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Hey friends,

I have seen a lot of advise coming towards how to raise a fund but I also think that so many companies have raised a lot of capital but had to file for chapter 11 (worst case). That begs a question, what should you, as a founder, should do once you have closed a round.

In one our previous podcast episode, I had the pleasure of conversing with David Peterson, who led growth for Airtable and now working as a partner at Angular Ventures. We delved into a critical topic for every founder: the effective use of funds post-fundraising. Here’s a distilled version of our discussion, filled with insights and practical advice on how founders can navigate this crucial phase.

Understanding the Purpose of the Funds

The first and foremost step after closing a funding round is to clearly understand the purpose of the funds. David emphasized that a startup is essentially a small group of people dedicated to testing a novel hypothesis for creating outsized value. With this definition in mind, the money raised should be viewed as fuel for running experiments to test this hypothesis.

Founders should ask themselves:

• What key hypotheses are we testing?
• What are the specific goals we need to achieve to validate these hypotheses?
• How can we design experiments to get definitive yes or no answers as quickly and cheaply as possible?

This mindset shift—from viewing funds as mere resources to seeing them as tools for systematic experimentation—is critical for effective fund utilization.

Designing Effective Experiments

David highlighted that the best founders are excellent experiment designers. Effective experiment design involves:

• Setting Clear Objectives: Define what success looks like for each experiment. Is it acquiring a certain number of users, achieving a specific level of engagement, or hitting a revenue target?
• Hypothesis Validation: Ensure each experiment is aimed at validating a specific hypothesis. For instance, if the hypothesis is that a new feature will drive user engagement, design an experiment that can measure this impact accurately.
• Resource Allocation: Allocate resources (time, money, manpower) judiciously to each experiment. Avoid overcommitting to a single initiative without clear indicators of its potential success.

Prioritizing Experiments

Not all experiments are created equal. Founders need to prioritize based on potential impact and feasibility. David shared some practical tips:

• Impact vs. Effort Matrix: Map out experiments on a matrix of impact vs. effort. Focus on high-impact, low-effort experiments first to maximize return on investment.
• Iterative Approach: Adopt an iterative approach. Start small, test, learn, and scale successful experiments. This minimizes risk and ensures continuous learning.

Avoiding Common Pitfalls

During our discussion, David pointed out some common pitfalls that founders should avoid:

• Overhiring: One of the biggest mistakes is hiring too many C-level executives too early. While having a strong team is essential, overhiring can quickly deplete funds without immediate returns. Founders should focus on building a lean, effective team that can execute key experiments.
• Misaligned Spending: Align spending with strategic goals. For instance, if the goal is to achieve product-market fit, the majority of funds should go into product development and user acquisition rather than premature scaling efforts like large marketing campaigns.

Leveraging Investor Expertise

Investors can be invaluable partners in the journey post-funding. David stressed the importance of leveraging their expertise and networks:

• Regular Check-ins: Schedule regular check-ins with investors to review progress, discuss challenges, and get feedback.
• Advisory Role: Use investors as advisors for strategic decisions. Their experience with other startups can provide valuable perspectives and avoid common mistakes.

Capital Allocation Mindset

Founders should see themselves as capital allocators. David explained that successful founders think of themselves as capital allocators rather than just product builders. This involves:

• Strategic Investments: Making strategic investments in areas that will drive growth and value. This could be in technology, talent, or new market opportunities.
• Resource Optimization: Continuously optimizing the use of resources to ensure maximum efficiency and impact. This includes being frugal and making data-driven decisions.

Long-term Vision and Flexibility

Lastly, David highlighted the importance of maintaining a long-term vision while being flexible. The startup journey is unpredictable, and founders need to be ready to pivot based on new learnings and market changes. However, this flexibility should not come at the cost of losing sight of the long-term goals.

In conclusion, effective use of funds post-fundraising is about strategic experimentation, prudent resource allocation, leveraging investor expertise, and maintaining a capital allocator mindset. By following these principles, founders can navigate the post-funding phase successfully, driving their startups toward sustainable growth and success.

Stay tuned for more insights from our podcast series, where we bring you valuable lessons from industry experts.

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