Operational and Risk Management Changes
As we dive into the third blog post in our Series B sequence, let’s examine how your risk management approach must change to keep pace with your company’s new momentum. Series B is unlike any other funding rounds, mostly because it shifts a business’s goals drastically from the hustle mindset to a laser-focused vision of strategy. With the input of Senior Associate at Mission OG, Kevin Leonard, let’s explore some of the operational and risk management changes you must navigate in a Series B round.
You, the founder, are a primary focus during a Series A round. At the heart of the hustle, venture capital (VC) investors typically want to know that you’re an expert in your industry before doling out any capital toward your endeavor. However, Series B investors are interested in more than you; they want to closely know your team.
A Series B is different from any other round. This one can make or break your company in a way, unlike any other. The one primary difference is often in the quality of your management team. A strong, excellent team can carry you through, even all the way to IPO. But most founders don’t honestly know what a “strong, excellent team” looks like — but investors usually do.
Our featured expert, Kevin Leonard, shares what’s typically on a VC’s radar:
I think it’s a little bit less around objective parameters, but I think it really comes back to the idea of a company’s readiness to scale
Naturally, your management team plays a large role in accomplishing the company’s mission, no matter what that is. Still, Series B rounds encompass a specific strategy, and any supporting management team needs to embrace the same focus.
Consider that Series A is all about hustle, while Series B is more about a strategy. Leonard expounds on his initial idea, “I think at a high level, the number one (must-have qualification) is management. We really want to target CEOs and teams that have a unique insight on the segment they’re disrupting and have built out a complementary team that balances the strengths and weaknesses of the group.”
Additionally, investors typically look for particular traits in a management team, including:
After a Series B round is often the most challenging time for companies, mostly because it’s the time to execute all the grandeur plans. However, to make these dreams come true requires more than spunk or drive — unlike a Series A. Hiring leaders with a knack for strategy is a must.
As mentioned, your management team must have varying skill sets to bring to the table. And each of those skill sets must have a specific aim, instead of being scattershot. After all, isn’t that why you want them on your team, to accomplish a particular mission? Investors want to know that you’ve covered all the plan details to disrupt an industry, and the management team you plan to hire plays a significant role in that.
Startup companies are notorious for having relaxed and easy-going company climates. Sure, there’s a tremendous amount of hustle happening, but on that same note, “bring your dog to work” day is often an everyday occurrence. Please know this; your company climate and internal processes will change after a Series B round — but it’s up to you to make it a positive experience. Although we’re not here to tell you how to run your company, here are some vital points to consider.
Onboarding is more than merely setting a newbie up with a company email address. Instead, be sure to connect all new hires with the core employees of your company. This approach will maintain your organization’s core values and nurture healthy respect — encouraging fresh hires to listen and connect more.
During a Series B funding round is often a stressful time. Your management team is working long hours and pulling all-nighters to get things done and meet vital deadlines. Heated discussions are likely to happen — and disagreements will happen. Individuals who rarely butt heads might turn into carnivorous beasts in the moonlight of a Series B.
Experiencing high-tension moments can feel terrifying and disheartening. These moments are jagged pills to swallow. Keep in mind; you’re all passionate about this endeavor. You’ve invested your blood, sweat, and tears into it, after all. But when the dust settles, continue to encourage assertiveness and healthy discussions as in your pre-Series B days — and remember you’re all on the same team.
Company culture is likely to shift significantly during a Series B round. This dynamic isn’t a negative or harmful change, but it can come as a shock to your “here from the beginning” employees. To build strong relationships and loyal employees by maintaining the company culture with mass communication to all your people, new hires and originals. Transparency is a key to keeping your entire team strong. Plus, it sends employees the message that they’re valuable.
Founders often do double-duty during a Series B round. Plus, their roles often change afterward. Most of the time, founders move away from the hustling, hands-on approach to more of a strategist role. Additionally, founders must continue to work their “day jobs” after the rush of the round is done.
With so many elements changing within your business during a Series B, it’s challenging to know all your exposures. However, becoming familiar with new risks is part of what makes companies successful in the game of longevity.
During a Series B round, your company faces a slew of novel exposures that you and your team must navigate skillfully. For starters, here are a handful of new risks to consider:
With more at stake, it only makes sense to increase many of your policy limits to match your new vulnerabilities. Plus, Series B rounds are known as the “development” era, and you expect your business operations to grow significantly. Being underinsured isn’t anything to take lightly or haphazardly, after all. Now is the time to review your current policies because you’re about to outgrow some of them — and quickly.
Naturally, increasing fundamental policies, such as general liability and professional liability, is a given. However, after taking an honest look at your up-to-date (and future) risks, consider increasing other policy limits, as well. Your best bet is to speak to an experienced insurance professional with plenty of experience identifying exposures that fast-growing companies face.
With new exposures comes the need for fresh policies or if you have them in place consider reviewing your current coverage. According to Leonard, investors are well aware of what you need. He says, “The big one [requirement] is D&O (directors and officers insurance). We’ll see if the company has it in place, and if not, we might list it as a condition to close.”
Some other policies include:
With new products, team members, goals, and expectations, your daily operations are undoubtedly going to change. What should founders expect?
Typically, the Series B term sheet process is relatively straightforward — but it has its nuances, too. Here’s our guide to getting it right.
Since a Series B round is often somewhat different from a Series A, we look at finding, evaluating, and recruiting new right investors for your second round of funding