You did it. You secured
your funding. Good for
you. You tirelessly
developed, pitched, sold,
maybe even danced a
little. Not a song and
dance, but a display of
passion, commitment and
promise.
You successfully instilled
the confidence investors
need to see before
signing on the dotted line. Now that you’ve earned
this faith and raised that critical cash, it’s time to
consider the new relationship with your investors
and maintain their faith.
There’s plenty of advice out there for how a first-
time founder should scout and pitch investors. But
similarly to many of the topics they didn’t teach us
in school, nobody taught you what to look out for
once you’ve actually raised your seed round. There’s
no formal handbook for founder-funder etiquette, but
here are some of my learnings that have served me
well.
In the 48 hours after you close
Don’t announce your financing, sign a new office
lease or expand your team before the money is in
the bank. Until then, you’re not out of the woods.
Even with signed term sheets and subscription
agreements, the deal can still fall through. Doing so
is the first warning sign to an investor that a founder
might not know how to manage finances or business
deals.
Once you do announce a major financing round, stay
focused. In the weeks following our own Series A
announcement, everyone wanted 15 minutes of my
time; I was suddenly the most popular kid in school,
with a barrage of emails, LinkedIn contact requests
and proposals for services.
At this point, with a mountain of work ahead, time is
now more valuable than ever, so avoid distractions
and get used to saying “no.” Wasting your time is
the one thing worse than wasting your investors’
money (partly because your time is your investors’
money).
When you need to start spending money
Just because you’ve raised a big round doesn’t
mean you can mindlessly spend your cash. When it
comes to making initial purchases, spend it on
things that matter, things that will help your team
work productively and comfortably. Computer
hardware and an inspiring work space are worthy
investments. Expensive lunches and an ostrich
leather sofa for the reception area? Not so much —
especially when an IKEA sofa works just as well
(and the assembly process can even double as a
great team-building exercise).
The CEO does not
need to be the
highest-paid person
at your startup.
When it comes to
your own salary,
make a statement.
Sacrifice is
leadership. No
investor appreciates a founder who gets rich,
irrespective of the company’s actual performance.
It’s normal to give yourself a raise after a major
financing round, especially if you were living on a
minimal salary. But whatever amount you raised, if
your business is still in its infancy and operating in
the red, don’t pay yourself “like a boss” just yet.
Instead, wait to increase your salary once you’ve
started creating value for your investors.
Maintaining that relationship
Investors want to know how the company is doing,
so keep them in the loop. Regular email updates and
phone calls to all your shareholders should inform
them of new material developments, major business
trends and upcoming news you’ve heard on-the-
ground as a startup founder.
It’s tempting to talk about the good and leave out
the bad, but if people are successful enough to
become investors, they’re shrewd enough to smell
BS. Make sure you are open about the challenges
you are facing, but always maintain an optimistic
tone and end your communications on a positive
note.
In a star
In a startup, it’s
normal — even
likely — for the plan
to change, and
pivoting to meet this
change is often the
best course of
action. If and when
the time comes for a
pivot, don’t shy away
from letting your investors know about the new
direction. Your goal is to run a business that makes
money and delivers value to your investors, but that
goal should not extend to delivering on a plan
devised when the facts on the ground were
different.
The takeaway
Trust in the founder is what can get a startup
through its daily uphill battle and big pivots.
Investors are business partners; acting with integrity
only helps the relationship. One of our co-founders
dropped out shortly after we raised our seed round.
We had the opportunity to legally retain the shares
among the founding team, excluding our investors.
But that did not sit right with us; we understood the
departure of a co-founder made the deal riskier for
our investors, so we distributed the shares among
all parties.
It paid off — as we opened our next round of
funding, we had investors at the table who said
they’d heard about this move, which demonstrated
they were able to trust us. And that’s what it all
comes down to, trust built over many instances of
getting it right.
And remember that the risk your investors take with
your company is different from the risk that you take
as a founder. You’re gaining experience and lessons
in business, in addition to the opportunity to build a
great company. It’s up to you to keep your investors
informed and reinforce the decision they made to
back you.