To start a startup company requires confidence, courage and commitment. To grow your startup demands hard work and the ability to thrive under pressure. And to receive startup funding, your enterprise must exhibit enough promise to warrant that crucial first investment.

External startup funds are basically someone else saying, “OK, your company has come this far – let’s see just how much further along we can go!” Exciting times indeed!

The ultimate vote of confidence, startup funds from investors can also be a little scary. How are startup funds spent, and what have actual startups done with their money? We asked a few startups what their strategy was after suddenly receiving capital. How do their experiences stack up against conventional wisdom?

Startup Funds: Theory vs. Reality

Entrepreneurs are known as mavericks, renegades and “think outside the box” types. So it’s not surprising that startup fund spending advice, at first glance, might appear somewhat pedestrian. Product development, administrative costs and other needs are suggested as the best ways to put the money to use.  But a startup’s initial struggles and small victories have most likely already warranted these kinds of expense budgets.

When that first big cash infusion rolls in, wouldn’t it be better to innovate, to expand, to do something different? Any business created from scratch is a leap into the great unknown. When a startup receives funding, the great unknown becomes a little more “known.”

Any outside capital investment is verification and validation that a company has made it this far, and it’s also a bet from investors that the best is yet to come. No pressure or anything!

Real-World Advice from Real-World Startups

So what’s the best way to put your startup funds to use? Let’s see what some different startups have done with their first large investment – the answers may surprise you!

Hit the Pause Button and Celebrate

Amy Baxter, MD, an entrepreneur who found MMJ Labs, thinks that celebrating company milestones is a big deal – and that’s exactly what she did with over $1.25 million in funding from a NIH grant and a Chase Small Business Grant. And when it was time to celebrate, Dr. Baxter’s thought process was, “The more, the merrier!”

According to Dr. Baxter, “As a startup one of the risks is not celebrating milestones well enough.” So when the Chase grant surfaced, MMJ Labs threw a party at a local bank, and everyone involved in the startup’s growth – from the mail carrier who delivered company product to some dedicated high school workers – were invited to the celebration.

Meanwhile, the NIH grant was dispersed more steadily, which created a more level-headed approach. “It happened so gradually we started spending budgeted money before the actual money was really in hand. We were more stressed-relieved than euphoric,” said Dr. Baxter.

The message from MMJ Labs? Be responsible, but also take the time to mark significant milestones. And one other thing – keep some memorabilia from that first party. “We saved the champagne bottle to put on our Milestone wall,” said Dr. Baxter.

Put Yourself First

There’s nothing wrong with being “selfish” with startup capital – just ask Dotan Bar Noy, Co-founder & CEO of ReSec Technologies. “After we received our funding, the first thing we did was open a bottle of
Glenfiddich 21 to celebrate. We also surprised our team by moving to a new office space.” But it wasn’t any ordinary office space. ReSec’s operations manager was deployed to find and prepare the space with no one else knowing about the funding, making the move that much sweeter.

Funding = Hiring

Startup growth starts with its people, and that’s not lost on Noy. “Like most software startups, funding leads directly to hiring, so we’re now in the middle of a large hiring process, for everything from
developers to sales reps.” After all, that new office space is going to need some people to fill those empty offices and cubicles!

Dave O’Flanagan, CEO & Co-founder of Boxever, also used startup funds to expand his company’s scope and scale. “We closed a series B round of funding that will be used to support strategic growth initiatives, including expansion of sales and customer support efforts globally, and significantly increase hiring across product and engineering to enable continued innovation in the Boxever Platform.”

Back to Basics

Kimberly Harrison, founder of air-free baby bottle manufacturer Bittylab®, used nearly a half-million in startup funding to further fuel company growth. “We need this money to purchase inventory to fulfill orders, as our product just launched in 185 Babies “R” Us stores all around the country.” Sometimes, startup capital already has a mission, even before it comes in. For Bittylab, the funds couldn’t have come at a better time!

Harrison’s methods were also utilized by Chris Huxley, founder of Trendly and Startup Soldiers. With two rounds of funding, Huxley immediately put the funds to good use. “The first round was to build and test our product and to recruit early adopters. This gave us traction to raise our second round. Our second round of funding was used to build our team and ramp up our marketing efforts. Most of our funding is used to improve our product, improve our team, and to make sure all of the right people know about us.” A classic blend of product innovation and team-building – always a smart way to spend startup capital!

Spend the Funds to Spread the Word

Many startups use their funds to enhance their brand, and marketing is a primary concern. That’s exactly what Danita Harris of Rated M Wine Infused Foods did. “When we receive money, it goes towards furthering our endeavors, like marketing. That’s where we are now. Prior to this, other injections have been used for R&D, packaging and other needs related to our launch.” Rated M’s slick,  newly-designed website is proof-positive of their startup spending strategy.

For Dale Calder, CEO & Co-founder of RevTwo, past experience shows that growing a company brand pays off. Calder’s past enterprise, Axeda, completely changed its business model with great results. Part two of the story? Building awareness about RevTwo.

Fund Inspiration

Ever dream of dining in an idyllic foreign land or even on another planet? Endless lunch trips to fast food joints can get tedious, so Alon Melchner, President of WakingApp, thought of something entirely new to do with a $4.3 million Series C round of funding. Explosive growth demanded a larger office space, so Melchner created “a multi-layer office that would incorporate the physical and virtual world while adding magic to our office and our employees’ environment.” And how did this translate into the real (well, virtual) world? “Guests and employees can experience augmented or virtual reality content via any wall in the office just by putting on a set of AR or VR glasses. They can also create their own VR
content and view it on any wall, move around the furniture and re-design the rooms. Our employees can even eat lunch in an African safari or on Mars.” Enjoy the salad – but watch out for those stampeding elephants!

  • Mark J.

    Nice article – as someone who is considering starting a business, this is great info. Thanks again!

    – Mark

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