The Series A Culture Problem

I had lunch yesterday with a COO who I respect at a business that I think has legs.  He was telling me that they are within days of closing a large Series A.  Almost immediately, I felt a little sorry for him.  Not because his investors are problematic or because the dilution is substantial (respectively — they probably aren’t, and yikes), but because the young, scrappy and hungry place he works probably is about to change.

I’ve seen this movie before.  I once took over as CFO of a once-bootstrapped software startup that immediately after its large Series A proceeded to (a) dramatically upgrade its office space and furniture, (b) buy brand-new computers for everyone, (c) hire a bunch of engineers in under 30 days and (d) start flying business class.  Another company had hired a suite of C-level people despite having only a tiny business to manage (and they all got C-level titles).  Still another decided that they’d run a lot of expensive marketing promotions without really knowing how to test them.

Another decided to spend on a tradeshow booth whose one-time cost made me gasp and had no possible ROI justification.  But they wanted to show their new investors that they were putting their money to work.

It reminds of what Richard Dreyfuss said about his rocketing to superstardom at a young age after Jaws: “too soon”.

Beware the Series A culture problem, where a sudden influx of money turns the oxygen thin (related problem: “ping-pong” conundrum, where a table is a signal that a startup is very focused on culture, and not so much on work.)  It creates a lot of headaches if you’re not aware of it.

My advice: run for at least 30 days as if there had been no Series A.  By all means, clear some payables, and make the job offers you’ve been hanging onto just in case the round doesn’t come together, and if you need to true up people who are below market, go ahead.  Other than that, try to hang on.  Run the business.  And, make sure everyone is aligned on the fact that it’s still a startup where the demands on the company’s resources still greatly outstrips the supply.

 

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