Aligning the Startup Team Strategy with the Capitalization Strategy
The single most important factor to raising capital for any tech startup is the management team. This is true for early stage funding as well as venture capital funding. A bonafide team is the assurance that the idea can be executed and that the business can scale when the time is right. Furthermore, when faced with adversity only great teams can respond to competitors, markets, funding environments, staff departures, PR disasters and the like.
When building the team, avoid these common myths and mistakes:
- A team is not one person and investors rarely want to invest in one-man shows. While some investors will be willing to help you build your team, they will not be willing to invest in your startup if you are not willing to distribute responsibility and bring on diversified expertise.
- Never confuse the number of years worked with experience. Credibility is based on accomplishments and relevant experience. Furthermore, a startup works differently than a large corporation. Try to build a team with startup experience as these individuals will be far more likely to understand the importance of flexibility, perseverance, collective success and team playing.
- Have a diversified team. One recipe for failure (business failure and capital raising failure) is building a lopsided team weighted to one function of the business. Don’t hire people with skills and qualifications similar to yours. If you have a technical background and you are focused on product development, consider a co-founder with a sales and marketing background that can focus on selling your world class product.
- Hire based on functionality and avoid having too many C’s. Rather, give titles such as VP of Engineering, Product/Technology, Sales, Marketing, Finance, etc. This helps to better divide the work, make people accountable, and show investors just why each founder/hire is key to the organization.
- Don’t make everyone a founder. Be sure to leave plenty of equity for investors. You will likely need to raise more rounds of capital than you originally anticipated. Having too many co-founders will only lead to your eventual dilution.
- Hiring the right people at the right time is key. You shouldn’t hire a senior executive from an established company for an early stage startup. On the flip side, when it comes time to scale the company, the founder and CEO may need to relinquish their CEO title and hire a CEO with the ability to drive efficiency, make incremental process improvements and expand on the established market presence. Below are some tips for aligning the startup team with the capitalization strategy.
With little to no revenue, many early stage entrepreneurs turn to the Co-Founder model to build credibility for their startup when raising seed capital. This is not a bad strategy when done correctly. The reality is that over time most founders will have their differences. While you should be prepared to give up a large portion of the company’s equity to a co-founder, it is important that one founder maintains a majority share and creative control.
Additionally, be sure your co-founder is well diversified from your skill sets and traits. Investors understand that you wont have all the pieces to the puzzle at this early stage. But, the more business functions that you can divide among the original team the better.
Seed to Series A
For most tech startups, the Series A round allows the team to expand by making some key hires. Typically, these hires fall into 2 buckets: product development and sales. The CEO of the company will be in charge of leading the company by making these key hires, product managing, driving sales and understanding the companies financial situation. This leaves the CTO / Senior Architect to focus on product development and managing the recently hired engineers. On that note, it is important for high-tech companies to keep tech development inhouse.
Series A to Series B
Series B capital signifies that the company is ready to scale. Key hires at this stage should reflect this strategy. First, hire an office manager that can double as an admin assistant thereby allowing founders to not get bogged down in minutiae and focus on growing the business. Hire a VP of Finance that can increase profitability by monitoring operations, legal fees, HR expenses, office space and the like. Hire a diversified base of sales reps. While consultative reps are key to building new business with big accounts, relationship managers are key to retaining those accounts.