Dear Founder,
Congratulations! First things first, some amount of (reasonable) celebration is in order. You and a couple friends, maybe with a product, maybe not, have just been valued by professional investors to be worth millions of dollars. So, drink some (reasonable) champagne, go for a hike, invite your investors to laser tag. This is hopefully the first of many milestones, and it’s worth pausing to mark the occasion.
But then, of course, the real work starts. Assuming you’ve raised enough to give you 18-24 months’ runway, you have ~75-100 weeks from now until you need to have more cash in the bank. To put yourself in the best position for a Series A, you’ll want to be done with your raise with two to three months’ of cash left in the bank, which means starting to raise your A another two to three months before that.
In other words, you basically have 12-18 months to build a compelling business. During that time, you’ll want to get the most out of your shiny new investors. Here are some ideas for doing so.
Write Updates.
Short, frequent updates are much better than long, sporadic ones. Make updates easy to produce. With so many things happening constantly within your business, writing updates can serve as a chance to reflect on your top-line goals—and a way to stay honest about your business’s direction.
Updates also, importantly, can incentivize your investors into helping you. At the risk of generalizing, we’re a competitive bunch, so recognizing the help of an investor can inspire others into helping you. So, every time you send an update, include asks, and call out the people who went above and beyond to contribute. This will motivate the rest of your investors to want to pitch in that much more.
As you get into the rhythm of this, you can ask investors what metrics or figures they think are worth tracking as you progress to a Series A. Adding these numbers into weekly or monthly updates will only push you to start automating the collection and presentation of these numbers, setting you up better for the long run.
Seek intros.
One of the primary ways any venture firm can help is through facilitating introductions. These come in many flavors: customer discovery, potential hires, potential customers, professional services, other investors, etc. As you’re in the driver’s seat, it’s important to chase introductions that are actually needle-moving for you.
Assume with most introductions that you only get one chance to impress someone—it’s not a bad idea to ask investors if they believe the timing is right to approach a given contact.
Build an informal board.
We’ve seen founders put together an informal board, either as a quasi-board of directors, or as an advisory board of potential customers.
An informal board gets you all the advantages of a traditional board, but without the potential risks and formal governance of a real board (i.e., they can’t ever fire you). Choose people you like and who can add value, and ask them to meet regularly every month or quarter. Ask that they hold you accountable. This structure can give you valuable experience going into your Series A, and it can potentially surface and kill off issues that—without their pattern recognition—could lead you astray.
Best of all, if it doesn’t help, you can wind it down whenever you want!
An advisory board is a bit different; it’s a way to turn people you’d like to be customers into advisors. Done well, it’s an elegant Jedi mind trick—you transform someone who might be put off by a sales pitch into someone who actively counsels you on how to make them want to give you money. You can meet these people ad-hoc, or get them together for broader feedback. Remember: even incredibly accomplished people like to feel recognized for their time and insights. Give credit freely, and they’ll be excited to help. Some might even be hires down the road.
A note of caution: before you have some evidence of product-market fit, these boards can prove to be far more of a distraction than they are valuable. We’ve seen “advisory boards” comprised of people with little experience relevant to the company. That’s a mistake; view these advisory slots as a scarce resource, only given to people with immense expertise. You may also want to plan for obsolescence, and structure agreements accordingly.
Get management help.
We see many first-time founders. In this role, you can expect a huge range of new, stressful, or time-consuming tasks that are completely unrelated to what’s most important (building a long-term, defensible business). While VCs should never be able to know more than you about the special sauce of your business, they should know much more about distractions that can derail you. They can help on a wide range of interpersonal issues that constantly spring up (see: the rest of our letters).
Seek honest counsel on your Series A.
Now that your seed money is in the bank, start thinking about what incredible story you can tell by the time you need to raise your A. The more proverbial boxes you can check, the better leverage you’ll have in fundraising. Although raising a great A shouldn’t be your only goal, it does have a strong correlation with future success; by definition, great Series A lead investors earn their reputations by picking the best Series A companies.
Ask about the failures.
Every investor who’s been around long enough has seen businesses flame out. Ask about these situations—they’re informative lessons, and often make for good stories.
Avoid headaches.
Investors can be tremendously helpful, but they can also be a tremendous distraction. After meetings, honestly assess what you got out of your time with them—in terms of resources provided, energy given or taken, etc. Maynard often wonders how much he would pay for advice a particular board member provides in meetings. Sometimes, the people most eager to take your time have the least to offer.
Consider their input. Make up your own mind.
Again, no one runs your company but you. In general, investors’ incentives are tied closely to yours. When they offer advice, you can typically assume good intentions and often there’s hard-earned wisdom behind it. But ultimately, it’s your role to consider their insights, weigh them against evidence and your own perspective, and make up your own mind. Investors bet on you to process information and to make the decisions you think are best.
Treat them like advocates.
Lastly, remember that seed investors have relationships with other seed and Series A investors that will span years, if not decades. If they’re seeing your story progress, they can—if you want—be warming up your future leads well before you need to think about an A. Their reputations are also on the line, so the more they’ve seen, the more earnestly they can get other investors excited.
Naturally, we’re happy to help on any of these. But first, go (reasonably) celebrate; week one doesn’t start until you do.
Best,
Kevin