What really happens after securing VC funding?

What really happens after securing VC funding?

Landing your first round of venture capital (VC) investment is a big moment in the life of any founder. It’s exciting, and definitely a moment to savour, but it is a signal that things are set to change.

Raising funding from a VC means enhanced credibility for your businesses, as well as a network of new connections, but there will also be new expectations.

Almost overnight, you can go from making business critical decisions with your co-founders to engaging a wider group of people – many of whom will have strong opinions about your next move. Funding is not a “no strings attached” agreement: in exchange for funding, VCs expect a say on everything from your overall strategy and budget to culture and hiring.

Hopefully if you have good founder-fund fit you won’t be in for any unexpected surprises, but it’s also good to know what to expect once you’ve signed the term sheet.

Let’s take a look at what VCs give you, and what you can expect in return.

Funding designed to fuel your growth

At its heart, VC investment is designed to supercharge your growth: they are giving you the funds you need to build the most successful business you can, ideally as quickly as possible.

They are invested in your success, because if you succeed, so do they.

But it’s not just about the money.

From identifying and making key hires to meeting potential partners and shaping your strategy, it’s a partnership that’s meant to push you to reach new heights.

While they’re not involved in the day-to-day running of your business, VCs offer you the support, and guidance you need to accelerate. In many cases, VC input can make the difference between success and failure, but their input comes at a price.

What VCs expect in return

VCs have a vested interest in the success of your business, because they also need to deliver value to their partners– these are the people who put down the initial capital that VCs invest. Its their business to grow that money as quickly and efficiently as possible – and your business is one way for them to do that.

That means that as a founder, you are a steward of their money – and they will expect you to deliver return on their investment in your company.

To make sure you deliver, VCs take a stake in your business that gives them a voice. Often, that means your Board will grow as you add people who can advise you on your strategy, trajectory and culture.

As a founder, you have a new team to answer to, and although you will make key decisions, there are a lot more people that you need to keep happy.

It’s an arrangement that’s not be taken lightly, because you are effectively exchanging cash for control of your company.

Thankfully, you will have an opportunity to define the details of this relationship when you sign your term sheet. This is an outline of the basic terms and conditions of an investment, and gives you an opportunity to agree on things like control, Board seats, and what happens when your company is sold, or listed on the stock exchange.

Although it’s not a binding agreement, it is essential in helping you reach an understanding with your investors.

Coping with change: Adapting to VC input

Securing VC funding is the first step in reaching your goals, and of a long-term relationship that can change the future of your business.

But it’s not all about the numbers. Raising a round means that you’re going to give up control in your business for the cash, connections, and knowhow you need to make it grow. That means more expectations, stakeholders, and opinions to consider.

Your term sheet is key. Make sure to focus on a balance: be careful with your Board seats, and be sure to focus on what will happen at exit, not just immediate control. You have a right to negotiate, so make sure you do.