9 Ways to Use Funding to Prepare For Your Next Raise

Jason Yeh and Jonathan Lee
February 25, 2022
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Community

We mostly cover how to get fundraising, but a month ago I ventured into the world of things to do after you raise. What about more specifically how you should use the money you raise?

It’s one of those questions that SO many people have but feels too dumb to ask.

Not too dumb for us though!

My teammate Jonathan took on the assignment by going straight to the source.

So, Jonathan, what’d you find?

After the positive response to our last article on post fundraise strategies, it made sense to go deeper. I personally had the question of how best to use a newly closed round of funding to setup a startup for success and to get to the next raise.

To get to some answers, I asked startup owners and business consultants to share their best advice. 

From speeding up processes to hiring an M&A expert, there were several suggestions I thought stood out.


Here are nine ways to use funding to prepare for the next raise:

  • Speed up Processes to Gain a Competitive Advantage
  • Place It into Savings and Investing
  • Find Ways to Cut Costs
  • Fund Product Development to Ensure a High ROI
  • Invest in Foundational Aspects of Your Business
  • Invest in SEO Tools
  • Search for a Repeatable and Scalable Sales Model
  • Increase Salaries and Hire Top Talent 
  • Hire a Merger and Acquisition Expert

 

  

Michael Sena, SENACEA

Speed up Processes to Gain a Competitive Advantage

“Many successful startups require capital to achieve their goals fast because delaying that can wipe out their advantages. Whether it's launching an innovative product or a favorable regulatory landscape, the speed of coming out with the MVP is often the crucial determinant of long-term strategic advantage. Using raised capital to speed up the route to a strong market position is also the best way of showing the growth execution potential to future investors.”

Olivia Young, Conscious Items

Place It into Savings and Investing

“To get your company ready for the next raise, place the money directly into the savings and investing accounts. Make the money work for your business before you are able to start up the next raise for the business stage. It makes it easier to stay within the current market.”

Brandon Brown, Grin

Find Ways to Cut Costs

“Now that you have received funding for your start-up, it's time to invest that money in ways that will help you out in the long term, rather than the short term. A great way to do this is to invest in ways that will lower costs that are required to offer your product. Maybe consider buying the goods necessary to create your product in bulk, so overall the cost of purchase lowers. Or you could invest in purchasing the tools required to make your product instead of having to rent or pay someone else.”

Jean Gregoire, Lovebox

Fund Product Development to Ensure a High ROI

“Use your first round of funding for product development. Ensure you have enough products to meet the demand of your customers. Use the money to source materials for your current products, as well as develop additional products. You’re more likely to receive another round of funding from business contacts if you can prove the success of your original idea and the astonishing return they'll receive.”

Hire a Merger & Acquisition Expert

"Hire a Mergers & Acquisition (M&A) expert to start helping you work on your next round of funding. While you grow the company, this person will pitch the idea to new investors. That way you are ahead of the game from the onset. Find your M&A partner through referrals or headhunters."

-Crystal King, Amazing Baby

John Ross, Test Prep Insight

Invest in Foundational Aspects of Your Business

“A lot of times after founders get their first round of funding, they spend it on useless expenditures. The first is usually a new office space with lots of glass and exposed brick, followed shortly by a harebrained growth strategy that doesn’t pan out. Instead, my best advice would be to invest in the foundational aspects of your business that will keep you growing steadily. To me, this means investing in your team, and your products and services with the highest ROI. By building a solid foundation, with a happy and productive workforce, as well as steady cash flow, you won’t be at risk of downturns (or complete collapses in some cases). In short, by spending your first round of funding wisely, you’ll prove yourself trustworthy and capable for the next round. VC’s and angels don’t want to see money spent carelessly with no return. To me, steady, incremental gains across all parts of your business are more valuable than giant swings and misses.”

Matt Miller, Embroker

Invest in SEO Tools

"Invest in more advanced SEO strategies, whether this means subscribing to more SEO programs or using marketing agencies that specialize in SEO. SEO is a crucial part of digital marketing and will increase your business’s brand awareness and growth."


Jonathan Tian, Mobitrix

Search for a Repeatable and Scalable Sales Model

"After increasing customer traction with the recent round of funding, the next step is to search for a repeatable sales model. This milestone greatly increases your valuation and attracts growth stage investors who like to invest in companies ready to scale. Scaling the business will usually start to see the business’s valuation increase linearly as a source of revenue and profitability as investors look to get rewarded. At this stage, your startup company could benefit from offsetting the negative cash flow with the next raise while the business continues to grow."

-Jon Carder, Vessel Health

Increase Salaries and Hire Top Talent 

"A recent survey by Willis Towers Watson shows that U.S. employers are expected to offer an average raise of 3.4% to their employees this year - a mark that exceeds the previous two years. Inflation figures are a reason for it, as is the more aggressive pursuit of available talent in the midst of the Great Resignation, experts have said.

The bottom line is that many employers should be in a good position financially to increase salaries and hire top talent considering the candidate pool is deeper and better than it has been in recent memory. Businesses should have deeper coffers considering that more workers have stayed home during the pandemic, leading many companies to cut back on utility and travel costs, as well as various operational expenses. There should also be positive rates of return on many investments considering the performance of the stock market. That extra money should translate to higher salaries offered for new and existing employees."

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