Fundraising Lessons: How To Stop Wasting Money!

Two things, Subscriptions, and Hires are the biggest causes to runway issues in startups.

In this article rather than speak of the virtues of not raising funding too early, I’ll focus on how to use funding properly. So that if you manage to get it, you don’t waste it.

Many founders begin like I did, with reading the canon of startups:?

• Zero to One
• The Lean Startup?
• Blitzscaling, and many more…

What became abundantly clear after those books was that I needed funding to start, whether from friends, family, or fools (early investors).

Unfortunately, when you haven’t gone to the right schools, work in the right companies, or fit a certain mold, the advice in those books don’t quite translate as well.

Getting funded is Hard!

There are endless reports on the barriers that women and minorities face when it comes to raising funding.

For me, someone coming from a low income, minority background, and with a limited network, it felt like my only option was to start pitching to investors.?

I went to all of the open office hours, pitching events, and listened to endless founder talks, where they explained how they raised x million ￡ for their ideas.?

One of the most valuable pieces of advice that has proven to be true the longer I’ve been doing this is:

“Don’t look for funding”?

I initially dismissed it as “easy for them to say”, clearly in their privileged position they forgot about the struggles that other founders have to face.?

However there are a number of reasons why this advice was golden.

1. Funding makes you build the wrong habits.
2. You probably aren’t smart enough to spend it well. Yet.
3. It makes you want to please your investors, not your customers

When you first get funding you feel rich, important, and vindicated. You took a risk and someone believes in you, and your company vision.

Yes it feels great… and it’s addictive too.?

Not too many talk about this reality.

Unfortunately we either learn the hard way or or the easy way that you make really poor decisions when you’re feeling… well anything.?

You need to be as stoic as possible, all the time.?

If I were to do the journey again, I’d immediately implement some of the rules that would ensure that I’m acting in an objective manner.?

The major principle that we adopted at Kapsule when it comes to subscriptions:?

Any expense above $500, or any >12 month expense will have to pass the following vetting process from all co-founders:

1. Why is this necessary??
2. Is there a free alternative? If yes, why is this purchase necessary?
3. What problem does this purchase solve??
4. What is the expected ROI of this purchase?
5. How long are we prepared to wait to see those results before canceling / looking elsewhere?
6. If this is a complete failure, what will be the impact on the business?

You’ll be surprised how many “essential” expenses don’t pass the first three checkpoints.?

When you’re a newly funded first time founder, you're an easy target for an experienced SaaS salesmen.?

They know how to play to your ego and get you to spend on something you really don’t need.?

The next rule I’d implement would probably be our most important. It helps us to know when to hire, and most importantly when we should not hire.?

What is the expected increase in revenue as a result of this hire?

This question is common to ask when you’re making a sales hire, but not used anywhere near enough more generally.

Every person in a startup needs to be adding value, whether they are in operations, product management, software development, or indeed sales.

That means it should translate into dollars and cents.

It’s your job as a founder to do that calculation for the expected return on your investments, hires included.?

If you don’t have a clear number in mind, then I'm sorry, you’re at best shooting in the dark, or at worst shooting yourself in the foot.?

• Operations? How many more sales per day/week/month can you expect as a result of a smoother process?
• Product? How much will we earn if we reduce churn by 5%?
• Software development? How much will our price increase once we add x,y,z features?

You get the picture.

Every hire should have a clear way that their work is tied into increased revenue.

That way, if they’re not up to scratch it’s easier to let them go.

You have an objective assessment criteria that you can walk them through and give them ample time to improve, or a clear understanding of why you’ll need to fire them.?

This process is precisely what has kept the Kapsule team so lean over the years.

If we can help it, we don’t hire. If they're not right, we fire.

Hopefully this article sheds light into how we’ve managed to keep our costs low to the point where we’ve been able to validate our business model, and reach profitability while still being a venture funded technology company.

Because we haven't burned a tonne of cash, we get to keep a lot more of our business.