The Post-Investment “Work Product”

Written by
Sam Huleatt
Date published
January 6, 2024

Have A Plan to Unlock Your Next Funding Round

One of the mistakes I made with my first venture-backed company, Workstreamer, was not having a specific plan of what we’d accomplish between funding rounds. Directionally we wanted “traction”, but I didn’t have a good sense of what traction meant, or how to convey it properly to investors.

What I failed to appreciate then is the importance of:

  1. understanding what it takes to “unlock” the next round of funding
  2. being able to articulate the “work product” you have accomplished with current funding

As an investor, I’ve seen that top founders, tend to devise work product plans by working backwards: they identify the key milestones and proof points that will need to be “true” in order to secure more funding. Top founders can also succinctly explain what experiments they have run, what lessons they have learned, and what key business areas they are actively de-risking. From an investors perspective, this inspires confidence that investment dollars are being allocated efficiently.

Milestones That Unlock Funding Rounds

Caveat; there are no hard and fast rules on what metrics magically guarantee a round of funding.

There is no one specific metric that determines whether or not you’ll raise capital. Instead, your specific goal posts will be nuanced and dependent on the market, the ability to sell the vision, team strength and assembling proof points that convey momentum. At pre-seed, some founders perversely learn it’s easier to raise on the story, than on the actual metrics.

That said, as founder, it’s your job to triangulate into what key milestones (and narratives) need to be true to get to a next round.

Here’s Martin Tobias of Incisive Venture talking about this exact concept (start 00:16:22)

A failure to account for future milestones is a frequent blocker to fundraising. As an angel it’s an immediate red flag if a founder is raising the wrong amount of money. As an example, many founders believe it’s easier to raise less money, so they pick what sounds like a small, reasonable amount: say $250,000. The problem is that investors know 99% of businesses will not be able to prove much, if anything, with only $250k.

Types of Proof Points

Frank Rotman of QED, has a great tweet on three risk types founders should consider when fundraising.

  1. Tangible Proof
    • Backward looking:
      • What metrics were hit? Is value creation accelerating?
  2. Forecasted Proof
    • Forward Looking
      • What data points (or plan) can provide existing investors with confidence that in 6-10 months the company will have improved its position such that new investors will be excited to lead a new round at a higher valuation?
  3. Proof Relative To Price
    • Has the startup de-risked enough relative to its valuation?
      • Investors are also concerned with the price they pay for a deal. Maybe your metrics are off the charts, but trying to raise a $30 or $40MM pre at seed, will narrow the aperture of investors willing to take an expensive risk, or receive less ownership than desired.

Articulating Your Work Product to Investors

There is a great VC metaphor that venture capital is like poker, in that each time an investors flips over a new card, they learn bit more about that particular hand (i.e., they learn a bit more about your company’s potential). The problem is that each flip costs the investor money. Investors are constantly weighing probabilities: “is it worth the money to flip over one more card?”

Taken from this perspective, you can appreciate how a founder who clearly articulates what was accomplished with the last card flip — and what could be accomplished with one more — stands a much better chance of raising a new round, versus a founder who can only speak to subjective data points, like traction. VC’s want to know:

  • what has been learned?
  • for how much money?
  • and how quickly was it learned?

Many founders know what they’ve accomplished, but struggle, or forget, to share those learning in a way that resonates with investors. It reminds me of my algebra teacher who always reminded the class: “show your work!”

When in Doubt, De-Risk Existential Threats First

Keith Rabois is a proponent of having founders work on the hardest business challenges first, i.e., focusing on the existential threats.

As a first time founder I often found myself getting caught in the trap of doing urgent, but not necessarily mission-critical work. As founders there are a million things we could be doing that seem important like website copy, attending an investor meeting, or talking to a potential hire. However, founders should really ONLY be focused on the few crucial things that are make, or break for the company. The more easily you can show investors what you’ve de-risked with their prior investment, the more likely they will give you more money.

Raising a new round of capital is never easy, but you can reduce process friction by knowing how investors will evaluate your progress and working backwards to create a sounds plan of attack.