“Our startup just received our first big funding round, and the check is in hand. What should we do next?”
As a trusted finance partner to startups and investors, Burkland often hears this kind of question.
How well you manage your first investment round goes a long way to determine if you’ll receive another round, and how large it will be.
With that in mind, this article is a simple checklist for what to do when you get your first investment check.
Your To-Do List for Your Startup’s First Big Investment Check
1. Head straight to the bank—the right bank
All banks aren’t the same. You want to put your money in one of the well-known banks that specializes in working with startups, like Silicon Valley Bank, Rho Bank, or First Republic Bank. They speak startup. They’re more likely to be comfortable extending lines of credit to brand new companies, and they may even be able to help you network.
2. Hire a bookkeeper
If you’re dealing with your first million dollars or so, you don’t necessarily need a chief financial officer. Well before you need to think about a CFO, you need a good bookkeeper who can run everything on the tactical side, keeping track of all the movements of the money.
3. Know your burn rate
Always know your burn rate and how much runway you have. In other words, how fast are you spending your money and how long will it last at that rate? It’s simple to calculate if you have clear visibility of your bank balance, income, and expenditures. Report these numbers to your board at each meeting, or share them once a month if your board isn’t meeting that often. The board can give guidance on your burn rate, suggesting ways to slow it down and operate more efficiently or encouraging you to be more aggressive. The typical rule of thumb is to plan for about 18 months of runway from the raise.
4. Keep an eye on your benchmarks
Everything keys off of where you want to be by the time you raise the next round. What will you need to accomplish to get the funding you need at your next raise? Whether it’s improving product-market fit or proving a certain amount of market traction, once you know the targets, your board or other advisors can help you strategize about how to hit them.
5. Build a strong financial tech toolkit
Build a strong financial tech toolkit from the start, but make sure it’s right-sized. You’re not likely to need a robust customer relationship management (CRM) platform right away, but you should make sure your finance tools support you. Now, secure, intuitive finance and accounting tools like QuickBooks Online, Bill.com, Airbase, and Abacus are affordable for startups of every size.
6. Consider a fractional CFO
Consider a fractional, or part-time, CFO between your seed round and Series A. The CFO you can afford full-time at this point may be too junior and underpowered for the work that needs to get done. As little as five hours a month from a seasoned professional can be an excellent strategic lever. This person can help you determine compensation structure as the company grows, improve your financial metrics, and think several steps ahead. The value a good CFO provides is helping you see around corners.
The value a good CFO provides is helping you see around corners.