Below are some suggestions for a company developing its operating plan for its Series A financing:
- Does the plan assume enough engineers and time to build a compelling product? Many times, this requires another release.
- Does the plan assume enough sales and marketing expenses to achieve the bookings target? A simple metric measures the sales and marketing productivity, commonly called the magic number.
- Does the plan assume enough time to close the leads?
Plan for next financing round.
- Will the next round be priced at 2x the Series A price per share? If not, why should anyone want to invest now? See blog post on Valuation challenges.
- What Value Creation Milestones do you need to achieve to achieve that valuation target?
- When do you need to close the next round of financing? Usually 3-5 months prior to your zero cash date (some memorize this date, the ZCD).
- When do you need to start raising the next round? At least 2 months before you need to close the financing.
- If possible, defer all expenses unless absolutely necessary to close the next round. A high monthly burn scares the potential investors for the next round.
- Be opportunistic on raising the next round. Great startups close the next round before achieving the VCM's for the next round. See blog post on Refueling High Burn Startups.
Many startups assume that the next financing will naturally occur or that the new investors will magically make it happen -- until the company runs out of fuel.