Crossing the Valley of Death
You Have Seed Funding - Now What?
By Doug Zeisel, TCV Partner -
Startup enterprises that are between seed stage and VC/PE funding face a difficult path. To attract that next round, first you need to show revenue traction. Second, you must provide validation of your business model and go to market strategy. And third, you must be able to assemble an experienced management team to give investors the confidence that you can execute. All while minimizing your cash burn rate. And you must do all of this with limited funds. How is this possible?
Money - First and foremost is the need to minimize cash burn. You may be tempted to rapidly expand your team, but that depletes cash fast. So be careful and prudent about new hires. Since you are still a small business, part timers and consultants can be a viable solution to keeping cash burn low.
Keeping virtual is also a smart move. So if you have an office at an incubator, don’t be tempted to expand it. Create a monthly budget and monitor your expenses to ensure your cash burn rate is tolerable. Forget any frills on which you might be tempted to spend your valuable cash.
Next, don’t forget that one of you full time jobs is to raise capital. It is not unusual to make 50 to 100 pitches to find the perfect fit for that next round. But don’t do it blindly! Use your connections to get introductions to investors that fit your profile. For example, most VC’s get hundreds of pitches each month. If your business doesn’t fit their investment focus, or something doesn’t catch their eye in your executive summary, into the trash goes your business plan. But what will catch their eye is a referral from a trusted source. So, find people with whom to vet your plan and then ask if they can make some warm introductions. You might consider hiring a part time person with experience to assist with this task.
Momentum – Seed stage funding gives you the push to get to the next level. But you need to keep up the momentum. Keeping up your sales momentum is paramount - as is building out your infrastructure to support those growing sales. Your growth plan needs to picture where you are, where you are going, and the steps that need to be taken in order to safely arrive.
Market Alignment – If you have those first customers, you must be filling a need. But don’t stop there. Can you sharpen your market focus? Can you improve on your product or service to ensure continuing customer satisfaction? Remember, your product should evolve as you grow. So be sure to continue customer engagement and make sure your product or service is the best solution to meet their current and future needs. Get feedback on features to improve, and be sure you fully understand your customer’s evolving needs.
Management Teams Matter – How do you assemble a competent management team on a tight budget? You will need to find experienced executives who understand your vision, and who is willing to work part time as you go for the next round. You don’t want an advisor, you want someone who gets things done! You don’t want a mentor, you want someone who will work side by side with you to move your company forward.
The fact is you probably don’t need someone to fill a full time C-Level position until your annual revenues are comfortably over $1-2M. And, a part time executive won’t cost you the $160-250K that a full time CMO, CFO or COO might. They may be interested in coming on board full time once you reach a budgeted level of cash flow, or they may be professional part timers. If the latter, they should be able to commit a reasonable amount of time to your company and help you find a full time replacement when the time is right. And a good part-timer might be able to help with that capital raise.
Things to consider when looking for a part time executive: What are your most pressing needs that are not getting your full attention? What is not getting done that should get done? What skills and experiences do you lack but are needed by the business? What can you affordably put into your budget?
Looking for help with that next step? TCV can help. We will be happy to provide a free review of your situation and offer suggestions for getting to the next level. And oh, by the way, we provide fractional leadership in the areas of CEO, CFO, COO, CMO and CFO/COO.