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Challenges in Angel Investing

Challenges in Angel Investing

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    5 Investor Questions You Should be Able to Answer

    2 min read Securing funding is one of the most difficult and yet most important aspects of launching your startup successfully, so what investor questions should you prepare for? Before diving in, investors are going to want to do their due diligence and ensure that your organization is worth the risk. Before you approach investors you should know enough about your startup to answer the following five questions. What is your value proposition? This is the feature that makes your product or service stand out from the rest. The answer points out what your company provides, and why people want it. Will customers pay for the solution? Free usage is not hard to achieve- but the ability to secure paying customers is required. Investors want to know if customers will pay for your solution, therefore producing a profit to be shared. Who is on the team? About half of an investor’s decision comes down to believing in the team and knowing they will be enough to reach the goal. The team should be able to tell who is in charge of what business functions, for example, marketing, sales, R&D, etc. Why is now the right time? Is there anything in the deal that suggests now is the right time to start this business?  Why hasn’t someone done this before? Showing that there is a current need to be filled, problem to be solved, or demand to be met is necessary. What is your exit? This is one of the hardest questions to answer. If you need or choose to exit, what will this look like, and how will the investor get their money back? There you have it- the top five questions a startup needs to be prepared to answer when meeting with a prospective investor. We suggest typing the answers to the above questions out so that you and your team are fully prepared! Feel free to try out our calculators and contact us if you would like to discuss your fundraise: http://staging.startupfundingespresso.com/calculators/ 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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    10 Reasons an Investor Will Pass on Your Deal

    2 min read  Investors see many deals and can spot glaring holes immediately. Here are ten main reasons an investor will pass on your deal: No Traction. You need to show some evidence of market validation. Even without a sales team and a marketing budget, there should be some demand for your product. No Social Proof. There needs to be some evidence the product works. The Team Doesn’t Fit. If there are major holes in the team or you’ve filled the secondary roles and left the primary ones empty, then it’s going to be a problem. Criteria Don’t Fit. Many funds are clear about what they invest in (SaaS, Healthcare IT, etc). Your deal needs to fit into one or more of those criteria. You Don’t Know Your Market. Those with a vague or fuzzy knowledge of the market or customer will have difficulty raising funding. The ability to site numbers (market size, growth rates, customer spend, etc) helps demonstrate your knowledge. Financial Projections Don’t Add Up. Some startups use the excuse that they can’t predict the future and therefore they have no financial projections. Most investors see this as a lack of knowledge about the business and the market. Fuzzy Business Plan Some plans are filled with future possibilities and great opportunities but fail to define the core product and how it will be built and sold. Investors can spot a lack of focus on the business plan a mile away. No “Use of Funds”. The phrase “I’m raising $1M” often triggers the bull meter because the fundraiser rarely knows how they’ll apply the funds. No Validated Business Model. There’s no evidence of a business either in product or customer activity. Lack of Follow-Up. Surprisingly, an investor will express interest and then never hear from the entrepreneur again. It can take several follow-ups to close an investor. TEN Capital has created a series of calculators to help you see how your startup compares to industry standards. You can discover if you are ready for funding, see how your deal will be seen by investors, learn how to set the price for your next raise or exit, or calculate how much TEN Capital can save you on your fundraising campaign. Feel free to try out our calculators and contact us if you would like to discuss your fundraise: http://staging.startupfundingespresso.com/calculators/ 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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    Key Factors for Venture Funding

    2 min read There are many factors you must keep in mind when trying to secure venture funding. Our Venture Funding Calculator uses these to give you a score you can use to see how fundable your business is in the eyes of investors. Here is a breakdown: Product/Platform Venture investors seek platform-based businesses over product-based businesses because platforms give the business an inherent cost advantage due to the structure of its system. If you don’t yet have a platform or a product, a working prototype will demonstrate some value. Monetization Consulting services are the least scalable choice and thus receive the lowest score. If you have a core product/service that has some elements of scalability, this will receive more points. If you have a platform that carries multiple products, points will be even greater. Revenue Model Investors look for predictable revenue. If it’s an annual payment it’s called Annual Recurring Revenue (ARR). For monthly payments, it’s Monthly Recurring Revenue (MRR). The most ideal case is If you have recurring revenue in software only. Next is recurring revenue with hardware. Revenue from users who are not repeat customers also fits here. Freemium users indicate potential revenue in the future which has some value. Competitive Advantage In pitching to investors you must have a competitive advantage and be able to demonstrate it. You must identify your core competitive advantage and show how it gives you at least a 30% cost reduction or 30% revenue increase over the traditional methods. This could be through network effects, virality, channel access, or monetization. Market Size The size of the market will ultimately determine the growth limitations of the startup. The bigger the market, the more valuable the startup. The larger the market, the greater the growth potential. Team The team is a critical factor in your deal rating. The core team should have experience. The longer the team has worked together the better. The best case is two experienced founders who have worked well together for over 3 years. Growth Rate The growth rate of the company’s revenue is a key factor as it determines how fast you can scale the business. To be considered a venture deal, you must have an annual growth rate of at least 50%. Customer ROI The higher the ROI, the stronger the value proposition of the company, and the faster others will switch to your solution. The ROI takes into account the value of the product as well as the reduced cost compared to a competitor. Exit Potential Using comparables you can determine what type of exit your business will have based on a multiple of revenue. Calculate your expected exit multiple based on revenue. Other Factors to Consider: Proprietary technology: This is a piece of technology that is operational and no one else has it. Network effects: If you set up your business to use network effects, then the size of the network you built will generate value for the business. Virality: If you have virality factors in your business, then it will reduce the cost of customer acquisition. Monopoly: If you have a lock on a segment of the market through regulation, network, or some or other factor this gives you an advantage. Channel Access: If you have a channel to a market that others don’t have, then that is a competitive advantage as well. Click on the following link to try out the calculator for yourself: http://staging.startupfundingespresso.com/venture-funding-calculator/ You can also read more from the TEN Capital eGuide Do You Have a Venture Deal?: http://staging.startupfundingespresso.com/venture-deal-eguide/ 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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    Successful Fundraising Habits

    2 min read The best startups demonstrate key successful fundraising habits that can be easily replicated if you are willing to put in the work. Here are some of the key habits that will help you hone your fundraising ability: Goal setting. Know what you want from the overall raise and break it down into stages. The entrepreneur who vaguely requests $1M has not yet thought through the use of funds and most likely needs less to get started. Setting (and sticking to) a budget. Set up a timeline and budget for raising funding, and then stick to it. This is a regular (daily and weekly) exercise, not a “some time” or “whenever” thing. Calendar consideration. Starting a raise in the middle of summer or just before Thanksgiving is going to be difficult. Plan the launch of your fundraise with the investor’s schedule in mind. Knowledge of target audience. Understand the target investor and what they are looking for. It’s a good idea to see what they have already invested in and approach them from that angle. Document preparation. Spend time preparing investment documents. Make sure each document, your executive summary, pitch deck, and financial projections, are ready to go so that when an investor expresses interest you can provide them. Pitch practice. Successful fundraisers practice their pitch. Have yours well-honed and know it cold. Working the plan. Create a plan and then work the plan. Have a list of prospective investors and continually work investors through the process. Focus on metrics. Keep track of the numbers in your campaign. Know how many prospects you have and how many you need to achieve your goal. Asking for feedback. Ask investors for feedback. Be open to feedback from investors and others on your pitch and campaign. Demonstration appreciation. Solid fundraisers demonstrate appreciation. They show appreciation to those who help them in their fundraise. Fundraising is a skill just like most other aspects of running a business. These skills can be learned and honed. To learn more about the fundraise process, check out our Edu section: http://staging.startupfundingespresso.com/education/ 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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    5 Signs Your Startup Isn’t Ready to Raise Funding

    2 min read  So you want to raise funding, but are you ready? Here are 5 signs that you may not be, and how what you should do. Your Vision is Fuzzy. Investors will not be too interested if the vision is still fuzzy and hasn’t come into focus yet. if you’re still sorting out the market and your position in it, then you need to gain more clarity on the space and your company’s position. The Team Isn’t in Place Yet. if you still have major holes in the team that you are seeking to fill, you need to find candidates for those positions before funding. Investors will not invest in an incomplete team. No Repeatable Business Model. Before starting a fundraise, you must identify the repeatable business model. if you’re still pivoting from one business model to the other then you’re not ready for investors. At this stage, the business model must be predictable at some level. Financials are Not Under Control. You are definitely not ready to raise funding if you don’t have your financials under control. If you don’t know how much to budget for expenses or what the impact of a sales increase on your bottom line may be, then take some time to prepare those financials and be ready to present that information to investors. No Clear Path to Profitability. If you can not show a clear path to profitability (if you don’t see how you can grow to a profitable position with your current business model) then you’re not ready for fund raising. Investors want to see how and when you will be profitable before making an investment decision. TEN Capital has created a series of calculators to help you see how your startup compares to industry standards. You can discover if you are ready for funding, see how your deal will be seen by investors, learn how to set the price for your next raise or exit, or calculate how much TEN Capital can save you on your fundraising campaign. Feel free to try out our calculators and contact us if you would like to discuss your fundraise: http://staging.startupfundingespresso.com/calculators/ 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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    Do I Have a Venture Deal?

    1.5 min read Do I Have a Venture Deal? If you are having a hard time deciding if your venture business is worth investing in, or are just not sure how to value your venture, we have a very handy tool to help you secure an investor with confidence. Well, Do You Have a Venture Deal? Before using the calculator, consider if you have a deal that’s in the game for venture funding by asking these questions: Is it a high-growth company? Is it scalable? Do you have an experienced team ready to join? Do you have a platform-based business, or is it a single product? Do you have recurring revenue? Do you have virality built into it? Do you have network effects in it? Are you addressing a large market? Do you have a clear competitive advantage? The more you can answer yes to these questions the more you have a venture business that qualifies for venture funding. TEN’s Venture Funding Calculator This can be a lot of information to sort out, so we’ve come up with an easier way: our Venture Funding Calculator. Just answer a short list of questions and automatically get results showing how fundable your company is. The calculator provides a quantitative score of how investors, like VCs, angels, and family offices, will value your deal based on the team, product, revenue model, value proposition, exit potential, and other characteristics of your startup. Scoring levels: 90-100: Strong venture interest 80-90: Medium venture interest 50-70: Some venture interest 0-50: No venture interest The score you receive highlights where you currently stand, and what you can do to improve your score. A score above 50 means your startup has enough merit that investors will give it some consideration. A score above 80 indicates medium interest, while a score over 90 will translate to strong interest from investors. Click on the following link to try out the calculator for yourself: http://staging.startupfundingespresso.com/venture-funding-calculator/ You can also read more from the TEN Capital eGuide Do You Have a Venture Deal?: http://staging.startupfundingespresso.com/venture-deal-eguide/ 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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    How to Write a Pitch Deck

    2 min read When venturing into raising funding, every startup needs to know how to write a pitch deck. The following is a listing of all the slides you’ll need to put in your startup’s pitch deck. Use it to make a solid first impression on potential and current investors. After reading this list, if you still have questions about what needs to be in the slides, check out our TEN Capital eGuide: How to Build a Pitch Deck for an in-depth explanation of the subject. The Problem State the problem you are solving so the investor has a frame of reference for your startup. Show how this is a critical problem and must be solved versus a nice-to-have solution. The Solution For your solution, show a picture of the core product or technology so the investor gets a sense of it. Describe how you came up with it and why it’s a great solution. Highlight both what it does and why they should care. The Market Show the total available market, which is anyone you can sell to. Then show the serviceable market or your core target market. Finally, show the beachhead market (the first 20 customers you’ll sell if you are early stage). Monetization This slide answers the question of how you make money. The goal is to show you have predictable revenue from your operations. Traction In this slide show current sales as well as the funnel of upcoming sales opportunities, your pipeline, customers and prospective customers, and forecast numbers for each opportunity. The Competition This slide often helps highlight the market size and strength by showing who is playing in that space. In your slide, highlight three to four competitors. Avoid saying you have no competition. Competitive Advantage Highlight your core value proposition for the customer, then show what value the customer receives from your product/service. Show what competitive advantages you have. The Team For this slide, the goal is to show you have a complete team and everyone has experience. Show the C-level team, including the CEO, CTO, and CSO, and the names of companies and projects they have worked on that, are relevant to your target industry. Value Proposition This slide should tell you the benefits and why customers will choose you over competitors. Financials This slide gives the company’s current status concerning revenue, expenses, and profit. You want to cover growth rate, scale of revenue, and break-even expectations. Investment Opportunity This slide shows the fundraise target and how much is raised so far. Show interested and committed investors and invested funds to date and key terms of the deal. Read more from the TEN Capital eGuide How to Build a Pitch Deck: http://staging.startupfundingespresso.com/how-to-build-a-pitch-deck/ 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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    Presenting Your Pitch Deck

    2 min read Presenting Your Pitch Deck: what you need to know. A pitch deck is an essential tool to have when looking for funding for your startup. Your pitch deck functions as your introduction to your potential investor and can make or break your relationship. Here are some essential points to keep in mind when crafting your own. The Goal of The Pitch Deck The goal of the pitch deck is to introduce your deal to an investor and find out what is essential to them. It isn’t to tell your complete story or explain how your product works. Ideally, you want to plan a follow-up meeting with the investor. Good pitch decks show what you are doing and the opportunity to grow more with funding. Ideal pitches show the proposed outcome will happen with or without them; in other words, the outcome is inevitable. The results of the team are there for everyone to see what has been done so far. Remember, you are the presentation, not the slides. Avoid discussing multiple scenarios as this may confuse your audience. Focus on the core message – it’s one product, one team, one market, one fundraise, and one outcome. What Your Title Says About You Investors want to know what your product is from your pitch, not just your technology or benefits. Your title should come near the beginning of the pitch, as some investors have difficulty focusing on what you’re saying until they know what the product is. It’s essential to show the product and define it clearly, so investors know how you will approach the market. If it’s a physical product, show a picture of it. Make sure the product has a name, helping establish it as a real thing in the investor’s mind, even if the product is still in development. Even the case of a physical device can make it seem real. Say what it does in five words or less, so the investor gets a high-level understanding of it. Even if the product is not yet ready for sale, treat it like it has form and function now so that investors can grasp what you are doing. Common Mistakes in Developing a Pitch Deck One of the most common mistakes is explaining in great detail how the product or technology works. Instead, focus on the benefits of the product and what it does for customers. It’s better to save the detailed explanations for later. Other mistakes include: Not identifying the competition or claiming there is none. Making the font so small that no one beyond the first row can read it. Using too many words so that readers get distracted by reading it. Not setting up a flow, so the slides follow a logical story form. Using market sizing to distract the audience from the fact that you have no traction. Forgetting to ask for investment, so investors are left wondering what you want from them. Using cut and paste from Excel for financials, rendering the slide unreadable. Trying to tell the investor everything in one sitting. Remember… The pitch deck should focus on your core product, team, customer, and fundraise. You can flesh out the details later. The biggest mistake is not asking questions or listening. Most startups spend their time talking when they should be listening for objections and concerns. Read more from the TEN Capital eGuide How to Build a Pitch Deck: http://staging.startupfundingespresso.com/how-to-build-a-pitch-deck/ 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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    What’s Your Timeline for Raising Funding?

    2 min read What’s Your Timeline for Raising Funding? If you answered, “right away!” (as many entrepreneurs do), you’re probably not being realistic. In fact, the benchmark is that for every million dollars you are raising, it will take you one year. But even if your fundraise isn’t that large, it can still take many months of planning and executing to raise funding from Investors. Here’s a rough outline of what you should be ready for when developing your plan: Month 1: Check Readiness. Assess your readiness for raising funding, and be honest. Ideally, you have a product and have sold some units. You should also have built a core team. Communicate with your current team and investors you already have about raising funding. And don’t forget to check with your attorney about the legal aspect. You may have to consider modifying your legal entity to allow for outside investment. Month 2: Prepare the Company. Planning your fundraising strategy includes assembling your key documents including, the Executive Summary, Slide Deck, Financials, and Due Diligence documentation. Take steps to fill out your board of advisors and build a set of email updates for monthly transmission to the potential investors. Month 3 to 5: Prepare the Investors. Identify potential investors to put on your investor prospect list. Start with ten investors you already know and have contacted, and add ten new investors per month to your list. Set up meetings to introduce investors to your deal and tell them that you will start raising money in a few months. Ask permission to keep the investor on the list for updates you will be sending out. Start sending monthly updates on your company’s progress using personalized emails – not ‘broadcast’ emails. Customize the mailings to build a personal relationship. And don’t send them your press releases. Demonstrate how you are actually achieving milestones. Month 6 to 9: Pitch the Investors. Follow up with each potential investor and pitch the deal. Identify the lead Investor and close the first round with investor-friendly terms. Offer an incentive to the lead investor for the additional risk he is taking by going first. Month 10 to 11: Close the Investors. Invite other investors to follow on. Keep the relationship with all investor prospects–some may join in a future round. Month 12: Finish the Round. But you’re not done. At this stage, continue sending updates to investors AND the investors on your prospect list quarterly to prepare for the next round of funding. Read more from the TEN Capital Network: http://staging.startupfundingespresso.com/education/ 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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