Actions to Take After Securing Startup Capital
Understanding the post-startup capital strategies, both effective and ineffective, can determine the success or failure of a company, making a significant impact on its financial stability.
This indispensable compilation of post-funding actions to take and pitfalls to avoid will assist you in prioritizing mission-critical aspects, allowing you to achieve profitability at an accelerated pace.
Recommended Steps Following the Acquisition of Startup Capital:
Prioritize Validating Product-Market Fit
Conducting thorough due diligence to establish that you are targeting the correct audience after securing funding can prevent wasteful spending on product features that users neither want nor require, as well as marketing efforts directed towards the wrong audience.
Observe these indicators to validate product-market fit.
Rapid and exponential organic expansion. The primary growth metric to focus on should be achieving a doubling effect within consistent time intervals (e.g., monthly).
The Net Promoter Score (NPS) Rating: Positive NPS outcomes signify that you have successfully attracted customers who are inclined to remain loyal to your company and advocate for it.
Adoption by VIP Customers: When prominent or well-known companies utilize your software, it showcases a strong alignment between the product and its users, serving as a noteworthy indicator of product-market fit.
Maintaining Customer Loyalty and Retention: When combined with metrics that demonstrate substantial usage and growth, customer retention becomes a valuable indicator of product-market fit.
Leverage OKRs (Objectives and Key Results) to establish goals
OKRs (Objectives and Key Results) assist SaaS startups in maintaining goal-oriented focus by breaking down objectives into measurable criteria that track progress and achievement.
Ensuring alignment of goals and targets throughout your organization is crucial for:
- Enhancing brand visibility
- Growing customer subscriptions
- Establishing or expanding a network of funding sources
After defining your OKRs, remember to generate concrete tasks that contribute to their achievement and assign these initiatives to respective team members.
Early on, Prioritize Hiring the Appropriate Roles
Developing a quarterly or annual budget that delineates projected revenue and expenses on a monthly basis is vital for optimizing the allocation of venture capital, enhancing cash flow, and ensuring the sustainability of your Startup until it achieves profitability.
Ensure that you:
- Determine key priorities and construct your budget based on them.
- Allocate some buffer for initiatives that may incur higher costs than anticipated.
- Channel surplus funds from other initiatives into areas that are yielding measurable returns.
By utilizing your budget as a financial model to monitor performance, you can ensure compliance with financial obligations, efficiently manage long-term costs, and sufficiently prepare for revenue fluctuations.
Maintain up-to-date Bookkeeping Records:
Ensuring the timeliness of your bookkeeping is crucial for making informed business and budgetary decisions. By leveraging a cloud-based bookkeeping solution or engaging a part-time bookkeeper, you can:
-Attain a clear overview of your revenue and expenses
-Monitor the daily, weekly, monthly, and quarterly outflow of funds
-Utilize historical financial data to develop cash flow forecasts
Opting for outsourced bookkeeping is an excellent approach to saving both time and money, while alleviating the burden of establishing internal processes and managing day-to-day financial records. Moreover, by ensuring the reliability of your books, you instill increased investor confidence, which proves advantageous when seeking future funding.
Mistakes to Avoid Following the Acquisition of Startup Capital
Avoid Either Excessive or Inadequate Utilization of Funds:
Following the acquisition of funding, venture capitalists and other investors will be keen to understand how their funds are being utilized.
Exhausting funds at a rapid pace may necessitate an emergency fundraising round, jeopardizing your chances of success and potentially straining relationships with investors, partners, and employees.
Exercising excessive caution with funds can impede the necessary growth required to impress key investors, thereby jeopardizing your prospects of securing future funding.
The most prudent approach following the acquisition of startup capital is to align goals with spending in a realistic manner, diligently monitor expenses as they arise, and strive to allocate less than 10% of your raised capital on a monthly basis.
Avoid both Overspending and Underspending.
Navigating the balance between overspending and underspending requires careful consideration.
By making unnecessary purchases like Salesforce instead of opting for more suitable options like HubSpot, or hiring a CFO when a competent bookkeeper would suffice, your startup may be overspending and rapidly depleting its funds.
On the other hand, being excessively frugal by rejecting essential hires or consistently adopting cheaper processes can result in wasted time and harm the reputation of your product or company.
Given that both overspending and underspending can hinder crucial growth, it is advisable to develop a comprehensive spending plan that includes milestones and workback schedules.
Avoid Spending Without a Proper Structure or Plan in Place:
It is important for your startup to avoid spending money on initiatives that are expected to yield only minimal returns.
Here are some instances of oversights that could result in additional costs:
Running campaigns without the ability to measure customer response through A/B testing can lead to missed opportunities and unnecessary expenses.
Investing in sales before validating product-market fit can be a costly mistake that hinders your startup's growth potential.
Spending on ads or pitch decks without the necessary infrastructure to nurture prospects may result in wasted resources and limited conversion rates.
Hiring team members without a concrete plan for their daily work or training can lead to inefficiency and ineffective utilization of resources.
To steer clear of such pitfalls, it is crucial to implement a structured planning process that encourages holistic thinking and ensures wise allocation of valuable resources.
Given that the success of your startup hinges on your ability to manage, spend, and preserve the funding you've raised, it is imperative to establish the appropriate priorities and processes at the earliest opportunity.
That being said, prioritizing the establishment of reliable SaaS bookkeeping is a crucial investment for your startup.