Cue the confetti and pop the champagne: Your startup just secured a mega round of funding. Congratulations!
So what’s next?
Whenever a company receives more funding, its leaders usually have a plan to put that investment to good use—otherwise investors wouldn’t have bet hundreds of millions of dollars on the company’s success.
At Clari, we know how we’re deploying the $225 million Series F funding we received this year from Blackstone, Light Street Capital, Maverick Capital, and eight of our existing investment partners. CEO Andy Byrne shares the details. Of course, with the company’s new $2.6 billion valuation, come even higher expectations.
Having a robust spending plan is a given. But it also takes a dedicated cross-functional team and hours of hard work to implement and deliver the return on the investors' trust. The success of your company depends on it.
As the confetti gets swept away and VentureBeat moves on to its next story, the job is just starting for someone like me, Clari’s vice president of revenue operations.
RevOps leaders occupy a highly strategic position when it comes to spending decisions—our guidance shapes the company’s path forward.
RevOps leaders help companies answer important questions like:
- How are we spending this new funding?
- When are we spending it?
- Which of our different spending options delivers the biggest ROI?
- How does this new funding impact our current budget?
Here are three things RevOps leaders should do when the dust settles after a round of funding:
1. Rebuild the budget
Budgeting is typically an annual or semi-annual process. But a new round of funding changes that. Revenue operations leaders may have to revise the budget multiple times within a year, depending on funding frequency.
After a new round, I work closely with our finance and revenue leadership teams to construct a new budget, based on the influx of cash.
We consider a range of possible scenarios, based on overall strategy, our appetite for spending, and overall market conditions—including factors like a pandemic, competitive shifts, and legislative or political changes affecting our business.
Creating a range of different scenarios ideally means that you won’t need to rebuild your budget from scratch. With multiple options to choose from, you can shift smoothly to another model.
In the past, I’ve seen teams build three budgeting scenarios:
- Conservative spending. This is your safest, most cautious budgeting option. If you go this route, you might be saving up for a big spend later on or ensuring you have money in the bank for a rainy day. One drawback: Conservative spending also means taking a conservative approach to growth. In my experience, the phrase “growth is expensive” holds true. Focusing too much on saving up could stand in the way of accelerating scale.
- Expected spending. This type of spending plan represents the middle of the road. It’s not too reserved or too bold. This approach might align well with your existing budget and further amplify initiatives you already had in motion.
- Aggressive spending. On the flip side of the conservative option is aggressive spending. For example, let’s say you need to fill 20 open sales roles quickly so you can scale revenue generation and meet bigger growth targets sooner. In that case, you may allocate more funds for more aggressive, near-term hiring efforts to build out your sales team.
If an upcoming funding round is underway or likely, budgeting teams will typically plan for these three options, most likely selecting the middle option—i.e. expected spending.
Then, after a major event like a funding round occurs, the budgeting team can then toggle between their options, and select a more aggressive plan aligned with the company’s strategic goals.
The reality of funding and budgeting is that many top companies are, or were at one point, cash flow negative during their growth journey. That’s a fact of growth. Building a successful business has its ups and downs, and series funding can give organizations room to take risks and help them stay cash flow positive for the long haul.
2. Evaluate top spending opportunities
There are so many ways you can slice and dice your budget, especially with additional investment. Creating your path forward after funding is critical. Now that you have a sense of the various spending approaches you can take, you can dive into the details. In other words, it’s time to decide exactly what you’re spending on and why.
The decision criteria I use: My company’s strategic growth initiatives. If an effort doesn’t provide clear, measurable value that aligns with those goals, it’s far less likely to make it into the final spending plan.
Here’s an illustration of how many series-funded companies choose to invest in their success:
- Hiring. Finding top talent is critical for fast-growing startups, especially in today’s highly competitive hiring market. Companies need enough staff to support buyers and customers throughout their journeys. For example, Clari plans to add 300 new employees in 2022 following our Series F fundraising round.
- Mergers and acquisitions. New funding can fuel M&A activity that wasn’t possible with previous budgets. Companies with fresh funding might accelerate their growth by purchasing related companies, or they expand their footprint in current markets by buying competitors.
- Product research and development. Many companies opt to reinvest some portion of the funds back into their products. For SaaS companies, this could mean investing in product enhancements, adding new features or modules, or developing new products to serve more markets, personas, and use cases.
- Market or geographic expansion. Entering new markets and geographies can be a big opportunity, and also a heavy lift. After all, you’re building a net-new team from the ground up in a different culture, where your larger company may not understand the social norms and best practices. But series funding can put expanding overseas or into new industries within reach by connecting you with experts who can ease the transition.
This is by no means an exhaustive list. Companies can spend their funding in a range of creative ways, like investing in category creation, hiring consulting firms, outsourcing functions, starting a reseller motion or channel sales partnership, or even creating entirely new departments they couldn’t afford with last year’s budget.
How you decide to spend is also influenced by your company’s maturity, and in turn, what round of funding it received. Generally speaking, the earlier your funding round, the more likely you are to spend on infrastructure-related expenses, like building out mission-critical teams and processes. Conversely, companies with later stage funding rounds typically deploy their funding to strengthen their status and share in the market.
Let’s look at a few examples:
- Series B: At this level of funding, a company isn’t likely fundraising to acquire another company. This is when early-stage startups typically hire those teams they’ve needed for a long time, accelerate growth, weather the storm, or revamp marketing.
- Series F: More mature companies have more stability and flexibility to take bigger risks. A company with Series F funding is raising huge sums of cash to execute on major market-moving initiatives, like M&A or entering new markets or industries.
Regardless of how organizations decide to spend the cash, RevOps leaders should keep in mind the potential effects of each investment.
3. Focus on the long game
Series funding functions as an investment in your company’s longevity. It’s an injection of sustaining capital to drive future growth. New funds also mean your company can afford to take bigger risks that can deliver bigger rewards over time.
The operative word here is time. Your investors likely understand that it will take time to achieve your strategic goals.
Even after funding, things don’t change immediately for everyone. Depending on your role in an organization, new series funding could change your day-to-day work immediately. For example, a C-Suite executive’s work might change overnight if the company gains new funding for a long-needed new office space. But that’s specific to the most senior leadership roles.
Alternatively, for other roles, a new funding round could mean your work doesn’t change at all in the near term. For example, if funding will be used to hire new customer success managers, greatly improve the company’s 401K plans, or even secure that new office space, those investments likely won’t change the product or engineering team’s daily work.
Delivering a return on investment demands time and forethought. For example, let’s say a startup receives Series B or C funding. That investment has the potential to sustain the company for the next two to four years until its next fundraising event. Meanwhile, during that two to four year span, that company can continue to improve its financials and critical business processes, including revenue, to prove to more investors that it’s a worthwhile investment.
It’s RevOps leaders’ job to make sure today’s series funding lays the foundation for more funding tomorrow. Or better yet, that today’s funding lays the foundation for completing massive growth milestones, like going public.
Funding isn’t meant to last forever. That’s why RevOps leaders at the best-run companies create spending plans that give their companies a strategic advantage for long-term growth.
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