You Just Raised Seed Funding - Now What?

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Congratulations, you just closed your seed round. No doubt it wasn’t easy. It is also a huge milestone. Experienced founders will tell you the quick celebration is followed by a new question: What should I focus on next?

Seed funding isn’t about “making it”. It’s about proving you can turn investment into return. Here are some key areas we at Three Butterflies recommend founders focus on after raising their seed capital.

• Runway matters. The number one reason startups fail is from running out of cash. Know your cash burn rate (how much is being spent each month) and your runway (total cash / monthly spend). Most investors expect an average of 18-24 months of runway at this stage. 

• Build the right team and culture. The point here is to set the tone early. How things happen at this stage will echo and resonate as scale happens. In practice this means hiring strategically, continuing to operate lean, and keeping options open (i.e. avoid long term leases or major capex spend, take advantage of contract & fractional resources).

• Track the right metrics. Have 3-5 KPI’s that define the business. For a SaaS model they might be ARR/MRR growth, Net Retention, CAC and LTV. For a consumer or usage based model it could be DAU/MAU, engagement and churn. Create a lightweight dashboard and update it monthly. Then share that dashboard with your new investors. This builds trust and more importantly, prepares you for the next raise.

• Get the house in order and keep it that way. Admin, legal and accounting details are not glamorous. But if ignored they cause expensive headaches or even worse, kill deals. Make sure the cap table is clean and financials are complete. Equity agreements should be in place, and signed, for anyone receiving shares. All equity transactions should be recorded and documented. The option pool should be clearly defined with governance rules set. All other contracts are signed and saved. Monthly financial statements (Income Statement, Balance Sheet and Statement of Cash Flows) should be clear and current. Lastly, make sure you're compliant with hiring and payroll laws. This is especially important if you're remote or global.

• Start laying the groundwork for Series A. Everything you do should serve to make raising the Series A easier. At this point, investors are betting more on tangible traction and repeatability than on promise. Start to maintain a simple data room with the latest version of the cap table, financial model, financial statements and key contracts.

The journey is a marathon not a sprint. With the seed stage behind you the mission now is to turn that investment into undeniable traction. That’s because the best way to raise the next round is to make it impossible for investors to say no.