Securing investment is only half the battle for a startup.
Once founders have secured funding, what should they do with it?
Soldo’s recent research into the raising and spending habits of 251 startups found that for founders, the gulf between raising and spending has never been wider. Somewhat surprisingly, 42% of participants stated that it was ‘moderately easy’ to secure funding, and 28% said that it was ‘very easy’ to secure funding. There are a far wider variety of ways to raise money for an early-stage startup than there once were, ranging from bank loans, accelerators and venture capitalists, to crowdfunding and angel investors.
But securing funding, even if logistically not as difficult as it once was, is now more often than not rooted in high personal stakes. Whilst 44% of surveyed startups utilised a bank loan, a staggering 101 participants admitted to using personal funds, and a further 63 sought financial assistance from friends and family.
Personal vs. company money
This blurred line between personal and business finances has a knock-on effect on company spending. “I worry significantly less about my own personal finances than the company finances,” said Charles Armitage, founder of care home recruitment startup Florence, in Soldo’s Dough Stories series.
It’s a complex position, inextricably linked to the notion of ‘founders’ guilt’, as chief executive coach Dave Bailey explores in Medium. Founders feel an ‘obligation’ to their employees, because people ‘have put their faith’ in their dream. The buck stops with the founder; ‘all of the problems that no one else in the company can solve’ are laid at their door. This sense of responsibility, though somewhat inevitable, shows that spending company money is a far more loaded concept than one may initially assume.
“I worry significantly less about my own personal finances than the company finances”
As a founder, your spending decisions affect not only the success of your business, but the lives of your employees. A key example of this is the issue of salary; how much should a founder take?
Founding a startup is no picnic, and arguably the salary — providing the company has the capital — should reflect the time and effort that the founder puts in. However, this must be balanced with a fair and nuanced consideration of the financial incentives and support that your employees need. No founder wants to be seen putting their own financial interests before those who they expect (especially in the early stages) to work extremely hard to fulfil their vision.
Sometimes, founders might have to take a pay cut to attract the talent their company needs to succeed. When asked ‘if you were given an anonymous cash donation of £1,000,000 to the company business in 2020, how would you spend it?’, 37% of participants chose hiring new staff as their priority. Undoubtedly, the quality of people that you hire can make or break a startup. But in order to attract a certain calibre of candidate, a degree of financial compensation is expected.
Running a company is a constant balancing act between personal needs and business needs.
Making the ‘right’ decision
The data reflects this; when asked about the biggest challenge they faced in spending money on growing their company, 63 participants replied that it was personal fear of making the wrong decision. This sense of paralysis, and burden of making the ‘right’ decision when it could potentially impact not only your career, but the financial stability of both yourselves and the employees that trust you, is just one of the less openly discussed pressures that founders face when dealing with company spend.
This glimpse into the hyper-pressurised world of startup finances demonstrates that perhaps there needs to be a shift in focus away from not only the struggles of raising money, but the complex and often highly personal dimensions of spending it. This adds a new facet to the candid conversation around raising and spending that Dough Stories seeks to cultivate, and reinforces the necessity of a greater openness surrounding the subject of money in the context of building a company.
In doing so, perhaps founders and business leaders will be empowered and enabled to make smarter spending decisions surrounding company dough, and cultivate a network of support that would facilitate a greater understanding surrounding the stress of the spending process.