Welcome to a new BetaKit weekly series designed to help startups and entrepreneurs. Each week, investors Roger Chabra and Katherine Hague tackle the tough questions facing founders today. Have a question you would like answered? Tweet them with the #askaninvestor hashtag, or email them here.
It’s fundraising season, so we are going to continue our focus on the topic of fundraising. A few weeks ago on Ask An Investor, we discussed whether founders should publicly announce a financing round. This week, the focus is on whether you should celebrate your financing round. This is a pretty controversial topic that generates a lot of discussion. I know that both entrepreneurs and my fellow VCs have strong opinions one way or another about this. So, allow me to share my strong opinion with you all.
The short answer is yes; my opinion is that you should absolutely celebrate your funding round. To me, it’s a question of how much (and how) you celebrate in order to maximize success for your team and company going forward.
Fundraising does not mean that a company is profitable; it doesn’t mean that anyone has actually made money; it doesn’t even mean that a company is growing. Fundraising simply means that the company has managed to refuel their coffers and that they are ready to fight another day.
Look, startups are hard and fundraising is hard. I don’t care who you are or what you have done, or how quickly your round has come together. Fundraising is a tedious effort. An effort that distracts you and your team away from your core job of block-and-tackling and building value on a daily basis on the operational side. For venture scale companies, fundraising is a necessary evil. If your ambitions are huge, you need capital to achieve them. Usually, this capital comes over multiple rounds so you will face this tedious process time and time again. In fact, the best CEOs I’ve worked with know that you are always raising money, it’s just a matter of how much of your week you dedicate towards it at any given time. Startups are all about highs and lows and measurable success may not come along often. Why shouldn’t you be able to acknowledge your hard work, particularly one that results in a measurable achievement?
In terms of how to celebrate, I thought that including a real-life email from a smart founder to his team would be the best way to illustrate my advice. I received permission from the CEO to share this anonymously and I think this absolutely nails it (note: I’ve removed some names and date-specific information and made some minor edits in order to protect the company and its employees).
- It acknowledges that fundraising is hard and that few companies actually raise venture capital.
- It boosts employee morale by stating facts about how difficult it is to raise money and that the team should be proud of efforts to date. It acknowledges that the new investment is an external validation of all their hard work. They should definitely go home to their significant other and brag about it a bit.
- It explicitly thanks the team for their hard work. Fundraising is always a team effort.
- It clearly outlines how the team should aim to think about their world going forward. It doesn’t send the wrong message to the team. More money doesn’t mean Herman Miller chairs, new Macbooks for everyone, lavish parties, or cultural changes.
- It has an actual physical acknowledgment and celebration lined up. Not a “let’s hire the Tragically Hip to play one of their farewell shows at our announcement party” celebration. Just a simple drink-of-champagne-in-the-boardroom celebration. Let’s have a toast, a few smiles around the room, some sighs of relief from the VP Finance, a couple of small pats on the back, and then let’s get back to work.
As of 4:22pm ET today, I received a text from [our VP Finance] with the words, “Weeeee. It happened!!!!.” The note would’ve been more fitting to announce a pregnancy but I understood what [was] meant. We finally received the [$x,xxx,xxx from our new investors].
This marks an important milestone in our company’s history and I’m really glad to be sharing the moment with all of you. I did some digging on the Internet and it looks like only 1% of all companies in the US have raised capital from an institutional investor. I’m sure that percentage is much smaller for companies in Canada.
We worked hard to get here and it certainly has been a journey filled with many highs and lows. All of you have a lot to be proud of as this is a major vote of confidence in what we’ve done and our potential to build something special. I want to specifically call out [team member’s names] for pulling this funding round together. Thank you for putting up with the many, many, many iterations, emails, meetings, phone calls, spreadsheets, pitch decks and legal documents. I’ve never been through anything so complex and time consuming in my life…
We are incredibly fortunate to have closed this round of financing at this particular point in time. Should the economy get into worse shape, we may also begin to see an impact on our customers who may tighten their budgets. Every dollar may get harder and harder to get. And so it’s good to be in a position where we have some cushion in place to protect the business in the event that we get a few shocks to the system.
I am certainly not trying to burst the celebratory bubble. Raising capital is absolutely a good news story. But it’s important that we don’t interpret this fundraise round as a declaration of success. We must remain humble. We must remain hungry. And we must continue to make the most out of every dollar that we have. Too many companies have fallen flat on their face after a fundraise thinking that they now have money to spend on fancy furniture, higher salaries, lavish parties, and other fluff. We must not get carried away and fall into those temptations. We must remain focused on the things that truly matter – get new customers, keep existing customers happy, make our product better, and build a team that we all want to be a part of.
When I signed the term sheet on Christmas Day, I was on Slack with [company advisor]. I said that the signing of the term sheet didn’t give me the feeling of relief (which I was expecting). In fact, I felt the opposite. As some would say, “@%#& just got real.” So, pause and cherish the moment. There is a lot to be proud of. Tomorrow afternoon, we will celebrate with some bubbly in all of the offices. Once we have an opportunity to toast each other (for only a few minutes), I’d like to ask that we all get back to work. =D
Why I love this email:
Raising a financing round is just a means to an end. It’s not an end in itself. Your acknowledgment of it to your team should reflect exactly that. Hopefully, this article and the example above can you help you plan your own fundraising celebration!
I wholeheartedly agree that raising money should be celebrated. As Roger said, it’s hard, not many manage to do it, and it’s an important milestone for companies and founders with venture scale ambitions.
It is so easy in startup life to always worry about the next thing, never taking the time to stop and realize just how far you’ve come. When I was running ShopLocket, I remember having many of the same feelings as the founder in Roger’s note above. I remember being surprised that I never felt a sense of relief (or even excitement) once the money hit the bank. My mind was very quickly onto the next thing, the next hurdle, the seemingly neverending startup battle that lay ahead. But that’s not healthy.
Founders need to give themselves a pat on the back every once and awhile — and teams need the opportunity to feel proud of what they do every day. At ShopLocket, a couple of weeks after we raised money, we created a company timeline where we would post photos and articles showcasing our greatest achievements and happiest memories as a team. It became a way to force us to stop, acknowledge how far we’d come, and celebrate the highs.
That said, as much as fundraising is indeed an achievement, we need to remember that fundraising is not success. Don’t let the hype of other companies’ funding rounds fool you, and whatever you do, don’t get caught up in your own hype cycle. Fundraising does not mean that a company is profitable; it doesn’t mean that anyone has actually made money; it doesn’t even mean that a company is growing. It simply means that the company has managed to refuel their coffers and that they are ready to fight another day.
Got a question for the investors? Email them here.