Work backward from the last money you will ever raise — the IPO? The round where you get profitable and start returning profits?
Work backward to now. This round is usually not it. This round is how you set the table for the next one.
The first raise is so hard, especially for new founders, that it has an amazing feeling of freedom. Finally we don’t starve any more. Finally someone believes in us. We can finally do the things we wanted to do!
Not so fast.
For the next stage the demands will be high. You don’t know what to do yet. There will be bad news.
So the way to spend the money this time is to de-risk the story for next time. Peel the onion of risk. What can you accomplish this time — what one or two things — that will demonstrate readiness?
If you don’t the answer ask. Many investors said you were “too early” this time. Call them. “Hey! We closed the round and have been doing great. Here are some updates. We are preparing for the next phase. What would you have to hear to invest in an X dollar round in one year?” X should be double of today’s round at twice or three times the price.
What you hear is real. And will have some nuance judgments you need to make.
But when you decide the right answer you will know what to do in this round: spend only on the things that prove the next round’s assumptions.
Ignore the rest.