should really be thought of as worth $0 in current value. Therefore, cash compensation should be at or above market rate, and equity should be provided to 100% of your employees as a “bonus.” If you need more insight as to why relying on equity is a poor strategy, check out method no. 6 in venture capitalist Fred Wilson’s post on retaining your team.
Explore HR Needs and Strategize Accordingly
Your people will always be your company’s most valuable asset. They care less about having a ping-pong table in the office than they care about having sufficient health care, 401K options, commuter benefits, fitness memberships, and so on. Taking too much time to get these initiatives going can breed dissatisfaction and morale issues with the company.
Cultivate Diversity Early
A 2015 McKinsey report concludes that companies in the top quartile for racial and ethnic diversity are more likely to experience above-average returns than other companies in their industries. While there may not be a causal component at play here, the evidence shows that when companies are committed to fostering diverse leadership, they’re more likely to succeed. In many ways, diversity can be a competitive advantage, so consider implementing diversity programs in your company’s early years.
Streamline Board Communications
Schedule Regular Meetings with your Board of Directors
If you’re working with a solid Board of Directors, chances are that these folks are pretty busy. They may have full days of back-to-back meetings planned weeks in advance. Work with all of them to ensure a schedule and cadence that works all around. If possible, schedule several months in advance to prevent the headache of navigating these busy schedules once a month.
Make a Powerful Board Deck Template
Talk to your board about what they need to know and why. Then, craft a solid deck template that will address these specific questions in every one of your meetings going forward. Don’t overburden for yourself by starting from scratch every month. This one from NextView is a useful starting point.
Use Your Seed Money Wisely
Taking care of these logistical items early will free you up to spend more time building your company through customer and product development, which are the heart and soul of your business. Once you’ve sufficiently developed your product and your users, you’re on your way to creating a successful startup — one that will make your investors proud they chose to believe in your vision.
Want to learn more about how to build an incredible company? Fill out our contact form at FounderTherapy.co to learn how we can help you.