Stages of the Startup Journey - #8: Funding Round 2 (and 3 and 4 and...)

Stage 8: Securing additional funding
These next few stages are more nebulous because the progression of your startup and how you grow, scale, development new things, and eventually exit your company are so unique to each individual. For the purposes of our discussion, we will assume that you are on the most traditional journey, and that at this point you want to increase your offerings or add new features. For that, you’ll likely need an additional round of funding (or 2 or 3 or…).

Money just got cheaper for you
The rules at this stage of the game are very similar to the first time you went out for funding, with one big exception: You can show much more value in your company now! That means that you will be able to secure new funds at a much cheaper rate than you could before you had revenue and customers, and there may be new types of options available to you that you didn’t have before, too. Pre-revenue, you might not have had the option of low interest loans or lines of credit, but now you will most likely be able to leverage those types of funding vehicles, because you present a lower risk. If you do decide to do more equity funding, you’ll be in a position to potentially give away less of your company in exchange for more money simply because you have proven results to show now.

And it’s MUCH easier at this point to set a real, verifiable valuation on your company. Again, because you have real revenue and live customers, you can look at your progress against your projections and know that the value you place on your company is legitimate and backed by sales. This in itself will set you ahead of the pack!

Make a plan… and talk to your customers again
If you are following the rules in Stage 7 and listening to your customers, then this will already be an easy thing to do. When you look to raise money, your investors are going to ask what you plan to do with the money. HAVE A PLAN, and make that plan based on the feedback from your existing customer base. If everyone’s 100% happy and needs or wants for nothing (unlikely, but go you if so!), then you can plan to spend most of your new raise on future sales and marketing efforts.

It’s likely that you’ll spend it on a mix of new feature development or product offerings, process improvements and business-y “stuff”, and sales and marketing efforts to gain new customers and a larger share of your market.

Start with your existing investors
The best place to start looking for new money is in the places the old money came from. Investors often like to double down on investments that look good and are paying off for them. Always respect your prior investors by giving them the opportunity to invest new money first. They’ll thank you for it, and it’s a natural opening to have a conversation with them about your progress, giving them an opportunity to ask questions and hopefully get excited about being in business with you.