Four things good founders do after raising capital

It doesn’t need to be repeated that 2023 was a tough year for Aussie startups. Funding was at a low not seen since pre-COVID, customers have been tightening their belts and for those fortunate enough to raise some capital, they often did so at a haircut to previous rounds.

So what will 2024 look like? While a lot of good judges think things may start to improve, others are more sceptical. One thing’s for certain though — deploying capital efficiently and effectively will be the difference between good founders and bad ones.

While a lot of the rhetoric in the media is around volume and scarcity of funding, not enough attention is being paid to how that capital is being invested. I see too many founders treating a successful capital raise like the destination, rather than what it actually is — just the start of a bloody tough slog. Like the dog who finally catches the car, often they don’t know what to do with the capital once they get it.

And too many lose sight of what the ultimate aim is post-raise: converting that capital into revenue.

So how do founders go about doing that? If you’ve just raised a seed or series A, here are a few things you can do to make sure that capital is going to good use:

1. Start planning your next round (now)

So you’ve finally closed out your cap raise and likely put in a lot of blood, sweat and tears to get it over the line. It was probably a massive distraction from the day-to-day work, which you’re dying to get stuck back into.

So what’s the first thing you should do? Start planning for the next raise.

It may seem counterintuitive, but too many founders get lulled into a false sense of security capital brings.

Carta data shows that bridge rounds make up more than 36% of rounds, with many startups failing to hit the metrics they need to raise their next round in the timeframe they envisioned. This is often most prevalent in seed companies progressing to series A.

Why? Series A is typically where companies are being judged far more critically on results and metrics over promise and potential.

So the best thing founders can do after raising is sit down and map out what the 5-7 key metrics investors are going to care about in order to raise their next round, and then structure the whole business around achieving them.

I often see founders who don’t map this out, start burning their capital and go back to market six months before their cash runs out looking for their next round. But if those 5-7 metrics don’t line up with what investors are looking for, they’re going to struggle.

And the metrics will be unique for every company and not necessarily align with revenue (which is the common myth that MRR will be the only thing that matters). Your metrics may be aligned to your stage of product development, user numbers, daily active users — the list is endless but specific and you will know better than anyone else.

2. Build an operating rhythm

Once you’ve mapped out what those 5-7 metrics look like, it’s not time to ensure you hit them.

The entire company should be structured around ensuring these metrics are hit.

An injection of capital is a good time to make some adjustments to the business rhythm and discipline. Start thinking about the rhythm of your meetings, what you are discussing, and what info you are receiving as a founder to know the company is on track to hit those metrics.

This should see those raise metrics broken down into bite-size chunks so you can track your outcomes quarterly and monthly. Then you should be catching up weekly with your leadership team to see how you’re progressing. Look to discuss leading metrics at these meetings which show your outputs, rather than the outcomes (outputs such as new leads in the funnel, which will eventually lead to the outcome of revenue). Outcomes are often too difficult to measure weekly, especially in the volatility of early-stage businesses.

3. Forecast and budget

The other area where founders often struggle post-raise is building out a budget.

Let’s be real, often the forecast that was shown to investors to close out a round shows an optimistic view of the world. Good founders don’t go crazy and show achievable numbers, but even these forecasts don’t account for inevitable problems that will hit the business.

This is why you need a budget — numbers that you track on a monthly basis and can update quarterly based on the reality of where you’re at, not on where you and your investors would like you to be.

The question I often get when I propose this model is “So are we showing a fake forecast to investors, and a real one internally?”. The answer is no. Founders should use their investor forecast as the target and the basis for their metrics and goals.

The second model though is often an extreme downside case that tracks the most important thing — when do you run out of money? This is the key info a founder needs to know if things don’t go the way they plan.

So your second model is actually a very conservative case with the burn rate at the forefront. Overlay this with how you’re progressing operationally with those key metrics and you will get an idea of whether you are going to be able to make your current round last until you’re ready for the next round.

4. Hire the right people and maximise your time

The final mistake I see founders make post-raising capital is rushing out and hiring a new team, in particular senior positions.

Don’t get me wrong, being able to afford to bring on talent is a massive plus, but founders need to think critically about the type of talent they need for the point they’re at.

The area where this is most apparent is sales. Founders often see the need to hit revenue targets and think the best solution is to bring on an experienced sales rep from a reputable company. They come in with a great resume, but often their skills are ill-suited to a startup where they’re often selling in the early stages of product market fit.

Founders instead should focus on how they can maximise their time with the right people. Often founders at this stage are still the best sellers, so how can you free up your time to allow you to focus on this? Whether this is a junior SDR to help generate leads, or an ops manager to free up your time on the admin front, be considered with the human capital plan and don’t overinvest in the wrong senior talent.

Focusing on these areas once the cheque hits the bank account will give founders a good foundation to build on for their next raise and set them up for growth and success.

And for the founders who are struggling to get the attention of VCs, keep at it. It’s a tough environment at the moment, but good founders with good companies are still getting funded. And don’t forget that VCs are just one option — check out my article from last year on ways to fund your startup that isn’t from VCs.

Luke Rix is the CEO and co-founder of KC Ventures.