Dear SaaStr: What are some no-no’s when it comes to funding a startup — and working with VCs?
Here’s my list of top No-No’s:
- Never assume your existing investors will write you another check. They may, but it’s hard to predict if they will. Just assume any more money has to come from new investors. You’ll plan much better that way. This is my #1 no-no by far. A related post here.
- Make sure the money lasts at least a true 18 months. Your investors are assuming that’s how long the runway is, maybe even 24 months. And make sure you have a real burn rate budget that you truly track — and keep to. More here.
- Don’t ghost your investors. Well, you can, but they won’t really be part of the team if you do. Update them every month like clockwork. Even when things are tough. In fact, especially when things are tough. Investors in startups expect tough times along with the good times. More here.
- Don’t hide stuff. It’s hard for investors really ever to do enough diligence, so it’s actually easy to hide stuff. But trust will be broken forever. This comes back to bite you.
- Make sure your salary, if any, is proportionate and fair. And get it approved by your board. You don’t want to underpay yourself — once there is enough revenue coming in. But make sure your comp, if any, doesn’t drag the company down.
- Don’t pay yourself back for stuff before the investment that isn’t approved and disclosed. If you are going to “pay yourself back” for anything pre-funding, make sure the investors know about it and are OK with it. They may be, especially if it’s small compared to the overall size of investment. But make sure they are OK with it.
- Run toward bad news. Share it early. VCs don’t want bad news, but they’ve heard it before. They expect some. No startup is bump-free, or without drama. But what spooks folks are surprises.
- Put the company first. When founders put themselves ahead of the company, that spooks everyone. It may be rational on some level. But the best founders always put the company first. That’s how you build something generational.
And more here: