Dave Kellogg is an outstanding leader and thinker — go and follow his blog posts if you’re not already doing so. He has a lot of good advice on planning and spending after getting funding (“post-funding”).
Two of my portfolio companies went through the pleasure of raising a new round of financing last month. There was something that Dave said in his recent talk at the 2019 SaaStr Annual conference:
Just because you raised it, doesn’t mean you need to spend it. Trigger spend on milestones, not timeline.
The challenge here: You have not reached a milestone — so now what?! How do you plan your post-funding spending?
Post-Funding Scenario Planning — As It Happens.
First, sketch out some scenario what you want to achieve post-funding. Each should not take more than half a letter-sized page, handwritten.
- What are you milestones?
- What are green flags in the market (accelerating your business)?
- What are red flags in the market (slowing or hindering your business)?
Second, think about the impact.
- Which one of these are just smaller adjustments on how to accomplish your current mission?
- Which one of these would require a significant departure of your current strategy?
- Which ones are catastrophic = irreversible damage?
- We said sales cycles would trend towards six months, but it’s not happening.
- Only 10% of Midwest leads converted into OE, versus 22% plan.
- Startup <X> got bought by incumbent competitor VMWare.
You can’t possible plan for all scenarios, all things that could happen. But at a minimum you should plan for the basics (a competitor cuts their price by more than 50%; a market direction delays renewals for 6 months, and all ongoing PoCs are delayed by six months, and only 25% of them will result in POs; etc.)
Third, which one of these should trigger urgent strategic discussions:
- Which one of these take longer than 2 weeks to think through? Which one of these probably require some testing or additional resources?
- Which one of these require outside help to think through strategic options?
- Which one of these require buy-in from and discussions with current investors (that is: anything that significantly alters your plan, spending, strategy!)?
Innovate — Adapt — Overcome
There is always something to work on. You need to relentlessly calibrate your focus and evaluate your post-funding spending and resource allocation. Your competitors certainly will.
That’s not to say you should let go great people just because of a slow month. But if you have to carry six people for seven months, then that’s at least $500,000 you can’t spend on something else. And they are continuing to vest their Options or Restricted Stock, and perhaps even continue to push their own pet projects or areas of expertise and eat valuable time of your team with meetings and discussions that are a distraction.
Outside advice and experience might come in handy.