What Actually Happens After You Raise Venture Capital

You’ve pitched your product, networked with investors, and even closed your financing round. So, what happens after the fundraising process?

Here’s a hint: It’s not a long vacation

After months of intense prepping, back-to-back investor meetings, and tense financial negotiations, closing a funding round is cause for celebration. Closing one chapter of the startup journey, it starts another focused on accelerating growth.

Yet transitioning back to “business-as-usual” after fundraising is no longer “as-usual” for founders who now need to allocate funding across their business operations. With more cash on hand, you have pressure to spend it: Hire more people, find a new office, redesign your product, get a COO, and the list goes on.

In this post, I offer first-time founders five do’s and don’ts to consider after closing their first round. I’ve also shared how we approached these different decisions at DocSend after closing our first round of real funding in late 2013*.

Do: Get your finances in order

Getting finances in order is one of the first priorities for founders after closing a funding round. Partnering with the right financial services institution is important for future-proofing business strategies and revenue growth.

• Pick the right bank for your needs. When considering different banks, look for those with experience helping small businesses like yours grow. Reasonable fees and online user experiences are considerations to keep in mind here as well.Explore their customer service offerings and whether they’ll discuss your growth plans and ways to support them. For example, some banks may offer options to plan your automatic payments according to cash flow.
  • What we did at DocSend:
    Before raising money, we put our shared, founder-contributed money into a US Bank account. We initially tried to use the brand in the financial district, but I gave up after trying to explain to them why our business was incorporated in Delaware when we’re located in San Francisco. (They demanded to talk to our headquarters in Delaware, which showed they hadn’t worked with startups before.)After raising, we decided to use a bank that caters more to startups. While we liked the people we worked with at US Bank, it was clear we weren’t their typical clientele. So we decided to switch to Silicon Valley Bank.
• Choose a corporate credit card. Picking a corporate credit card is similar to choosing your personal credit card. Look at its perks and benefits, such as travel rewards, insurance, or cashback programs, and whether they apply to your business.Don’t forget to look into miscellaneous fees, such as foreign transaction and cash advance fees, as well as applicable interest rates. You can also consider a card that doesn’t require a personal guarantee, such as those specifically designed for startups.

Don’t: Overlook your accounting and insurance needs

Unorganized records and scant insurance coverage can quickly snowball into future financial headaches. Be mindful of how you need to organize records for tax purposes and options to best protect your company.

• Set up bookkeeping and tax services right away. Updated, organized financial records are important for filing taxes, as well as providing investors, landlords, and business partners with timely, accurate financial statements.Setting up a proper system, in the beginning, saves you a ton of time and money. Use a bookkeeping service that can do this for you rather than cleaning up messy records down the road.
  • What we did at DocSend:
    The first accounting firm I hired was a referral, and it lasted about three weeks until it immediately became clear they were used to working with traditional SMBs. They didn’t understand how we were spending our money, what our business did, or what our investors cared about. They were also very slow to respond.
    Simplexity understands how high-growth, tech-startups operate, which makes them easy to work with. Especially relative to our first choice, we’ve been thrilled to work with them. They deliver on what they promise, help with a wide range of requests, respond quickly, and proactively get ahead of any potential issues.We pay them a fixed monthly fee, which also makes me feel free to reach out when I need their help.
• Be thoughtful about your company insurance. Be mindful of the coverage types and amounts you need rather than focusing on specific insurance providers. Consider the following coverage types:
  • Directors and officers liability insurance. Since company directors and officers can be personally sued for company dealings, this coverage protects them in litigation. (It may also be required as part of your financing.)
  • Business owners insurance. This is standard coverage that covers your business and assets.
  • Workers’ compensation. This is also standard coverage and generally doesn’t cost a lot to roll in.

Do: Re-evaluate your legal needs

Now’s the time to think about your legal needs for the foreseeable future. Figure out where you need legal support, where you don’t, and which services and tools are worth investing in.

• Re-evaluate your legal counsel needs. You likely had legal counsel to help you negotiate financing documents during your fundraising round. How did you like working with them? If it wasn’t the best experience, this is a great time to consider switching firms.If you only need help for one-off activities like terms of service changes, less-expensive services like UpCounsel could be a good option to consider. For bigger, more important things such as financing, you want to invest in an experienced firm with the right connections.
  • What we did at DocSend:
    We ended up switching firms after our raise. I have great respect for the first firm we worked with, but working alongside a firm with more relevant experience in our space was a better fit for our longer-term legal needs. For example, upon switching to our new firm, Goodwin, their team was great at helping us think through our IP strategy.
• Find a respected firm for your 409a valuation. Since company metrics don’t always exist for early financing, 409a valuations are usually made up of comparables, complex calculations, and firm intuition. Find a respected evaluating firm with a reputation for responsiveness since this valuation has to be done before you can distribute stock grants.Getting this valuation done is also really important before you give out any stock grants, so do it early. If you don’t—and your stock goes up a lot—you could be in trouble. (Just get it done!)
  • What we did at DocSend:
    Scalar Analytics has a good reputation and has been efficient with quick turnaround times. We also found their price to be reasonable relative to other options we considered (some were cheaper; some were far more expensive).
• Don’t stress over managing cap tables yourself. Managing cap tables can quickly turn complicated and time-consuming. If you’re hiring more people and offering stock options to new hires, implementing cap table management software is a great way to keep this organized and accurate. (It also gives you one less thing to stress over getting right.)

Don’t: Make hasty human resources decisions

Your employees reflect your company’s brand and culture. Robust health and benefits packages will help you attract and retain the talent you need to bring your business into its next stage of growth.

• Pair the right benefits with the best platform. Consider everything you’d like to offer your employees before choosing a benefits platform. You want a tool that will provide both you and your employees with exceptional customer service.Look for a simple, easy user experience that also minimizes any need for your direct oversight and management. Consider providers with strong benefits compliance support as well.
  • What we did at DocSend:
    We initially started off using a full-service HR and accounting firm. While they were quite responsive, everything was still manual and we paid them a not-insignificant fee. Zenefits automates almost everything, and you can get things done in one place. They have a fantastic business model in that they act as your insurance broker (for which they are paid) without charging anything extra.For reference, a typical insurance broker does nothing other than collect a paycheck in perpetuity (a percentage of your insurance spend). Zenefits gives you a great software platform for your broker fee and you never know the difference, other than having a useful ongoing software platform to use. I recommend using them from the start.
• Don’t skimp on health insurance. Taking care of your team (and you!) is the best investment you can make. Go for the highest coverage tier you can without too much compromise. While you don’t want to break the bank, you do want to give your employees the best health coverage you can.PPOs and EPOs tend to be the most popular plan types and, unlike HMOs, don’t require a visit to primary care providers before seeing specialists. If you can, use your team’s healthcare provider preferences to influence your decision.

Do: Invest in the right technologies and tools

Improve your operations by investing in the right tools. Look for different technologies that not only automate processes but give you greater visibility into them so you can make more informed decisions.

• Select a flexible expense reporting program. Managing expense reporting is easier to do with a software program than using spreadsheets. You can also use these tools to customize expense policies and define how and when employees get reimbursed.Here, you want something relatively inexpensive with flexible customization options. Consider tools that integrate easily with any accounting tools you’re using, such as QuickBooks Online.
  • What we did at DocSend:
    While Expensify has its usability quirks, it’s been a reliable and easy enough system for our team to submit expenses to. (SmartScan is surprisingly not useful.) We cover everyone’s phone and internet bills, which they submit for monthly reimbursements. Our accountant sets up our policies based on our rules and then handles the reimbursements. (I take care of approvals.)Similarly, QuickBooks Online has been everything we’ve needed it to be. Here, it’s most important that your accountant is comfortable using it. The system makes it easy to put accurate financial statements together that keep us in squeaky-clean compliance.It’s easy for me to look for unusual expenses ahead of each investor update, as well as see how much we spend in each expense category. It also integrates with our expense and bill payment systems.
• Think about the employee experience when choosing a payroll tool. Look for payroll software designed to support startups, especially those with services to help small businesses stay on top of changing regulations and impacts.Go for something with an easy-to-use user interface that’s simple for employees to use. Remember, a good payroll tool is one that makes the entire process simple and easy for all parties.
  • What we did at DocSend:
    Before implementing ZenPayroll, we used another payroll provider that felt like it was made in the 1990s. (Which it was—it just shouldn’t feel like it!) While I was apprehensive about transitioning tools, the CEO of ZenPayroll, Josh Reeves, is a friend from Stanford and I knew it just had to be better than what we were working with.I’m incredibly happy we switched, especially since it turned out to be an easy switch (our accountant was quite helpful). I’ve often had to see what’s actually happening in the payroll system or make personal cost calculations, and I love how easy it is to use the tool. I highly recommend using them from the start.
• Investor updates and board management software. Investors want to know how you’re doing after your raise. Use a tool like DocSend to securely share documents with your investors and the board. You can also update documents in DocSend whenever you need to.DocSend also shows you exactly who is looking at your updates so you can nudge investors who aren’t staying on top of what’s going on. (This also gives you a great signal into which investors you want to let into future rounds.)
  • What we did at DocSend:
    After taking a bunch of money from people, they will undoubtedly want to know how you’re doing. We have board meetings every two months. Ahead of board meetings, I create an updated document and send DocSend links to our board members and observers.After the board meeting, I send a separate document with the board meeting updates to our other investors via DocSend links (even those who don’t have contractual information rights).Using DocSend shows me which investors look at my updates, who they forward them to, and what they spend time looking at. It’s nice to know that if we spend a bunch of time on a product roadmap, people actually look at it. Our investors are awesome, and they keep up to date on our progress. It lets me know that when I reach out for help or advice, they actually know what our status is.I’ve heard from other companies that they haven’t been as lucky. Knowing that investors don’t look at updates is a great signal; it lets you anticipate who will be helpful and who you should let into future rounds.
• Keep bill payment software in mind for the future. Unless you’re generating large numbers of invoices, you may be able to hold off on a tool for this. When you do need automated bill payment software, a tool like Bill.com can significantly improve your accounts payable process.
  • What we did at DocSend:
    Bill.com was recommended by our accounting firm, and it’s really meant to make their life easier. It’s mainly used for things like rent, legal, and contracting bills. I forward our bills as I receive them (or they are automatically submitted), and then approve them once they’re in there. It doesn’t take much time, but it does optimize making payments for accounting.

Bonus do: Consider your office space needs

• Consider working with a real estate broker—or a remote-friendly working model. Before fundraising, lots of founding teams work out of their own apartments. However, this doesn’t scale very well once you start hiring (although some people make it last a surprisingly long time). Find a great broker who can help you secure a space that not only meets your current team’s needs but also supports your immediate growth plans.Alternatively, you can consider different remote-friendly models to maximize your real estate options.
  • Remote-friendly companies give teams the flexibility to work from home or at the office. Fewer people in the office cut down how much space you need while keeping a common spot for teams to work together.
  • Likewise, remote-first models, such as working out of your apartment, are becoming more popular and sustainable. While not having a physical office can be challenging when you’re growing your company, remote-first companies report enhanced productivity and larger candidate pools to recruit from.

Whether your team works entirely in the office, in a virtual setting, or somewhere in between all depends on how you want your company to operate and what you want to achieve.

• What we did at DocSend:
  The first place we moved was into a co-working space called the Hatch at Harrison and 2nd. We looked at a bunch of options, and this space was the best combination of location, price, natural light, and availability of food and beverages.After a few months, we upgraded to our own office. Co-working spaces are great for a while, but they can be distracting. We got a converted loft space that’s 1,450 sq feet in a fantastic building. And while we’ve loved having our own quiet area to code away in, we’ll need to figure out something new once we start hiring a sales team.

In conclusion

The post-close period is the best time for founders to charter the right path forward. By investing thoughtfully in best-fit business strategies and tools, founders can build a foundation for growth that strengthens alongside every round of funding.

*In late 2013, we closed $1.7m from a fantastic group of investors that included SoftTech, Cowboy, Lerer, and angels.