April 7, 2020

You've Secured Funding, Now How Do You Spend It?

4 min read

Written by: Guido Bartolacci  |  Share:

You've Secured Funding, Now How Do You Spend It?

Getting funding is a big accomplishment for any company, but what you do with that money is just as important.

Investors don’t hand out money with no strings attached, and you’re now under a lot of pressure to take that investment and drive ROI

The best way to transform that funding into results will depend on what stage of growth your company is at. Here’s how you should use each round of funding:

Seed

You have a business idea that people have bought into. You’ve shared your business model with investors, and they’ve decided to give you money so you can start doing product development and launch your company.

The amount of money raised during seed funding can be drastically different from one company to the next, but they typically fall between $10,000 and $2 million.

The money you get at this stage should go towards getting your business started and building a minimum viable product.

Series A

At this stage, you’ve developed a minimum viable product and have started generating some revenue from an initial cohort of customers, but still have negative cash flow. The primary goal at this stage is to achieve product-market fit, meaning you’ve satisfied a market need beyond your initial cohort of customers. Doing so will put you on track to become cash flow positive and identify where future opportunities might come from. 

Companies typically raise between $2 million to $15 million at the series A funding round. This goes towards hiring talent to assist with different aspects of your business including:

  • Defining your brand story and design
  • Creating messaging and positioning materials
  • Improving your pricing and packaging
  • Conducting market research
  • Investing further in product development

This will help increase your valuation and position your company for future rounds of funding.

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Series B

In order to get series B funding, you typically need to have reached product-market fit. The goal here is to further penetrate the market and expand into the growth stage. You know who you’re selling to, you’ve demonstrated to investors there is a market for your product and you’ve provided projections of how well your company will do based on the total addressable market

The average investment at this stage is between $15 and $50 million

The more aggressive you can be with your growth projections, the more money you can receive from investors — but with increased investments comes increased pressure.

The majority of the funding you receive at this stage should go toward customer acquisition, and that involves hiring and training marketing and sales teams as well as finalizing your tech stack.

You should be re-evaluating your tech stack to make sure your tools can grow with you. As you start adding teams and layers, it’s going to make your systems more complex. Changing software will become more and more difficult after this point. 

On the hiring side, as you look to bring on experienced, effective sales reps, they’re going to have high salary demands, but they’ll be able to propel your company’s growth forward.

As you’re hiring marketers, you can bring them on internally or outsource to an agency

While it’s good to have someone internally who owns your marketing strategy, you can see more immediate results by choosing to hire an agency instead.

When you partner with an agency, you’re hiring a team of people who already know what actions need to be taken for you to be successful. They’ve worked with numerous companies like yours in the past and have developed proven processes for helping those companies succeed. 

This results in less risk for growing companies and their investors because you know what kind of results you can expect from the agency, and the agency can hit the ground running without a prolonged ramp-up period.

Hiring an agency doesn’t have to be a permanent solution either; you can bring on an agency for the first 12–18 months of your growth while you’re developing your team internally. Then you can eventually part ways with that agency or reduce their services to just the areas you need to augment your internal team. 

Series C and Beyond

When you receive these later funding rounds, you’ve already grown your company significantly. At this point, you’re working to continue that trajectory and increase your company’s value by expanding further and eliminating your competition. 

Investments at this stage tend to exceed $50 million

You’ll be using the funding you receive on continued product development and new product lines in an effort to expand into new markets. You may also buy out other companies or merge with them. Finally, you’ll be continuing to hire more employees to support your growth. 

The approach to hiring changes the larger your company becomes. With a small team, everyone needs to be able to do everything. Once you get larger, you can afford to bring on specialists who excel in the areas that matter most to you. You can grow your company as a whole by optimizing each function it’s comprised of.

The Takeaway

The transition from series A to series B is where companies see the big shift in focus from product development to marketing and sales. Each series beyond that is more focused on further expansion.

That first initial shift comes with aggressive growth goals and the pressure to grow as quickly as possible. While hiring internally can be a great way to sustain that growth long-term, in the short term you’ll see faster results from an agency

As companies get larger, the expertise agencies have can still be helpful to augment specific areas. But upon receiving series B, you might be outsourcing entire functions, like marketing. 

So, if you are looking to bring on a marketing agency to help you succeed during the growth stage, it’s best to partner with an agency that can do everything you need, from strategy to SEO to website development to content creation. An agency that owns the whole funnel will care about how everything they do will impact your bottom line. Meanwhile, function-specific agencies will care about the results they’re driving, but they won’t necessarily consider how their work impacts the rest of your marketing and sales efforts.

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Topics: Inbound Marketing, Revenue Operations

About The Author

Guido is a Demand Generation Marketer for New Breed. He specializes in running in-depth demand generation programs internally while assisting account managers in running them for our clients.

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