Founders, congrats on raising your next round of funding! Whether it’s your initial seed stage, angel investor or early stage round, finding investors who believe in and will financially support the growth of your company can sometimes be a tough ride. From networking events and pitches, investor decks and follow-ups, it can be difficult focusing your business plan and validating a proof of concept. But how do you know where the funds should be allocated and with whom you should be partnering with? We’re tackling the top items you you need to consider before spending your company’s dollars.
You’re super enthusiastic and feel that your first round will be able to get to your next milestone. It likely won’t. Whether you’re working through product development or a service-based company, there’s a variety of areas that money can be spent on. Keep your WHY high on your list while you go through the process. Don’t get discouraged and keep your expectations within range.
Consider your milestones or north star indicators on how you define success within your company. This may include a partnership with a major retail store or a set number of active (and engaged!) users on your platform. Based on these milestones, you’ll be able to prioritize your expenses to determine what deliverables make the most sense for your business plan. For example, you may not need to make any full-time hires at this time, but when your product has officially launched and gained some traction, you may want to consider investing in a sales or marketing manager.
Create categories with percentages based on where you think your focus should be. For example, consider the following categories: branding (15%), product UX/UI (25%), development (50%), marketing (10%). What deliverables are needed to get you to your next milestone? Investors will likely want to see where their money is being spent before they commit. Make sure you include these charts along with estimates based on your financial model when a return may be expected.
“We are experiencing this right now actually. We have a 5-month launch budget that’s pretty small, considering we are B2C, and we need to get the results we need to gain our next round of funding. That “small amount” is actually helpful in deciding what to spend on or not. A lot of opportunities seem bright and shiny,” noted Emily Zaccardi, Co-founder of hollarhype. “For example, a table at the NYC marathon for instance. It sounds cool… makes you feel good, but it’s not affordable. You have to get scrappy and creative. Or pick two key digital campaigns to get behind and an optimal time frame.”
Before you declare yourself as the CEO + Founder of your next venture, game plan how you’ll be paying for your everyday expenses. Investors typically don’t want to see a triple figure salary attached to your name as part of the initial ask. Depending on what stage of funding you are looking to reach, your salary may become a line item on your list. Be practical in who is being included in the company’s payroll in addition to the amount that is being allocated for payroll. Salary estimates done by career research company 80,000 Hours approximate a $50,000 founder salary for those that go through the Y Combinator accelerator program. Keep in mind that this amount is included within their investment into the initial round for their founder.
Investors value their role as key contributors to your business plan. From branding and marketing to product development and growth strategy, your investors are now committed in the success of your company. Ask questions along the way. Provide status updates with both successes and failures. Remember, they’re on your team!
Not every partner has experience or is equipped to work with early stage founders. Investors have an appreciation for you, as a founder, if you partner with teams that know the ins-and-outs of working with startups. A branding team may not consider the obstacles that a first time founder may face in testing ideas quickly and being able to pivot and shift when needed.
As founders, we have assumptions and biases of what will or will not work within our business plan. For example, you may assume that a specific feature is needed within your first launch. Take a step back and ask whether that feature:
Founders need to have a creative mindset in where funding dollars should be spent. Create a plan where your funds are split up into smaller initiatives. Do not, for example, spend your entire round of funding towards the cost of development or a marketing partnership. If this one initiative fails, you’ll be back in the hot seat trying to raise your next round. Take the A/B marketing approach. Test multiple times using variable initiatives. You’ll be surprised what you may learn along the way.
A majority of products have a seasonality component to their business model. Swimply, for example, is labeled by some as the “Airbnb for Pools.” With a business model of earning free income by renting out your pool, Swimply will likely use more funds during the summer than the winter. If you add geographic location into the mix, the company may even consider implementing specific campaigns depending on location, city culture, and targeted audience interests. Your expenses should be adjusted based on these factors.
A consistent brand identity will help you communicate your company’s value, mission, and purpose. For companies that have further evolved, branding becomes a core element in the company’s messaging, marketing, and sales strategy. For startups, branding positioning will lead the way for your product market fit, target audience, and growth strategy. What’s the most crucial element when raising your next stage of funds? Your investor deck and digital presence. Investors will look for a clean and consistent presentation that showcases your business plan, messaging, product features, financial model, and team composition. If you’re a bit further down in your product design, consider the personality, tone, and ethos of your brand. Incorporate it into the user experience and interface.
I understand the importance of branding for startups. If you’re looking to raise your next round of funding or you’ve successfully done so, but need a starting point for your branding, let’s chat! I incorporate business strategy, brand positioning, visual design, and marketing strategy to launch scalable and marketable brands.