So You Raised Your Angel Round, Now What?

Founders can rightfully celebrate when they successfully raise their angel round of investment. But now the tough work begins to take the company to the next stage. As an investor my advice for startup founders includes the following:

1. Lay in a plan to hit your key milestones & metrics.

You likely made promises to your angel investors for targets such as number of customers, revenues, profitability, product functionality, key hires, or filing for patents. Meeting or beating those milestones will be critical to raising your next round of funding, because investors will judge the company’s progress against those metrics and promises. Lay out specific plans for the metrics and KPIs (Key Performance Indicators) you will track and why, and the actions you will take to ensure you meet those milestones. Use whatever project management tools will work for you -- whiteboard, paper, or online tools. Be prepared at any moment to describe to investors your plan and your progress (good and bad) against it.  

2. Put effective governance in place.

Most post-angel startups would be wise to put a strong board of directors in place to help guide the company. There should be at least one outside director who will ask the tough questions on behalf of the investors and will perhaps help the company steer away from the normal pitfalls that often hit companies at this stage. Initially it might work for the outside members to be board observers, but eventually they need a real vote. As much as the CEO might find the board to be a distraction, over time he or she will realize that preparing the package for the board meeting, discussing strategy options, and making commitments for the next meeting is a worthwhile investment of time and energy.

3. Be a complete CEO.

Perhaps you raised your angel round based on being an awesome CEO, or perhaps by being a domain expert or extremely passionate about your business. Regardless, you now must show your investors you are a well-rounded CEO capable of taking your company to the next level. Effective CEOs balance short-term execution with longer-term strategy. They also divide their energies appropriately across product development, business development, finances, and fund-raising. This may require getting out of your comfort zone, as well as seeking coaching help to fill in any knowledge gaps.  

4. Get all the finances in order.

Your company needs a CFO, even if it is a fractional role for now. You need clear and complete financial statements, backed up by bank records. You need clear policies for who can spend what money with what approvals. If you do not get the finance house in order your investors may fear mismanagement or worse, having seen companies fail for these reasons in the past. Any whiff of financial disorder might kill the chances to get follow-on funding.

5. Clean up the legal documents.

Your company may have raised angel funds with only partially complete legal documents, but the scrutiny will increase with future rounds. Start now to clean up all the legal documents. That includes company registration; articles of incorporation; board resolutions for all major capital decisions, stock grants, stock option plans and grants; reconciliation with cap table; and patent and trademark filings.  

6. Provide regular updates to your investors.

Quarterly is minimum and monthly is better. When CEOs go silent, investors begin to assume the company is not going well and may share their uncertainty with other potential investors. The update could be just a page in length, nowhere as detailed as the board package. In some cases investment groups have a standard reporting format, so you should ask for that and follow it. Your updates should contain more than just good news. One founder I know of shared a helpful regular format of accomplishments, setbacks, and lessons-learned. The update is also a great opportunity to ask your investors for help -- whether it with key introductions or help with specific issues.

7. Adjust if you must.

Along the way you might see the need to change your target market, value proposition, messaging, go-to-market strategy, product functionality, or all the above. That happens with startups and it can be fine. The key is to avoid swerving from guard-rail to guard-rail, confusing your investors and your team. If you see the need for a new direction, gather the supporting evidence, make a business case for it, get your team to buy in, obtain the blessing of your board (see #2), and announce it to your investors. A structured approach helps ensure your move is well-considered rather than just reacting to the latest challenges or events.

8. Service customers as well as sell.

Too many companies focus on new customer acquisition and ignore the customers they already have. In the case of one-off product sales that risks getting bad word-of-mouth from past customers that could turn off future customers -- especially with today’s amplification in social media. In the case of subscription services the loss of customers can send a negative signal to future investors. Pay attention to your customers. Learn what they love and hate about your product. Use these insights to improve your marketing messages. Recognize that for many companies the majority of next year’s revenues will come from customers you have already acquired, rather than the next ones you sign up. Many leading companies regularly measure their NPS (net promoter score) which subtracts detractors from promoters, and most startups find making the potential detractors happier is worth the effort.

9. Prepare for next funding round.

We hope you have raised enough money to last you for a year or so, to avoid perpetual fundraising. Just the same, the fundraising process never really stops for startup founders. Many potential funders, such as VCs, prefer to get to know companies before they need the money. Besides, investor meetings are always more comfortable for both sides when the purpose is to get to know about the company, rather than asking for money now. Write an update newsletter every quarter or so, describing your progress. Keep adding contacts to your CRM and share the news with them, being sure to provide an unsubscribe option. Use lunch time to catch up with potential investors. By the time you need the money you will have the right networks eager to invest.

Many thanks to Adam Huttler and Laura Swan for key inputs to this blog post.