Founders and VCs share 6 strategies for spending your early-stage capital
In this series, “Founder’s Field Guide,” we’ll tackle topics that are top-of-mind for entrepreneurs and offer candid, tactical advice from our founders (who have been through it) and our team (who advised along the way). A previous post tackled lessons for raising a seed round.
Scrappy entrepreneurs can spend years bootstrapping before taking investment from VCs to accelerate their company’s growth. But a fresh cash infusion doesn’t mean those hard-learned lessons in resource management can go out the door—they become more important than ever.
With a short runway between rounds — often just about a year—founders need to determine how they can best put those dollars to work to meet their goals. Top operators keep unnecessary cash burn down and invest in the areas that will help the business hit the milestones and KPIs necessary to fuel not only growth, but also future fundraising efforts. But, when everything seems like a priority, it can be hard to know where to begin.
What should entrepreneurs keep in mind as they spend their first venture capital dollars? To offer some tips and best practices, we asked the experts: our founders who are deploying their own early-stage capital right now and our team (their advisors).
Here’s what they shared.
From our founders
Ben Kubic is the cofounder of Properly, a cloud-based, online real estate agency that sells homes 3x faster than the market rate.
Ben’s advice: Realize some of your initial marketing spend won’t pay off.
We increased our marketing budget almost 20x what it had been within a few months of closing the round. We knew that in order to scale we’d have to dramatically increase our brand awareness and referral pipeline, and given the seasonality of the business it was critical to get our message in market ASAP.
Some of the spend paid off immediately in the form of new clients and revenue growth. Some of the new channels we invested in didn’t pan out, but we knew that would be a risk going in. In that regard, that investment also paid off because we learned what channels will and won’t scale.
Mike LaVitola is the cofounder of Foxtrot, a next generation corner store offering local specialty items and home delivery.
Mike’s advice: Pour resources into building a strong executive team.
Upon closing our Series A round, the first area we invested our time and capital was in building our senior management team. After running lean on headcount for the first several years, it was important take a step back and really think through who we wanted to build the business with, and the culture we wanted to build. Recruiting great leaders across operations, marketing and finance ensured we had a solid foundation in place before we really hit the accelerator on marketing and expansion.
Christina Lopes is the cofounder of OneHealth, a biotech company using gene sequencing to treat cancer in dogs.
Christina’s advice: Make sure any new tech you’re building is necessary.
If you are solving a real world problem (canine cancer in our case) with tech, you need very healthy communications between the tech and real world users to make sure what is being built is actually meaningful. I can’t stress enough the communications angle. There are more and more amazing off-the-shelf software solutions available that should be contemplated before a custom investment. Remember that our levers are 2 of these 3: quality, speed, cost. At seed, I’d say speed and cost mean more than quality.
Jeremy Welch is the founder of Casa, a personal key manager for digital assets.
Jeremy’s advice: Don’t forget to invest in self-care.
In the early days many founders crash with friends or get other cheap shared lodging when traveling. Avoid this. Lodging can be expensive, but you have to think of it as an investment in sleep. The last thing you want on the day before your presentation or big partner meeting is a pet cat or kid running around disturbing your sleep. And if there’s an issue with your room at a hotel, they’ll almost always refund you. Not so much with friends.
Isabelle Phelps, LH Associate, supports portfolio companies including Prose, Vangst, Block, and PowerToFly.
Her advice: Create a system for managing your finances.
Given the short timeframe before you need to fundraise again, the first thing to invest your time and energy into is a system to manage your capital. Build a model so that you can understand what your expenses are, what your cash flows will be, where you want to invest, and how much runway you have.
Because of the focus on growth and achieving benchmarks, founders often feel immense pressure to hit certain top-line revenue or user goals — and there’s a narrative of success that prioritizes rapid growth that’s difficult to resist. Having incredibly aggressive growth plans in certain markets makes a lot of strategic sense, especially if there is a strong network effect or winner-take-all model. Founders should balance the efficiency of their operations and their unit economics against the cost of that customer acquisition.
Eric Hippeau, LH Managing Partner, supports portfolio companies including Axios, Guideline, Transfix, and WayUp.
His advice: Stay on plan.
Early-stage founders raise money on a plan, so follow the plan. But we know that plans can break. For whatever reason you have to deviate from your plan in a significant way, go talk to your investors. Managing the initial capital, since it’s supposed to last until the next round, is really critical. If your plan doesn’t work out, which can happen, your investors have probably seen the situation before and are likely able to help you think through the issues faster.