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The Benefits of a Family Office

Fundraising, Investing /

5 min read  The Benefits of a Family Office In today’s complex financial landscape, many affluent families are turning to family offices to manage their wealth and ensure the longevity of their family legacy. A family office is a centralized entity that provides a range of services tailored to the unique needs of a family, particularly those with significant assets. Here are some key benefits to consider when contemplating the establishment of a family office. 1. Carry Out the Stated Mission of the Family BusinessA family office can help articulate and execute the family business’s mission and vision, ensuring that all activities align with the family’s core values and long-term objectives. 2. Optimize Wealth Through Investment StrategiesBy employing sophisticated investment strategies, a family office can optimize the family’s wealth, ensuring that assets are managed effectively and grow over time. 3. Reduce Taxes Through Tax-Advantaged StructuresFamily offices can implement tax-efficient structures that help minimize tax liabilities, allowing families to retain more wealth. 4. Provide Education for Future LeadersA family office can facilitate educational programs for family members, preparing them for future leadership roles and instilling a sense of responsibility towards the family legacy. 5. Ensure Continuity Through Succession PlanningEffective succession planning is crucial for the longevity of a family business. A family office can help create a structured plan for leadership transitions, ensuring a smooth handover of responsibilities. 6. Preserve Family Wealth Through Ongoing ManagementWith dedicated management, a family office can help preserve wealth across generations, implementing strategies that safeguard assets against market volatility and other risks. 7. Organize Services for Running the Family BusinessA family office can streamline operations by organizing various services needed to run the family business efficiently, from financial management to legal support. 8. Coordinate Advisors into a GroupBy bringing together various advisors—financial, legal, and tax professionals—a family office can create a cohesive strategy that benefits the family. 9. Provide Better Control of the Family BusinessA coordinated program allows for better oversight and control of the family business, ensuring that all aspects are aligned with the family’s goals. 10. Manage Trustee Functions More EffectivelyFamily offices can take on trustee functions, ensuring that trusts are managed under the family’s wishes and legal requirements. 11. Provide Investment OversightWith dedicated investment oversight, a family office can monitor and manage the family’s investment portfolio, ensuring it aligns with their risk tolerance and financial goals. 12. Estate Planning for the Family BusinessA family office can facilitate comprehensive estate planning, helping to ensure that the family’s wealth is passed down according to their wishes while minimizing tax implications. 13. Create a LegacyEstablishing a family office can serve as a testament to the family’s values and commitment to future generations, creating a lasting legacy that reflects their principles. Structuring a Family Office for Tax Benefits When setting up a family office, structuring it for tax benefits is a critical consideration. Here are some points to keep in mind: Separate Legal Entity: By establishing the family office as a separate legal entity, families can shift certain costs from individual family members to the family office, potentially reducing personal tax burdens. Tax-Deductible Expenses: Under Section 162 of the US tax code, investment analysis expenses may be tax-deductible, allowing families to optimize their tax situation. Criteria for Deducting Expenses: The case of Lender Management outlines specific criteria for deducting investment management expenses, emphasizing the importance of regularity, continuity, and the separation of ownership and control. Structuring a Family Office: Key Considerations Structuring a family office involves several important decisions: Identify the Beneficiaries: Determine who the family office will serve, typically the family and their descendants. Define Services Offered: Establish a core set of cost-effective services that ensure the family office meets its members’ needs. In-House vs. Outsourced Services: Decide whether to utilize in-house resources or outsource services, as this choice significantly impacts operational costs. Service Charges: Consider how to charge family members for services rendered to maintain financial sustainability. Profit vs. Cost Coverage: Determine whether the services should generate a profit or cover costs, considering the need for overhead management. Expense Oversight: Implement oversight mechanisms to monitor expenses, potentially including a controller function. Legal Structure: Choose an appropriate legal structure. Many family offices opt for an LLC with S-Corp designation, though other structures may offer distinct advantages. Establishing a family office can provide numerous benefits, from optimizing wealth and reducing taxes to ensuring continuity and creating a lasting legacy. By carefully considering the structure and services of the family office, families can effectively manage their wealth and prepare for future generations. If you’re contemplating setting up a family office, weigh these benefits and considerations to make informed decisions that align with your family’s goals.   Read More from TEN Capital Education here. Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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Understanding the Types of Family Offices: A Guide for Family Businesses

Fundraising, Investing /

3 min read Understanding the Types of Family Offices: A Guide for Family Businesses When managing wealth and ensuring the longevity of family legacies, family offices play a crucial role. However, not all family offices are created equal. They vary in type and structure, each catering to different needs and circumstances. Here, we’ll explore three primary types of family office structures to help you determine the best fit for your family business. 1. Single-Family Office The single-family office (SFO) is designed to provide services exclusively to one family. This structure offers the most customized program, allowing for tailored solutions that align with the family’s specific needs and goals. However, it is also the most expensive type of family office structure, making it best suited for ultra-high-net-worth families who can afford the bespoke services and dedicated resources that come with it. 2. Multi-Family Office In contrast, a multi-family office (MFO) serves several families, pooling resources to provide commonly used services such as accounting, tax, and investment advisory. This structure offers a lower cost model, as expenses are shared among the families involved. MFOs work best for high-net-worth families who seek professional management without the high costs associated with a single-family office. 3. Virtual Family Office The virtual family office (VFO) operates primarily online, utilizing technology to deliver services. This structure provides the lowest cost option, as it often employs fractional services from various professionals rather than maintaining a full-time staff. VFOs are ideal for families that do not require highly customized services and prefer a more flexible, cost-effective approach. As you consider setting up a family office for your family business, weigh these structures carefully to find one that best suits your family’s needs and financial situation. Key Functions of a Family Office A family office can provide many essential functions for managing a family business effectively. Here are some essential functions to consider including: Wealth Management: Setting objectives, identifying investment opportunities, and providing ongoing oversight. Impact Focus: Pursuing investments that promote social, economic, or governance causes. Investment Management: Designing an investment thesis and pursuing opportunities that align with it. Security and Privacy: Implementing measures to protect the identity of family members and mitigate cybersecurity threats. Succession Planning: Preparing the next generation for leadership roles and transitioning responsibilities. Tax Management: Handling tax returns and structuring investments for optimal tax outcomes. Compliance: Ensuring adherence to tax and regulatory requirements. Many of these functions can be outsourced to specialized providers, allowing your family office to operate efficiently while focusing on core objectives. Challenges in Running a Family Office While family offices can provide significant benefits, they also come with their own set of challenges. Here are some fundamental problems to watch out for: Treating the Family Office as a Hobby: It’s essential to recognize that a family office is a legal entity with employees, investments, and tax filings. Treating it as a business is crucial for its success. Lack of Clear Goals: Developing a focused strategy can be challenging without a defined purpose. Establishing clear goals is vital for guiding investment decisions and overall direction. Poor Governance: A family office needs clear rules and regulations to function effectively. Leadership is also essential; without it, the office may struggle to achieve its objectives. Succession planning is necessary to ensure continuity in leadership. By proactively addressing these challenges, you can enhance the effectiveness of your family office and ensure it serves your family’s long-term interests. Setting up a family office is a significant step for any family business. By understanding the different types of family office structures, the essential functions they can provide, and the challenges you may face, you can make informed decisions that will benefit your family for future generations. Take the time to review your family office and consider how it can best serve your family’s unique needs and aspirations. Read More from TEN Capital Education here. Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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Understanding Financial Fraud

Fundraising, Investing /

5 min read Understanding Financial Fraud Financial fraud is a significant risk for startups in the investment industry. Understanding the various types of fraud, their sources, and the red flags that indicate potential fraud can help protect your business. What Is Fraud? Fraud is “The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.” Fraud typically involves the following elements: Material Fact: A false representation of a material fact. Intentional Act: The false representation is made intentionally. Belief by the Victim: The victim believes the false representation. Action by the Victim: The victim acts on the false representation. Harm to the Victim: The victim suffers harm as a result. Four conditions usually present for someone to commit fraud: Opportunity: The chance to commit the fraud. Low Risk of Getting Caught: Belief that they won’t be discovered. Rationalization: Justifying the fraudulent act in their mind. Justifications: Rationalizations that make the act seem acceptable. Startups are particularly susceptible to fraud due to their often limited information and controls. Investors should be aware of these vulnerabilities and take appropriate measures to safeguard against fraud.   Types of Financial Fraud in Startups   Misrepresentations Fraudsters may lie about financial investments’ value, risks, and costs. This can include misrepresenting a company’s financial condition and omitting key facts that could influence investment decisions. Regulatory Violations This includes violating securities laws such as insider trading or selling securities without a license. Failing to register securities as required by law also falls under this category. IPO Fraud During an Initial Public Offering (IPO) or Special Purpose Acquisition Company (SPAC) offering, fraud can occur through misstatements in accounting information or the omission of crucial information. Misappropriation of Funds This includes Ponzi schemes, where returns are paid to earlier investors with funds from more recent investors, and the personal skimming of money by those in control. Trading Violations Trading violations involve market manipulation tactics such as pump-and-dump schemes, front-running, and insider trading. Cybersecurity Fraud This type of fraud includes data breaches and the failure to protect investor data, which can lead to significant financial and reputational damage. Money Laundering Money laundering involves falsifying statements in accounting books and records to disguise the illegal origins of money. Startups operating in the financial industry should be particularly vigilant about these types of fraud to protect their businesses and investors. External Sources of Fraud Fraud can also originate from external sources, often involving individuals or entities pretending to be someone trustworthy to deceive the business. Here are common external fraud tactics: Fake Invoices Fraudsters create invoices for services never rendered, hoping the company will pay without verifying the charges. Advertising Scams These scams involve paying for advertising services in directories or books that either don’t exist or are never published. Imposter Scams Scammers pose as creditors or service providers, claiming that the company owes money or services will be cut off if payment isn’t made immediately. Tech Security Scams A warning screen pops up on a computer, claiming a virus has disabled the system and demanding payment to remove it. Phishing Attacks Fraudulent emails or calls request personal information, such as Social Security numbers, to verify employee identity. Ransomware Cybercriminals encrypt company data and demand payment to unlock the files. Business Coaching Scams Scammers promise business training and services that are never delivered, taking payment without providing the promised value. Training employees to recognize these types of fraud is crucial for preventing external scams. Internal Sources of Fraud Fraud can also come from within the business. Here are some internal fraud sources to be aware of: Identity Theft Fraudsters capture and sell personal information for illegal uses, often by accessing employee bank accounts or tax returns. Asset Misappropriation This is essentially theft, often carried out through forged checks or unauthorized transactions. Embezzlement The illegal use of company funds for personal expenses, typically by charging personal expenses to the business account. Payroll Fraud Manipulating payroll records, such as claiming hours not actually worked. Employment Fraud Providing false work history or omitting critical information, such as criminal history, during the hiring process. Implementing strong internal controls is essential to prevent internal fraud. Red Flags Indicating Fraud Fraud in businesses often involves employees and management. Here are some red flags to watch for: Employee Red Flags Lifestyle Changes: Sudden acquisition of expensive items like new cars or homes. Substantial Personal Debt: Financial stress can lead to fraudulent behavior. Addictions: Gambling or alcohol addictions can result in changes in behavior. Avoiding Leave: Employees who never take vacation or sick leave. High Turnover: Frequent staff changes in certain areas. Management Team Red Flags Failure to Submit Information: Lack of transparency with auditors. Weak Internal Controls: Poorly managed business units. Frequent Bank Changes: Regularly changing bank accounts. Changing Auditors: Frequent switches in auditing firms. Inexperienced Accounting Team: Lack of skilled personnel in finance. Excessive Loans: Heavy reliance on borrowing. High Compensation: Unusually high pay packages for executives. Monitoring these red flags can help detect and prevent fraud. Financial fraud poses a significant threat to startups, especially in the investment industry. Understanding the various types of fraud, recognizing the external and internal sources, and being vigilant about the red flags can help safeguard your business from potential financial pitfalls.   Read More from TEN Capital Education here. Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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Data Monetization: A Guide for Startups

Fundraising, Investing /

3 min read Data Monetization: A Guide for Startups Monetizing data is a critical aspect that startups must consider in today’s digital landscape. They need to understand some essential components and models to generate revenue from their data. Data Monetization Requirements Acquiring Data It is crucial to acquire your own data rather than relying on external sources to increase the value of your data. Storing Data Utilize a data platform to store and manage the acquired data for analysis effectively. Modeling and Testing Model and analyze the captured data using databases and algorithms to achieve the desired results. Customer Requirements Understanding the needs and preferences of your customers is vital to building valuable data sets for them. Compliance and Regulatory Stay informed about data laws and regulatory requirements to ensure compliance in data usage. Skilled Team Employ individuals proficient in analyzing, interpreting, and presenting data appropriately. Consider integrating these elements to establish a robust data analytics program for your startup. Data Monetization Model Data as a Service Offer data your startup generates to other companies, such as weather data, through a machine-readable format. Direct Data Transfer Sell data directly from your startup to other businesses, like customer lists or email addresses. Data Augmentation Enhance your data sets by combining them with external sources, creating a more comprehensive product for sale. Explore these data monetization models to determine the best strategy for your startup. How To Monetize Your Data Mining Your Own Data Leverage your startup’s data to develop new services or products that cater to existing and potential customers. Providing Data Sets Offer valuable data sets, like stock market prices or foot traffic information, to other businesses for their use. Higher-Level Information Deliver analyzed data to address other businesses’ specific queries, enabling them to make informed decisions. By implementing these business models, you can efficiently monetize your data and drive revenue growth for your startup. In conclusion, the thorough understanding and strategic implementation of data monetization requirements and models are crucial for startups aiming to maximize the value of their data assets. Explore these approaches and tailor them to suit your startup’s unique needs to unlock the full potential of data monetization. Read More from TEN Capital Education here. Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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The Ins and Outs of Whistleblowing: What You Need to Know

Fundraising, Investing /

3 min read  The Ins and Outs of Whistleblowing: What You Need to Know Whistleblowing is a crucial tool in the fight against fraud, but it comes with its own challenges and considerations. Here’s a comprehensive guide to help you navigate whistleblowing effectively.   Understanding Whistleblowing Laws Whistleblowers play a vital role in exposing fraudulent activities, but it’s essential to be well-versed in the relevant laws before taking any action. Different jurisdictions have varying laws surrounding whistleblowing, so it’s crucial to understand the legal framework in your specific situation. Dispelling Myths About Whistleblowers Contrary to popular belief, whistleblowers are not always portrayed accurately in the media. In reality, they are individuals who courageously come forward to report wrongdoing. However, success is not guaranteed, even if fraud is proven. To protect your identity and ensure a strong case, it’s advisable to seek legal counsel when filing a claim.   Best Practices for Whistleblowers If you’re considering blowing the whistle, following best practices to safeguard yourself and your case is essential. Key steps include finding a reputable attorney, maintaining anonymity, and gathering substantial evidence. Additionally, acting swiftly is crucial, as evidence can deteriorate over time. Navigating the Aftermath of Whistleblowing Keeping your job after blowing the whistle can be challenging, but there are steps you can take to protect yourself. Retaining legal counsel, documenting retaliatory actions, and preserving evidence are vital to upholding your rights. It’s also important to be aware of any time limits on retaliation claims and seek support from potential witnesses   Whistleblowing is a complex and often daunting process, but with the right knowledge and preparation, you can make a difference in combating fraud. By understanding the laws, following best practices, and safeguarding your job, you can navigate the world of whistleblowing with confidence and integrity.   Read More from TEN Capital Education here. Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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Mastering Product Management

Fundraising, Investing /

5 min read Mastering Product Management In today’s competitive market, product differentiation has become crucial for businesses looking to stand out and attract customers. Before diving into the development process, it is essential to understand the best practices in product management and product experiences. By addressing challenges head-on and implementing effective strategies for differentiation, companies can create products that meet customer needs and exceed expectations. In this blog, we will explore the importance of product differentiation, the key considerations before product development, best practices for product experiences, and effective product management strategies for successfully navigating challenges. Before Product Development To ensure you are developing the right product for your target customer, you must ask yourself key questions. Firstly, consider what features may be causing you to lose customers to competitors. If there is a specific feature that customers are choosing over your product, it may be worth incorporating it into your own offering. Additionally, analyze what your competitors do that keeps you up at night. If they are working on features that you lack, these could be potential candidates for inclusion in your next product upgrade. Pay attention to customer feedback—have they consistently requested a certain feature? Prioritize these requests as they indicate a genuine need. If customers find ways to add a feature to your product themselves, it’s a clear sign that it should be officially integrated. Lastly, focus on selling the proposed feature to customers before investing in its development. It should be a top priority if customers are willing to purchase your product solely for that feature. Remember, the rule is to sell it first and build it second. By considering these questions, you can effectively prioritize the features to build into your product and meet the needs of your target audience. Product Challenges Developing, launching, and maintaining a product presents many challenges for businesses seeking to succeed. Choosing the right product to build is one of the first hurdles to overcome. Identifying customers with unmet needs and tailoring your product to address those specific pain points is essential. Equally important is selecting your ideal customer whose needs align with the product you are offering. Understanding customer requirements is another critical step in the product development process. You should engage with at least fifty customers to comprehensively understand their needs and preferences. Building a minimum viable product (MVP) is key to testing your concept and validating its market potential. The MVP should be developed within six months and ready for sale within the same timeframe. If the product cannot be built within this timeline, it may be too ambitious in scope. Achieving product/market fit is a crucial milestone that involves analyzing how your product can further support customers in their work. Building a follow-on product based on insights from the initial product’s support issues can help drive continuous innovation and customer satisfaction. While product development poses numerous challenges, focusing on these key areas can help businesses navigate the complexities of bringing a successful product to market. Product Differentiation Features In product development, features can be categorized into three main types: basic requirements, nice-to-haves, and differentiators. Basic requirements are essential features considered table stakes in the industry, as customers expect them to be present in all products within the market. These features are non-negotiable and are deemed must-haves for any product to be competitive. On the other hand, nice-to-have features are additional functionalities that may not be critical for product usage but add value and enhance the overall user experience. While they may have been inspired by team members or a few customer requests, they are not essential for product functionality. Finally, differentiators are features that set your product apart from competitors and add significant value. These features are not typically requested by customers but are crucial for standing out in a crowded market. As a product manager, it is important to prioritize differentiators on the product roadmap, even in the face of objections from team members who may prefer to focus on basic requirements. These unique features can attract new customers and distinguish your product from the competition. Regularly reviewing your product roadmap to ensure a healthy balance of differentiators is essential for continued market success. Ideally, the beachhead market would be a small yet well-defined group of companies that fit the startup’s current product. It doesn’t necessarily need to be the biggest or most lucrative market but the easiest to pursue. The startup should already have some interactions with the companies in the Beachhead market. Product Management Best Practices Product management involves continuous market analysis and monitoring of customer needs. To effectively implement product management at your startup, it is crucial to prioritize the customer over the product itself. Shifting the focus from your product to the customer’s challenges can help you gather valuable feedback and generate innovative ideas. Develop a clear mental model of the customer you are researching, understanding the problems they face and their workflow. This approach can unveil new applications for your product. By observing the customer and their workflow, you can gain deeper insights into the problem, potentially leading to novel problem-solving approaches. Document your customer research in a format accessible to all team members, organizing and structuring it to facilitate data analysis and idea generation. Conduct collaborative meetings to review the research data and brainstorm potential solutions. Present these solutions to the team for feedback and input. Engage the entire organization in customer research to leverage diverse perspectives and generate the best ideas for product development. Product Experiences Best Practices Product experience encompasses the customer’s journey with the product, from initial adoption to trial and ongoing usage. It is distinct from the broader customer experience, which includes interactions with the company, such as purchasing, training, and support. A seamless product experience enhances the overall customer experience, reducing churn rates and increasing customer retention. Integrating essential elements like purchasing, unsubscribing, support, training, and community within the core product becomes the customer’s central hub. Leveraging the product as a tool for

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How to Tell A Story

Fundraising /

2 min read How to tell a story. What makes a story? At its core, a story consists of a beginning, middle, and end. If it’s a good story, that beginning, middle, and end will take you on a journey. If it’s a great story, it’s likely one you will never forget. So, what does the art of storytelling have to do with your startup? The ability to tell a story gives you the means to make your company memorable. When pitching your business plan, use the story format for a more significant impact and to connect with investors. Start with the problem you faced in the industry (the beginning). Show how you couldn’t find a solution (the middle). Show how you created your solution (the middle). Highlight the challenges you overcame (the end). Show the current business status and your upcoming plans (the end). After you address the issue of not finding a solution, show how others are now coming to you for that solution. Along the way, you can talk about how you built the team and chose a go-to-market strategy. Remember, it’s about taking the investor on a journey, so make it as memorable as possible. Each element of the story should highlight one aspect of the business plan. Remember to keep your audience engaged throughout the pitch when contemplating how to tell your investors a story. Make sure your presentation has direction and that there’s a beginning and an ending. This makes the journey worth it. Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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To Raise Funding

Fundraising /

2 min read. To Raise Funding First-time fundraisers make many mistakes. Here’s a list of key points to consider before your next meeting with an investor for your startup. It’s show, not tell. There’s an old saying: If you tell me, it’s an essay. If you show me, it’s a story. To raise funding, you have to show, not just tell. Forecasting alone doesn’t close the round. You must demonstrate progress towards it. Never show up to an investor meeting or call without something new in hand to show your growth story. Always talk about a customer and their engagement with your product or team. Show how the team is making things happen. Show how other investors are interested in committing funds.  Show how the product is working and what it is doing for the customer today. You must own it. In raising funding, just as in running your business, investors look to see if you own it. Do you own the challenging problems, or do you avoid them? Do you own the core business or delegate it to someone else?  Do you abide by the contracts you sign or try to duck out when it goes against you? Investors are looking at how you run your business to see if you own it. So, in the fundraise, do you own the numbers?  Do you own the investor relationship? Do you own the results you show them after the fundraise? Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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The Thorough Approach to Due Diligence

Fundraising, Investing /

3 min read  The Thorough Approach to Due Diligence. A startup investment goes through a series of stages. The first stage is the pitch presentation, in which the startup introduces the deal to the investors. Next comes a follow-up meeting where the investors can dig in to learn the details. After this meeting, investors typically take time to think about the deal and observe the startup as they continue to make progress. The third stage is the due diligence phase. In this phase, investors review the startup’s documents, team, and market thoroughly. If the terms sheet has been established by other investors, the investors review those documents. If not, the investor will negotiate the terms- including valuation. This article will look at the due diligence phase in detail, outlining how to perform a thorough diligence approach. The Thorough Approach There are several approaches to due diligence. The most common is the “Thorough Approach. ” In this process, you review each aspect of the business and focus on the top items. The main areas to cover in due diligence are: Market What’s the market size (total, serviceable, beachhead?) How fast is it growing? Product What is the state of the product, both technical and market? Does it solve a burning need or add a general value? What has actually been developed? What remains to be developed to go to market? Who has used the product, and what do they say about it? Legal What contracts are in place? Are there any lawsuits? Intellectual Property What patents have been filed/approved, and when? What trade secrets do they have? Financials What revenues have come in? What financials are pending? What is the burn rate? Capitalization What is the capitalization structure? Who are the major players? People Who are the key players, and what are their roles and responsibilities? What contracts are in place with each key player? Market Due Diligence As an investor running due diligence on a startup, the key issue to focus on is the size of the market- the larger the market, the greater the growth potential of the startup. Luckily, there is rarely a need to pay for research since so much exists on the web. In searching the web, you’ll find research reports giving market sizes, trends, analysis, and more. The key is to analyze the market at three levels: Total Available Market: Anyone the company could ever sell to Serviceable Market: The target market the company wants to serve Beachhead Market: The first niche the company will pursue Ideally, the beachhead market would be a small yet well-defined group of companies that fit the startup’s current product. It doesn’t necessarily need to be the biggest or most lucrative market but rather the easiest to pursue. The startup should already have some interactions with the companies in the Beachhead market. Team Due Diligence The team is the most critical factor for an investor to analyze during the due diligence process. Since the startup likely has only a nascent product and some intellectual property, the team is the only thing that can really be dug into. First, the investor team should review the resumes of those who are on the team or plan to join when funding becomes available. Placeholders of ‘We’ll look for someone later’ is a red flag. The CEO should know who they are planning to bring on. It is also important to find out how long the team has worked together and if they even have worked together in the past. Next, look for domain knowledge: Who has it, and how current is it? Investors should also look for complementary skills. For example, if there is a team member who has complementary sales skills, will they spend their time selling the product? Or will the person who will build the product manage an internal development team? This question is still valid even if the startup is choosing to outsource. Outsourcing product development with no one actively managing it is a recipe for disaster. Finally, look at ‘completeness’. Many successful teams follow the Designer, the Hacker, and the Hustler formula. The Designer knows the customer problem and plans the product development, including how it will be monetized and promoted. The Hacker is the developer who builds the product, and the Hustler is the one who sells it. Does the startup you wish to invest in have a formula? Quantitative vs Qualitative Due Diligence There’s a quantitative side and a qualitative side to due diligence. The quantitative side includes checking the list of documents in the data room to verify the accuracy of those documents. For example, Do the entity filings match what the company claims to have? Do the intellectual property documents match what they claim to have? The qualitative side of diligence includes evaluating the team and the growth prospects in the market, sizing up the competition, and predicting the company’s ability to execute. Somebody should do the quantitative side with industry experience as it requires more discovery. An analyst or assistant can help with the phase.   Read More from TEN Capital Education here. Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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