For many startup entrepreneurs, raising their first venture capital round is like winning the Super Bowl. It validates what they’re doing, their vision and all the hard work that’s happened. When the deal is signed, there are lots of high fives and the champagne flows. It’s good times, baby!
The funny thing is you wake in the morning with a whack of cash in the bank, and realize the work has just started. For all the effort that happened pre-deal, there’s even more work ahead post-deal because there’s another party (or parties) who have a vested and financial interest in how you operate the business.
For some entrepreneurs, it can be an abrupt wake up call. Suddenly, there are board meetings, regular updates to be filed, plenty of questions, and performance reviews. If you thought there was pressure before, it’ll come in waves now.
At the same time, entrepreneurs also need to get their head around the money. While it is being invested to grow the business, it will eventually run out, even if it does seem like a large amount at the beginning. I worked with an entrepreneur who seemed to think the money would last forever and, as a result, start spending it on products and services that weren’t a priority.
Here’s funny thing about raising your first round of venture capital: investors are happy to give it to you, and they’re happy to see you spend it.
Why? It’s because they know it’s likely you’ll to come back for more if the business shows traction. While there may be more suitors but your initial investors will more likely be involved and be assertive in making sure the deal rewards their initial investment.
The bottom line is raising startup capital is a terribly exciting and rewarding experience, particularly given it is like winning a lottery ticket in many ways. At the same time, it’s the end of one stage and the start of another with just as many challenges and demands.
More: For another angle on raising capital, Mark MacLeod has a good post looking at burn rates versus runway.