Any business owner who has gone through a Series A funding round will tell you it’s not for the faint of heart. The process can be gruelling and disruptive to day-to-day operations, and take up much more time than an owner has to spare.
Once a startup has the good fortune to get Series A funding, everything changes. It’s nothing like working with funds from early seed rounds with friends, family or angel investors, says Anne Martel, co-founder and Senior Vice-President of operations for Element AI in Montreal.
“Once you’ve gone through the process of preparing your proof points and raising the money, it then becomes a matter of execution on our plan. What you have to understand at that point, is that your structure and your markets will likely change and that you have to adapt to a new reality.”
Because the Series A process is a very significant event in the lifetime of a startup, the euphoria that comes with that can often lead to some poor investment and strategic decisions in the early budgeting stages.
One key change with Series A funding is that in most instances, investors will want to have involvement with your company beyond giving you money, Martel notes. “Typically a lead investor will have a seat on your board. So much of what you do moving forward depends on leveraging the new relationships you are building. Just remember that investors can have a lot to bring to the table.”
Having accepted that there will be fundamental structural changes, the first step is to work together on a new plan that takes into account your business spending, starting with your team. “Whether talking in terms of size or calibre of people, it’s one area that’s easy to get wrong. You should need to know exactly what type of team you will build, and what it will cost to get the right people in place. You have to be mindful of your choices.”
Another common oversight in planning is hidden operational costs, she adds. “Depending on your type of business a lot of those costs may be hidden. For example, you can’t overlook legal or IP protection costs. These things can really pile up and tend to run on the higher end. Often people don’t forecast those properly when starting out.”
It’s also far too easy to overspend on facilities and employee benefits when you have a large injection of cash. “All too often a company will go for a big fancy office right out of the gate. That may not be what you need at first. When it comes to benefits, you also have to be realistic and offer something reasonable and affordable. You should take your time and only invest in what will make your team efficient and comfortable. Wait until you start generating decent revenues before committing to larger offices or more substantial benefits.”
In order to bring plans to the execution stage, business owners would be well advised to get out of the habit of doing everything themselves, Martel cautions. “Founders are used to being very involved in building the business. But at this point you really need to empower others to take on portions of the execution. Those people will probably do a better job than you can.”
Another piece of advice is to review your plan regularly, she notes. “You need to be able to update it and change it quickly to adapt to changes in the market, key metrics, or predictors.”
While closing a round of Series A funding is an exciting time for any business, perhaps the most important step of all is to take time out to review your options carefully.
When Element AI received its first Series A financing, they booked a 48-hour working session away from the office, Martel says. “We powered through, making sure everything we had learned in our fund raising was integrated into our plan. We also asked a lot of questions of our investors who gave us great insight. Recording these bits of information was critical.”
Creating some breathing space up front can make all the difference over the long term, she says. “The Series A process is so draining emotionally and very disruptive. You really need to take the your time thinking about your strategy and execution.”