Congratulations! you have closed your first VC round, had a party to celebrate, and your dream of making a dent in the universe is one step closer to reality. So what’s next ? This piece is about the advice that we at Pravega Ventures give to our portfolio founders on setting their priorities for the period right after the fund raise. These are lessons based on our association as a seed stage investor with dozen odd companies over last couple years.
[I recognize that there could be a wide variation in what seed stage company is to different people so let me state what I mean here: You are around 6 to 12 months old, may have raised an angel round around USD 100–200K, have launched the MVP, have an initial set of users (if you are SaaS/Enterprise company, you may have a couple of pilot customers), team is still mostly co-founders plus maybe couple of early engineers. And probably operating out of an apartment that doubles up as the bachelor pad! ]
Life changes in two important ways once you raise an institutional seed round:
- You have another stakeholder — your VC. True, you might have had angel investors before but the difference is that now you have a professional investor. As a stakeholder, a typical VC fund comes with far more involvement, expectations, as well as resources. A good working relationship with your seed VC investor will not only help you in the short term, but will also help you learn the ropes of managing your board relationships into the future.
- You have some money in the company. Not a lot, most seed rounds in India are around USD .5M-1M range, but enough in a lot of cases to reach the key goals of team building, product-market fit, early indicators of customer acquisition channels, and some proof of the revenue/business model. The benchmarks for the next round will vary depending on business-model/industry/funding environment, but on an average companies in India have raised about a USD 1M prior to reaching a series-A, so this round gives you a fair shot.
Startups are all about growing rapidly, and the steps below help you set a base for that journey. My advice is to always focus on getting this base ready, even if you have to compromise on the growth for the first couple months otherwise that growth may not be sustainable.
- Building a shared understanding on the roadmap: Early stage fund raise, by and large, happens on the team and their vision. There is a limited interaction before the round and there is a lot of expectation build up when the VC decides to commits to invest. And nothing wrong in that — early stage is all about vision and dreams! But once the round closes, as the investor gets involved, learning the details of execution details etc. has a sobering effect. It is important that you spend some quality face-time with the investors to bring them up-to speed on the current state on product, org, and business. Based on this, work with them to establish a roadmap for next 6–9 months. The roadmap is often about the business metrics, but more importantly should be about defining the qualitative milestones like filling key gaps in the team, experimenting with acquisition channels or target segments(for SaaS), experimenting with monetization model etc.
- Key hiring: Probably the most important and urgent thing. It is very rare to have a founding team that has all the key skills needed to scale the company to next level. This could be any of product, technology, sales, marketing, ops, depending on the sector. Now that you can afford to pay some salary, it is time to hire people who can lead these functions for the next stage of the journey. I put the last phrase in bold because the definition of best people at early stage is very different from that at at a growth stage. Hire for the requirement now. There is a great post startup hiring here.
- Put an MIS in place: This is the one thing that a lot of founders don't appreciate and keep putting off for long. When you are just starting off the ground and the founding team is small enough to fit inside a room, everyone knows about everything that is going on in the company. Plus there is nothing much to measure except for the time you take to put that initial MVP out. But MIS stops being a choice once you go beyond this stage. MIS is like dials on the flight deck— it is measuring how well you are doing, and as you pull and yank different levers how do the different functions respond. And this should be visible not only to you as founders but to your team and your board as well to keep everyone aligned and pulling in the same direction. MIS starts with company level metrics at the top level, and these metrics can translate to further detailed MIS at the next level and so on as different functions grow. Another purpose that an MIS serves is that it lets you measure yourself against other companies in the same domain. There are established benchmarks on growth rates, customer acquisition funnel conversions, margins etc that act as beacons and tell you where you are doing well and where there is scope for improvement.
- Focus early on Sales/Marketing : A common mistake that founders with tech/product DNA (and that’s a majority of first-time founders in India) make is to take sales and marketing as an afterthought. But you have to realize that you can’t build your product in isolation with your users/customers. This topic needs one or even more posts to do justice, but I’ll layout the salient points.
- If you have an MVP ready, push the pedal on user acquisition for a couple weeks even though it might mean spending some money on paid channels. This will give you enough data points to start measuring effectiveness of channels such as FB, Adwords etc., conversion ratios of acquisition funnel, early product feedback, and teething issues with fulfilment both online or offline. Basically it compresses the learnings of a few months in a few weeks. Once you have identified the problem areas, you can ease on the acquisition and fix the issues identified. In my experience, a lot of time this exercise flags off the need for a digital marketing hire/consultant right away. A lot of founders haven’t even dealt with Google Analytics funnels and goal setup before.
- If you are a B2B company, don’t keep polishing the product without customer interaction. One of the founders has to be in always-be-selling mode. At this stage, you need a couple of pilot customers who can drive your product development. Lean on your contact, investors to get introductions — typically other startups in investor portfolio are ideal early adopters. In addition, if you an SMB SaaS company, you may also want to experiment with running paid acquisition campaigns to measure interest through signups etc.
Your company will need to keep doing the above for a long long time after this early stage, but it is critical to to set this platform early on.
I’d love to hear from the community on their experiences, so please leave your comments.