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).
If people are successful enough to become investors, they’re shrewd enough to smell BS.
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.
It’s up to you to keep your investors informed and reinforce the decision they made to back you.
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.