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Red Flags in Startup Pitches: What Makes Experienced Investors Pass

Red Flags in Startup Pitches: What Makes Experienced Investors Pass

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    Five Fundraising Myths Facing Entrepreneurs

    2 min read Raising funding is difficult for many entrepreneurs, and there are fundraising myths out there making it even harder. In this article, we plan to bust those myths one by one so that you can start raising funding with confidence. Myth #1: Fundraising is about getting the check Many entrepreneurs believe that fundraising is all about making their startup money. On the contrary, fundraising is about building a relationship with the investor. Investors start as mere contacts in your network. A relationship begins to develop through mailers and updates on your startup’s core results related to the team, sales, product, and fundraise, and your potential investor is promoted from prospective donor to a partner in your journey.  Myth #2: My product will carry the day The reality is that your product is not what carries the day- your business is. No matter how great your product is, it isn’t going to win over any significant share of the market without a strong business structure behind it. Investors will base their decision in part on your past and current financials, how much funding you are seeking out and how you plan to use it, your exit strategy to calculate an expected rate of return, and proof of market validation. Myth #3: It should only take a few weeks to raise $1M In reality, it’ll take you a calendar year for every $1M you want to raise at the seed stage. This accounts for the time it takes to prepare the company, the investor documents, and the pitch as well contacting, pitching, and following up with investors. In addition to this, investors will need to have time to complete their due diligence process. Remember, you are likely not the only entrepreneur your investor is working with, and you will need to be patient and work with their schedule. Myth #4: The investor didn’t follow up after my pitch session, so he must not be interested Don’t expect an immediate decision from your prospective investor. Investors spend the first three to five interactions trying to figure out what you are doing. To help push things to the next level, try prompting your prospective investor with the following questions: Would you invest? What number do you have in mind? Can you commit to that number? If not, what holds you back from committing? What date before the close can you commit to signing the docs and wiring the funds? You can also communicate that the following raise will be at a much higher valuation. If the investor is going to commit, they will do so for a better valuation now. Try tacking on incentives such as redemption rights, warrants, etc. Myth #5: I only need to source five investors to raise $250K You’ll need more than five investors to raise $250k. In fact, you’ll need about fifty. Don’t let this number scare you. There are many sources of capital- loans from family and friends, bank loans, revenue share loans, and equity investments in the form of convertible notes and equity ownership. Search your network for potential investors, including your contacts list and your LinkedIn connections. You can even search the web for local angel networks. 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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    Five Startup Cognitive Effects You Should Be Taking Advantage of

    2 min read Five Startup Cognitive Effects You Should Be Taking Advantage of A stellar product, a capable team, and a solid sales and marketing plan are crucial to winning over investors. However, there are a few things you can do beyond this to help ensure your potential investor sees you in the best light possible. Employ these five cognitive effects to your investor pitch and see the difference. Zeigarnik Effect Zeigarnik effect is defined by Wikipedia as uncompleted or interrupted tasks that are remembered better than completed ones. Investors will remember the pitch that leaves them hanging more quickly than the ones that have closure. The cliffhanger in a serialized show is recognized because the action is left unfinished, and it leaves the viewer with an uncompleted story creating mental tension. To use the Zeigarnik effect, consider the following: In your pitch, close with a cliffhanger ending by discussing an upcoming event such as closing a big sale or hiring a great team member. Use the pending outcome as an excuse to return to the investor later for a follow-up. In general, investors are often curious about startups and how they turn out later. Use this in setting up a follow-up call by offering to give them ‘the rest of the story’. Picture Superiority Effect The picture superiority effect is a phenomenon defined by Wikipedia whereby the notion that concepts learned by viewing pictures are more easily and frequently recalled than concepts learned by viewing their written word form counterparts. Investors identify and remember more from images than words. Startups should use pictures rather than words wherever possible in the pitch presentation. Use graphics that are relevant to the content and clarify the message. When this is not possible, then the startup should use distinctive words. These are words that are descriptive and create an image in the listener’s mind. Startups should capture what they do and how they do it into mantras and taglines.  Mantras and taglines create mental images that help the investor remember what you do. Startups can also use video, animation, charts, and graphs as well. Framing Effect Wikipedia defines the framing effect bias as drawing different conclusions from the same information, depending on how that information is presented. How you frame the startup in a pitch can determine how an investor regards it. One can use framing to position a startup, so it’s more relevant to the investor. The investors are tech investors, then position the startup as a tech deal. If the investors look for recurring revenue, then position the startup based on its revenue model. If the investors are impact investors, then position the startup showing the impact it makes. By positioning the startup for the investor, you can increase your chance of aligning with it. Also, by framing the pitch to show the accomplishments of the startup rather than the work left to be done, one can position the startup as successful and on track rather than falling behind. Use framing to put your startup in the best position to connect with the investor.  Humor Effect Wikipedia defines humor effect as humorous items that are more easily remembered than non-humorous ones, which might be explained by the distinctiveness of humor, the increased cognitive processing time to understand the humor, or the emotional arousal caused by the humor. Startup pitches with humor are more memorable than those without. Founders should include humor into their pitch as investors will more likely remember it. Humor also puts a positive spin on the pitch as it removes negative feelings from the investor. It energizes and increases the interest level of the investor in the subject matter. It improves the investors’ perception of the founder as someone friendly and approachable. Humor increases learning ability by telling the investor what they want to hear and following up with what they need to know. Finally, it’s crucial the humor be positive and appropriate and not come at the expense of anyone. Testing Effect The Testing Effect is defined by Wikipedia as the fact that you more easily remember information you have read by rewriting it instead of rereading it. Investors remember that which they recall from memory better than just hearing the pitch again. This comes from research showing that taking a test that requires writing out a response improves retention better than just rereading the material, which moves the information into long-term memory. Founders can use the testing effect by asking investors questions about the pitch to exercise recall. For example, ask the listener: ‘Remember the problem we are solving?’. Give them time to recall it. If they don’t respond promptly, then answer. This avoids the awkward silence that can arise.  During the Q&A portion, engage the investor in a dialog that recalls vital points such as the problem you solve, the solution you offer, and the traction you have. This will help the investor remember your deal better. 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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    Building Your Business and Finding Funding

    2 min read Building Your Business and Finding Funding. Do you have a brilliant idea and feel as if you’re ready to hit the ground running? Are you ready to build your company, source the necessary funding, and start pulling in revenue? If you’re like the many entrepreneurs I have met, the answer to these questions is an astounding yes! But there is just one problem- you’re not sure where to start. Not to worry. I have laid out the key concepts behind building a successful company and securing an investor below. The first step you need to take is simply to keep reading. Building Your Business The key to building a successful business is to build three businesses, not one. When I was growing up, they had a saying in business.  There’s the product you market, the product you sell, and the product that makes money.  An example was McDonald’s which marketed the Big Mac.  When you bought a meal they would ask- “Want some fries with that?” And yet, they made almost all of their profit off the coke drinks.  At the time it was rumored to be around a 90% profit margin. In today’s business you need three products: The product you market – your brand, your mantra, your flagship product that everyone wants. A product that generates cash—this is basically a service business that pays the bills now. The product you build to sell as a business unit later–is typically a SaaS business model that provides recurring revenue. Why go through all the trouble of building three businesses instead of one? Because it can be hard to build a SaaS business when the only thing you are building/selling is the SaaS product. Consider adding more products around it to make the business easier to grow. Securing An Investor There are several basic rules of fundraising that all startups should keep in mind. Below are the top five in my opinion. Know your investors—it’s important to know what kind of investor you are looking for, and what those investors want to see in your deal.  Many startups fail to understand what the investors are looking for and end up without a follow-up meeting after the pitch.  Educate your investors–after you pitch the investor it’s important to educate the investor through updates about your deal.  It’s often the case the investor is unfamiliar with your application or space.   Build trust—demonstrate that you can be trusted by showing examples of how you’ve performed in the past. Respect your investors—show respect to the investor and don’t take their time and advice for granted.  When investors see their feedback and advice is not followed up, they tend to turn their attention elsewhere. Focus on current supporters—make sure you keep your current investor and investor prospects updated on your startup. If you don’t articulate progress in your deal, the investor will most likely not know. Now you have a starting place to build your business and secure funding. What are you waiting for? It’s time to hit the ground running. 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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    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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