Raising funds from an investor is a major burden for any startup founder. When you finally do encounter an investor who says, “Yes,” and is willing to sign a check, that’s a huge hurdle which you’ve crossed, and you feel like celebrating. In fact, you should celebrate, but remember the yes is just the beginning of a long series of steps which you now need to take in order to make sure that the transaction goes through smoothly.
It’s not that the investor will change his mind – it’s just that now there’s a lot of additional responsibility on you because you’re taking someone else’s money in order to run your company. Your answerability has increased enormously, and you need to accept this.
Funding is a major milestone for your company, and gives you a chance to grow. It’s also a great opportunity to get your act in order. When you are bootstrapped, you don’t bother too much about legal niceties or technical minutiae because you’re doing things by the seat of your pants, and have more important things to think about.
However, now that someone is willing to fund you, you need to make sure that your governance is in place. You need to use the services of an accountant and a lawyer to make sure your paperwork is in order and your agreements are water-tight .
I know this is not stuff which most entrepreneurs enjoy doing. A lot of them think of it as a chore – after all, who wants to waste time worrying about paperwork when you are busy building a great company?
This is the wrong attitude. Once you’ve taken money from someone, you now have a fiduciary responsibility to manage that money properly. You do need to report on a regular basis what you’re doing with it, and how you’re spending it.
Communication with your investor is extremely important, so you need to set up systems and processes to make sure that your company grows and scales. This is now no longer just a hobby you are pursuing.
Running a startup is a full time job, and you need to dot all the “i”s and cross all the “t”s if you want to be successful. It may not be as much fun as tinkering in the lab or selling to customers, but it’s an equally key ingredient, and you cannot neglect this area.
[This post by Dr. Aniruddha Malpani first appeared on LinkedIn and has been reproduced with permission.]
