The Day After the Raise

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We often hear advice around how to fundraise - the best ways to pitch to investors, what not to do in a meeting, how challenging it will be, and more. But what we don’t hear very often is what happens after the raise is over. Let’s welcome Sarah Boulden, senior attorney and head of the Denver office of Silicon Legal Strategy, as she walks us through what happens the Day After the Raise.

The Day After the Raise

I advise companies and founders through all stages of an entity’s life cycle. One of the most exciting, yet somewhat terrifying, times for founders is after a company raises its first round of outside financing. Whatever the structure of the round – whether it’s a convertible note, a SAFE or an equity round, and whether funds come primarily from friends and family, angel investors, or venture capital investors, raising outside funds is a huge milestone. Founders often feel like their idea has been validated – but that first outside round is a wake-up-call to really get to work.

I recently moderated a panel at Boulder Startup Week 2019 called “Day After the Raise,” in which a panel of CEOs and advisors to startups described the ins, outs, best practices and “oh shit” moments the days, weeks, and months directly after their first capital raise. This post touches on many of the topics discussed, as well as some insights based on my own work with startups.

Here’s a rough timeline and questions many founders have around a raise, along with some answers:

Day of/day after closing:

  • When will the funds hit my account?

    • It’s the day of closing, and you, the founder, are constantly refreshing your Wells Fargo account. What a relief when those funds finally hit! Your company is rich!

  • Who all do I need to thank?

    • Your investors, the service providers who helped the company close the round (lawyers, accountants), co-founders, friends and family who put up with you during the fundraising process, the academy....

  • When can I take a nap?

    • Now!

  • When do I get back to work?

    • Right after that nap.

Days, weeks, months after the raise:

  • Can I raise more money?

    • Rounds aren’t always fully funded at the initial closing. For example, you may have authorized a financing round of $1,000,000, but only $500,000 comes in at the initial closing. Usually, you have a certain amount of time to close on the remaining $500,000.

      • Sometimes a note or SAFE round leaves this timeline open ended. It can be nice to have the flexibility, but it can be more motivating to have a deadline. This structure is something you can discuss with your lawyer before the round.

      • In most equity rounds, you have typically between 60-120 days under your equity financing documents to close any additional funds. That said, I often see companies extend the round if a new investor commits after that 60-120-day window closes. It’s just a little more paperwork, but generally worth it for additional funds.

    • If that additional $500,000 doesn’t come in the door, how will you re-allocate your budget? How does this affect your burn rate? Maybe you’ll need to wait to hire that additional engineer or salesperson until you’re sure the full round will close. Maybe you’ll need to continue working from home for a bit instead of leasing that office or co-working space. Speaking of budgets…

  • How do I best deploy this money?

    • How a company best deploys the funds from a financing really depends on the nature of the business and how much money is raised. Some examples:

      • Hiring: If you have a SaaS company and your product is still in development, maybe you need to hire another engineer. If your product is ready to launch, maybe you need some salespeople to help sign some customers and bring it to market bring it to market.

      • Office space: If your team is growing and you need a real conference room that’s a little more formal than your dining room table, maybe it’s time to rent a co-working space or office using the funds from your financing.

      • Basic equipment: Are you still working on your 2010 MacBook Pro? Is your Internet super slow? Maybe it’s time to upgrade, so your business can run more efficiently. Don’t feel bad about investing in good equipment.

    • Consider your burn rate. Burning money too quickly is one of the biggest mistakes that founders can make after a raise. $1,000,000 in the bank sounds like a lot of money, but it’s so easy to run through it too quickly. Hire and grow thoughtfully.

  • How should I not use the funds?

    • Should be a no-brainer, but worth a reminder that the funds are to be used for the company, so don’t use them to get a bigger apartment or lease a new car (this sounds like a joke, but it has happened)!

  • Should I send a press release?

    • Discuss with your investors how they want to handle. Sometimes investors want to weigh in and prefer to wait a bit before the round becomes public or have a particular strategic plan around which media outlets to contact.

  • How do I optimize support from my investors?

    • One of the biggest mistakes that founders can make is not keeping investors in the loop.

    • With any luck, the new investors on your cap table can provide much more than monetary support. They may serve on your board of directors and help you determine growth strategy, they may back your next round either as a lead or a supporting investor, they may introduce you to your next lead investor, and/or they may introduce you to potential customers and other strategic partners. Determine how your investors want to help and can help. And how do you do that?...

    • Communicate regularly with your supporters.

      • Now that you’ve raised a round, you likely have some contractual obligations to provide financial statements and other information on a regular basis. But your communications with investors, particularly your major investors, should go beyond providing quarterly and annual financials.

      • Determine the cadence that works best – monthly, quarterly?

      • Determine the method that works best too – e-mail updates, conference calls?

  • Now that we’re a funded company, what processes do I need to implement?

    • Early on, founders do everything for the company – forming strategy, building the product, selling the product, answering the phone, taking out the trash and recycling. As the company grows and has funds to hire staff to divvy up tasks and outsource some of the tasks of running a business, determine what tasks suit your strengths, what you can do on your own, and what you can delegate or outsource.

    • Company culture is important even early on. If you haven’t already, now that you’re likely building a team, think of what kind of culture you want.

    • What policies do I need? You don’t necessarily need to increase your insurance plans, sign up for the best medical and dental plans, draft a parental leave policy, anti-harassment policy or business continuity plan the minute your round closes, but keep these things in the back of your mind to implement before they become a problem.

  • When do I need to raise the next round?

    • The lawyerly answer is: it depends.

    • Underlying every startup is the idea that founders are always fundraising. That’s why it is so important to keep the communication lines open with your investors and make your existing funds last as long as you can.

    • More specifically, many tech startups will need to close a new round within 12-24 months of their first round. SaaS companies that sell an off-the-shelf product may be able to make their money last longer than consumer goods companies that have to manufacture and distribute those goods. Or a company that brings in revenue early on may have a longer run rate.

Bottom Line: If you’ve raised your first round of financing, congrats! Sit back for a moment to celebrate, take that nap, then get back to work to grow that company keeping in mind the lessons learned from other founders and advisors from the days, weeks, and months after the raise.

Sarah Boulden
Senior Associate Attorney, Silicon Legal Strategy