Now the real work starts: the partnership begins
So you have successfully closed your series A/B funding round and are looking forward to having more bandwidth for your product, customers and team, what happens next? In this article, Smedvig’s Freddie Kalfayan takes a look at how to set strong foundations for a successful partnership between Founders and Investors in the first few weeks post-investment.
DD findings
In diligence we’ve completed a comprehensive review of the business by carrying out commercial, technical, financial, legal and people due diligence. In our experience, this ‘outsider’ perspective can challenge founders but also bring greater clarity to their thinking. We present the feedback from DD to the founders and wider team as soon as possible, while everything is fresh in people’s minds, so that the business can quickly absorb the learnings and move forward. The key topics to cover usually include:
· Customers. We typically speak to 10–20 customers during commercial DD, and occasionally do a user survey. This is an invaluable exercise for us, and usually raises some really interesting questions and insights for management around product-market fit, customer segments, competition, pricing, and product. It also gives us an opportunity to give the founders a load of feedback on how awesome (hopefully!) their product is.
· Founder 360-degree review. During DD we conduct a “360-degree review” where all the management team receive feedback from their colleagues and perform a self-evaluation. This shines light on the priority areas to develop going forwards, so that the founders and management team continue to have the right skillset to match the company as it progresses beyond a high-growth series A/B company to a more mature business. A natural next step following this might be for us to help founders find a coach who can guide them, if this is something they feel would be valuable to their development.
· Hiring. There will always be gaps in a rapidly growing company. The founders will be aware of most of these gaps already, but our DD helps them decide the timing and sequencing of their next hires as they build their bench. We often support the founders with these hires, assisting with outreach, screening, interviews etc.
· Technical, financial and legal ‘fixes’. Mostly ‘quick wins’ but also some longer-term fixes that our 3rd party DD providers recommend. We discuss these with founders and align on what does or doesn’t need to be fixed and why, and the timelines for making changes.
· Other. There are other bits and pieces from DD that may be useful to feed back to management which vary by deal, such as our analysis on unit economics and long-term profitability, TAM and competition. During DD we have often dug deeper into some of what we consider to be the most important commercial questions. The companies have sometimes not ‘stress tested’ these particular elements in as much detail as us, so the insights can be very useful.
Alignment
It is important to begin the journey with alignment between founders and investors on some key items. These are very likely to change over time as no business follows a straight line, but it is crucial to align at the early stages on things such as:
· Exit ambitions and long-term vision. What do we want to achieve? What does success look like for this business?
· Monthly metrics and KPIs to track in the business and at board level. What are the right metrics to track? What is our north star metric? What is the process if we are consistently behind plan?
· Organisational gaps. What roles do we need and by when? What functions need most developing? What is the plan for each function? Do we have the systems and processes in place to enable growth?
· The budget. This is built by management and stress tested by the board, with everyone ultimately aligning on the near-term targets for the key metrics such as growth, gross margins, burn etc.
· Funding and fundraising plans. Do we want to raise again? Is that the right thing for this business? If yes, roughly when do we expect we might need to raise again? What will we need to achieve to raise at the next stage?
· Board KPIs, composition and best practices. What are the key KPIs to track at the board? What is the agreed process for sending board materials and communicating with the board, and how can we maximise the value of these discussions?
· How we can help? Are there any introductions we can make? Are there areas where we can provide further support and guidance?
This feedback and alignment post DD is a really positive process and an important step in strengthening the partnership between founders and investors, as well as setting the business up for continued growth in the years ahead.
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As the year draws to a close, so does our Navigating VC Series. Over the last 12 months we’ve taken our readers through the key steps and milestones of the fundraising journey, from setting yourself up for a successful process, to creating the perfect pitch and choosing the right partner for you and your business. Our aim was to provide an honest, thoughtful and insightful overview of raising Series A for Founders thinking about a fundraise, currently raising, or just looking ahead to key landmarks in their businesses growth journey. We love to hear feedback (if you have any further questions on the fundraising process that we haven’t answered, let us know!) and are always keen to connect with great Founders and exciting businesses, so feel free to get in touch with the team via our LinkedIn.
Check out the rest of the Navigating VC Series below:
1. So you think you want to raise?
2. How much and when should I raise?
3. Setting yourself up for fundraising success
4. Navigating the funnel: a guide to our deal process
5. Getting in the door — how to land a face to face VC meeting
6. Pitch Perfect: Presenting your business
7. Pitch Perfect: All about the detail
8. Pitch Perfect: What VC’s look for
9. Five Fundamentals: what we look for when assessing new investments
10. Debunking investor myths: what happens behind closed doors?
