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From Diligence to Discipline: Building an Investment Process That Scales

From Diligence to Discipline: Building an Investment Process That Scales

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Fundraising, Investing

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    Startup Investor Trends- Fundraising is Moving Online

    When I started angel investing, there were venture capitalists, and angel investors. VCs were the “professional” money that was usually provided by someone else and Angels were the “novice” money and were provided by the investor himself. VCs had access to larger amounts of capital and were the go to group for later stage funding. While there are many more angel investors by headcount, their investments are smaller. Startups approached angel investors in the early stage because most VCs wanted to see more traction and there were usually angels in one’s network. Today, the world of startup investing is quite different primarily because of the rise of the internet and the shift of practically every business function online. Five years ago, I had a startup complain to me that they could run every function of their business (sales, marketing, finance, etc) online except fundraising. For angel funding they had to make the rounds of the local angel networks. They had to meet investors in the coffee shop to progress the raise. As the world increasingly moves online so too does the fundraise. Today there are numerous sites that let the startup access investors. I receive calls daily from startups across the US (and increasingly Europe) wanting to access my investor network. An established startup that has raised some funding already, now expands the fundraise to include other networks across country. In fact, it’s an exercise of funding investor networks online and engaging them as part of the overall fundraise process. I tell startups they need to have a fundraise strategy that goes national from day one. It helps greatly to have some funding from your local community. If your message to the investor networks is that no one in your local community would invest, then this will be a difficult raise. It’s best to show up with some funds raised. Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies

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    8 Takeaways from the Emerge ICO Summit

    TEN Capital recently held its annual tech event in Austin called the Emerge ICO Summit. This year the theme of the conference focused on blockchain applications and how to raise funding for your blockchain startup. To view the agenda, speakers and topics, you can visit the Emerge ICO Summit page. This was a wonderful event and here are our eight takeaways. #1- Blockchain is the next big thing– the move to Blockchain applications is inevitable but the timing is unpredictable. A decentralized internet is a foundational solution to many problems with the current network. A year ago blockchain was the domain of lead users, early adopters, and technologists. While the technology is still nascent, today the interest and participants have broadened greatly with new entrants from established companies, institutions and governments.  The interest is broad-based covering all major industries including supply chain, fin-tech, real estate, and healthcare and others. Since blockchain is coming, the only question is the rate of adoption. Infrastructure continues to build out but it takes time to develop. The first blockchain solutions are coming onto the market and are now on-boarding users. Very few blockchain applications have paying users. The Dot com era spent five or more years building out the basic platforms before any real productivity value could be seen. Blockchain appears to be following a similar time timeline. #2-  It’s STILL early days for Blockchain Applications Most of the applications of blockchain are still at the infrastructure layer and will take years to build out. There are many independent cryptocurrencies, technology solutions, and platforms. Digital assets are hard to evaluate and can be easily manipulated by the market. There’s a disconnect between the fundamental regulatory requirements between the cryptocurrency world and the bigger financial ecosystems. There’s no common model to value digital assets. There are no 3rd parties to analyze, rate and value assets. Jouko Ahvenainen of Grow VC highlighted the challenge of the early days for blockchain companies in his talk- The Status and Future of Tokenization, Blockchain and Finance Disruption. Jouko also gives further details in an Investor Connect podcast interview.  #3- Blockchain systems are expensive to build so they should be applied to projects that are trust expensive. Blockchain is a highly inefficient database and expensive to build. It must be applied to applications that require high trust value. Supply chain, financial and government applications are three key areas for early adoption. Centralized functions such as domain registry and governmental services will be disrupted first. See more from the conference at 21:00 in this video: Defining Properties of The Consensus based Business Environment Other areas of early focus include Identity and Privacy. Identity is a key enabler of many applications such as fin-tech, travel, and security applications. You can hear more about the travel industry by Pedro Anderson at 15:00 minutes into the Blockchain applications panel. Privacy continues to grow as a concern for users and is moving to the top of the list of benefits of blockchain. Anupam Govil describes this at 18:00 in the Blockchain applications panel video. #4- Blockchain is a business model change as well as a technological change. Blockchain is not only a technology change but also a new business model. The use of tokens and decentralized computing will open up new methods of business. Tokens enable many new forms of ownership and incentive that goes beyond what fiat currency can accomplish. One example is the BMX token from BitMED which lets users transact using their own healthcare data. Rishi Madhok, CEO of BitMED describes the use case in this video. #5- Everything that can be digitized will be digitized. Blockchain is the next logical step in the evolution of the internet. Everything that can be digitized will be digitized as to monitor, maintain, and own an asset will require that it be represented in digital form. This means all real estate, property, financial assets, and more will need to be digitized so it can be tracked by digital systems. #6- A minimal viable product is replaced by a minimum viable network. The concept of an MVP (Minimum Viable Product) is being replaced with the concept of a MVN (Minimum Viable Network).  Blockchain applications require digital eco-systems to be effective. To launch a blockchain system requires wallets, exchanges, payment tools in addition to the core functionality of the system. To make it useful for the user there must be a minimum set of tools. Justin Newton of Netki talked about this at 41:58 in the Blockchain applications panel video. #7- Some application areas attributed to disruption by blockchain are simply digitizing their systems. Not every technical solution will be implemented with blockchain technology. Some application areas draw value from technology by simply moving their system into a digital format.  Supply chain is one example. It’s more about digitizing the system rather than applying pure blockchain technology. In the travel industry, the benefit of technology is in having a common platform that the industry can share information about flights, hotel, and transportation. There are some specific applications in these areas in which blockchain provides additional value but for the value add comes primarily from having everything online in one digital network. #8- Regulatory financial institutions need more compliance installed in the Blockchain space before they can engage the technology fully. The SEC deems tokens to be securities since they are speculative in nature. Blockchain users want to mint and use tokens for their utility without the regulatory restrictions that come with securities. The solution to solving the utility token/security dilemma is to regulate the exchanges on which they are traded. None of the crypto exchanges are regulated yet. They show the window dressing of a regulated exchange with bid/ask spreads and limit offers but they are not truly regulated the same way that NASDAQ or other traditional exchanges are. Once the exchanges come under regulatory purview, the space will take off. Robert Crea talks about this at 20:37 in his Regulatory Environment for ICOs and Cryptocurrencies session. Regulated financial institutions cannot adopt blockchain technology for custody, securities

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    How to Raise Funding

    1 min read How to raise funding: a little at a time. Traditionally fundraising takes a tremendous amount of time on the part of the startup CEO. Some CEOs drop everything to run the fundraise. I advise against spending too much time fundraising but rather set up a system to help with the fundraise. With the right use of online tools (analytics, CRM, Drip campaigns, etc.), the CEO doesn’t have to let fundraising become a huge distraction. Building a list of investor prospects and keeping them informed of your progress, the CEO can reach out to ask for an investment at the right time. Instead of raising two year’s worth of funding, the CEO can raise a few months, which is a great deal easier. This type of funding works best for early-stage and those with recurring revenue business models. TEN Capital helps startups raise funding through online tools. TEN Capital helps startups raise funding through online tools (sourcing investors, prepping documents, and running campaigns). These techniques were popularized by crowdfunding but can be applied to accredited investor raises as well. As investors see more and more deal flow, they need help finding, qualifying, and following up the deals. At TEN Capital, we let the investor select the deals they want to see and then send updates only on those deals. We work with the startups to build updates to share with interested investors. All of this happens online. At some point, interested investors set up a call to talk with the CEO, and later they decide to invest or pass. Most of this process, if not all, takes place online. Read more about the TEN Capital Fundraise as a Service Program: http://staging.startupfundingespresso.com/company-landing/ 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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    A New Model for Startup Funding- Recurring Funding for Recurring Revenue Businesses

    The rise of the recurring revenue business as a standard business model has implications for financiers. Just as it changed how customers made payment so it changes the way funding providers are changing the way they fund startups. Recurring revenue businesses don’t necessarily need large discrete funding rounds. Today we see funding ongoing throughout the life of the business. As specific business growth needs arise funding steps in to provide the resources. The funding comes in small amounts and when needed.  In this model the fundraise round is never closed – it’s always open. Investors should always be monitoring businesses to see who is reaching an inflection point and for opportune moments to invest in the businesses. I started my company under the name Texas Entrepreneur Networks about ten years ago after launching three angel networks in Austin. I built a network of entrepreneurs and investors now throughout the country using a recurring revenue model instead of a broker model. Building out the business doesn’t require large fund raise all at one time.  It takes some funding to bring on new developers here and provide for a marketing push there. I see a new method of funding for recurring revenue companies in which the companies continually raise small amounts of funding from investors rather than large rounds periodically. This new model works for our entrepreneurs who find it a great way to raise funding. Rather than spend a tremendous amount of time raising funding for six to twelve months, we’ve turned it into an ongoing program in which the raise is always open but doesn’t take too much of the CEO’s time. There are some key things you need to do to enable this model: At heart, it’s an investor relations program. We use email, website, and social media to introduce the deal to the investor and then keep the investor informed of the progress. A campaign is how you tell your story and convince investors you are worthy of investment. Investors are looking for a strong team and consistent traction. Your campaign should demonstrate both. You need to be consistent and persistent about it. The motto is the “Fundraise is always open.” Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies.

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    Closing the Investment

    2 min read How to Raise Funding Step 7: Closing the Investment After initial interest, the investor often proceeds through due diligence and will ask for documents on your business, including legal entity filings, articles of incorporation, patent filings, tax returns, before closing the investment. In any due diligence exercise, ninety-five percent of the documents will come from the startup any way therefore, it makes sense to start building what is called a due diligence box or data room, from the very start. There are many checklists on the web that you can download and use as a guide to building out your list. For early-stage startups, there will be a number of documents that simply don’t exist. For example, if you don’t have a formal board of directors, there are no board of director reports to include in the data room. One final word about due diligence: it’s for serious investors only. A serious investor has had several discussions with you before asking for the due diligence, and there’s at least a soft-circled investment figure on the table. If the investor is not that far along, then it’s premature to hand over data room access. Continue discussing their interests and concerns before proceeding. Read more on the TEN Capital eGuide: http://staging.startupfundingespresso.com/how-to-raise-funding-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 Engage the Investor

    2 min read How to Raise Funding Step 6: How to Engage Investors for Calls and Meetings In looking at how to raise funding, a crucial step is to engage investors. We can begin by contacting investors online. After several mailers, you should be able to assess who is engaging with your deal and who is not. For those who are opening your mailer and viewing your deck, you now take them to the next level, which is a conference call and later a meeting. The key to setting up a call with an investor is to offer new information that they cannot get through a mailer. This includes confidential information such as actual client results. Detailed information about your customers is not something that most put in mailers, so investors will appreciate the fact that this is for direct offline communication. Investors are seeking new information about their sector and appreciate sources of information that can inform them. Other sources of information to offer the investor include trends in the industry, challenges in the sector, what to look for in startups, new startups coming up that are investor-worthy, competitive information, and takeaways from a recent conference. As a startup operating in the thick of things, you have access to information that is quite valuable. Read more on the TEN Capital eGuide: http://staging.startupfundingespresso.com/how-to-raise-funding-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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    Developing Rapport with the Investor

    2 min read How to Raise Funding Step 5: Developing Rapport with the Investor When I ran angel networks using the dinner club model, I had entrepreneurs come in to pitch my investors. Ninety percent of them would go away, and we would never hear from them again. We had no idea what happened to them. About ten percent of them, though, would come back and give us updates and reminders about their deal. By and large, those were the startups that raised funding from the group. One of the key steps when considering how to raise funding is building a rapport with someone. This starts with introductions and awareness and continues with ongoing communication to a level of familiarity. In sales, it takes seven touches to close a deal. So too, does it take seven touches to close an investor. For substantial fundraises, it may take even more. The key here is that you must build a relationship with the investor before the funding, not after. If you already have investors, think about how much you know about them. How long did it take to figure those things out? In most cases, it will be the same with your investor prospects. Read more on the TEN Capital eGuide: http://staging.startupfundingespresso.com/how-to-raise-funding-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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    Research the Investors

    1 min read How to Raise Funding Step 4: Research the Investors for Prospective Fit In fundraising, most startups think it’s the startups who pitch, and it’s the investors who ask questions and run due diligence. The reality is that startups should be asking as many questions as the investors and should also be running due diligence on the investor.  It’s important to research the prospective investors and qualify them for a fit for your deal based on their investment criteria and track record for funding. In your analysis, you should separate them into A, B, and C, investors, with A being the ones that fit best and you want, B are the ones that have some fit, and C’s are the ones that don’t fit. There are many venture capital funds, accelerator programs, and other forms of fundraising on the market. All claim to be “founder friendly,” have a great program, and talk about how they are the best. How do you know who to pursue? The startup should be analyzing the investors for their fit to the startup deal. Do they invest in companies like yours? Do they have expertise in your area? What exactly can they do to help? There are tools available to help understand the funding landscape, such as Crunchbase, which tracks venture funding and makes the results available to subscribers. You can track what companies are getting funded, as well as sectors. You can see which venture groups are active and doing deals and which are not. In your analysis, you should keep track of what investors are funding and what valuations they are providing. This will give you some indication of what valuation you should negotiate for. The operative word here is “negotiate.” As the saying goes, “You don’t get what you deserve; you get what you negotiate.” And knowing what to ask for is the first step to a successful negotiation. Read more on the TEN Capital eGuide: http://staging.startupfundingespresso.com/how-to-raise-funding-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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    Educate the Investor About Your Deal

    2 min read How to Raise Funding Step 3: Educate the Investor About Your Deal They say it takes seven touches to close a sale – so it takes seven touches to close an investor. Some startups pitch to a group of investors, and if they don’t see checkbooks coming out at the end, then in their mind, it’s a failed meeting. I tell the startup, the investor doesn’t yet know if they are interested or not, they’re still trying to figure out what the deal is all about. It takes several updates before the investor gets a sense of the deal and can start making a decision. In the end, the investor makes a decision based on team and traction.   In the introduction, you can talk about the market size, growth rates of the industry, and the promise of a great outcome.  After that first mailer, the investor doesn’t care to hear about the market or growth rates. They only care about one thing – what are you doing to achieve the promise? Your mailers need to showcase the strength of the team and the progress you are making on sales, product, IP, and fundraise. To make your case, you need to include numbers in your deck and updates. It shows you know your business, your market, and your status. I’m amazed at how many startups don’t know their revenue numbers. Come prepared to share those details with the investors in mailers and follow up conference calls.   One tactic I’ve seen used to good effect is going to your investor prospects six months before launching the campaign, telling them that you will start your raise in six months and then asking if you can keep them informed of your progress. This approach gives you six months to educate the investor about your deal and demonstrate progress, so when you are ready to launch your raise, you have a group of educated investors prepared and ready to go. Read more: 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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