A positive return isn't a good enough reason to spend money. Every dollar you put into one bet is a dollar you can't put into another, and every bet uses up some of your leadership team's attention. The right use of funds comes from comparing bets against each other and funding fewer of them harder.
The problem: after a raise, everything looks fundable
Right after a raise is the most dangerous time for your capital plan.
The money is in the account. Every leader on your team has an idea they've been sitting on. And each one comes with a spreadsheet that shows a positive return. New market. New product line. More reps. A new system.
Individually, most of them are good investments. That's the trap. Founders approve them one at a time, each on its own merits, and the raise gets spread across eight priorities. A year later nothing got far enough to change the company.
If everything is important, nothing is important.
Why positive ROI is the wrong test
Positive ROI answers one question: will this make more than it costs? That's necessary. It's nowhere near enough.
The better question is comparative. Is this the best use of this dollar right now, compared with everything else we could do with it? A bet that returns 2x is a bad allocation if another bet on the list returns 4x with the same risk.
And there's a second constraint most capital plans ignore: management capacity. Your leadership team can only run so many big initiatives at once. Fund more bets than you have leaders to own them and you get a lot of starts and very few finishes. The reality is that your team's attention runs out long before your cash does.
The framework: four questions, four answers
Put every competing bet side by side and score each one on four things.
- Return. How much value could it create if it works?
- Probability. How likely is it to work, based on evidence you have today?
- Speed. How quickly will you learn whether it's working? Faster learning means less money at risk before you know.
- Capacity. Do you have a leader with the time and skill to own it?
Then every bet lands in one of four buckets:
- Fund now. The strongest bets on a risk-adjusted basis, with an owner ready to run them.
- Pilot first. Promising, but built on assumptions you can test cheaply. Spend a small amount to prove it before you spend a large one.
- Wait. Good bets with the wrong timing, usually because the team doesn't have room yet.
- Don't fund. Positive returns, but not good enough to earn scarce capital.
"Pilot first" does the most work here. It's the crawl-before-we-walk bucket. You give an idea a real shot without betting the round on it.
What focus looks like: fewer bets, funded harder
Picture two companies that raise the same round. The first funds eight initiatives at a modest level each. Every leader gets something. Nobody gets enough. Twelve months later, eight projects are half done and the board is asking what the money bought.
The second funds three. Each one gets real money, a named owner, and a standing spot on the leadership meeting agenda. Plenty of other reasonable ideas wait. Some never get funded at all, and the company is better for it. Same team, much more output.
At the end of the day, the second company has something to show for its raise. The first has a list of good intentions.
The move: say "wait" out loud
The hardest part of capital allocation is telling a good leader their good idea has to wait. Say it directly: "This is a good bet. It's not the best use of this dollar this quarter, and we don't have the capacity to run it well. Let's revisit it when we do."
That sentence protects the bets you did fund, and it tells your team how decisions get made.
What to do this week
- List every initiative competing for capital right now, even the ones already approved.
- Score each on return, probability, speed, and capacity.
- Sort them into the four buckets and share the result with your leadership team.
- Count the "fund now" items. If it's more than your team has owners for, move some to "wait."
Use of Funds
Use of Funds walks you through five steps: the capital you're allocating, the competing bets, the quality of each bet, your organization's capacity, and a final recommendation. It sorts every bet into fund now, pilot first, wait, or don't fund, so you can bring a clear allocation to your leadership team and board.
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Danny Feldman is a 3× founder and the advisor behind Feldman Advisory. He founded and scaled Stellar to $100M in annual revenue across 15 states, raised $55M+ as a founder, and used AI to double revenue before exiting to private equity. Earlier, he recruited and trained 55,000+ sales reps at Cutco and grew a division from 1 to 58 locations. Operator to operator, he now helps founders of $1M–$20M companies get out of the middle of the business, build the leadership team, and raise capital. Book a 30-minute call →