Startup Funding

Menu
Subscribe
Search
Critical Success Factors in Early-Stage Diligence

Critical Success Factors in Early-Stage Diligence

•
Fundraising, Investing

Related Guides

    Search Startupfunding above or view our

    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

    Read More »

    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

    Read More »

    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

    Read More »

    How to Raise Funding- The New Normal for Fundraising- It’s Now Online

    A New Model for Startup Funding. Fundraising like everything else is moving online, almost all of it. Traditionally, those who wanted to raise funding would meet everyone in their local area. You would pitch to the local angel network or investment group, meet with the local venture capitalist, and of course canvas all your family and friends. It was something the CEO had to do because investors wanted to meet with the CEO of the company. It was time consuming. You had to get introductions to investors you didn’t know and you had to keep the investors up to date with your progress. It was not uncommon to hear about 50+ pitch sessions before receiving the first investment. The investor side was equally difficult. I ran an angel network in the 2000s and I had many startups pitch to my investors in a dinner club setting. Ninety percent of the startups would go away and we would never hear from them again. We had no idea what happened to them. Only about ten percent would come back and give us updates, reminders, and show some semblance of progress. Those are the startups we funded. Those CEOs built a relationship with the investor and gave enough information to the investor that one could see momentum and traction in play. Today, there is a better way. You can use online tools to help raise funding for your business. The key to fundraising is to build an investor prospect list and update them on your progress.  It takes seven touches to close a sale – so it takes seven touches to close an investor To raise funding you need to: Access a large number of investors.  You need to think worldwide-not just citywide. Use analytics to find the right investor. Understand the different investor types – angels, VCs, family office, etc. Engage and maintain contact with investors.  You have to demonstrate progress not just state forecasts and make promises. Prepare investor documents—you need to come prepared with your pitch deck, due diligence box, and other key documents for investors. Prepare the campaign – know what are you are going to tell the investor about your deal. The rule of pitching is- if you don’t articulate it – it doesn’t exist.  If you have revenue but don’t mention it, you get no credit for it with the investors. This is an investor relations process using online tools.  In this blog series, we’ll layout the steps you need to go through and the process you need to deploy to achieve your fundraise.  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

    Read More »

    ICO Funding is No Doubt a Security Offering

    Last year ICO promoters focused on how to get around the SEC by calling their offering a “utility token” maintaining it was not a security. As I’ve written before the SEC views tokens for what one can do with them, rather than how the promoter intended them to be used.  The SEC appears to have won the battle against startups who didn’t want to register their token as most ICOs I see today are now doing so. That means we’re right back where we began – in Reg D land. It’s déjà vu, all over again. Most ICOs I’ve encountered are running a Reg D offering as the accredited investors are familiar with it but some ICOs are turning to other security offering methods such as CF (crowdfunding), Reg A+ (which lets you raise up to $50M), and others. The token sale is now a funding stage just like raising a seed round from an angel or a series A from a venture investor. The token sale is no longer the solo shot to raise funding for your company. For most ICOs, the promoters raise a pre-ICO round of $500K to build out the MVP and the basic tokenomics. Then in a private sale the promoters raise funding from accredited investors to establish the platform and prepare for the token crowd-sale.  For the private sale, promoters offer a 30% to 50% discount off the tokens. As the private sale winds down with a diminishing discount, the promoters prepare for a crowd-sale of their token to the general market. The token sale is one more tool for the fundraise toolbox. 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

    Read More »

    Even More Startup Pitch Exercises

    2 min read Entrepreneurs know the importance of the startup pitch. Many blog posts explain tips and techniques on how to communicate your vision, passion, and story to the investor. Most pitches tell a story. Most pitches tell a story, and some entrepreneurs use their entrepreneurial journey as the format, which goes something like this: I had a problem I couldn’t find a solution So I created my own solution Others started asking me for it So I started a business Walkthrough the Executive Summary Another approach is the “Walk through the Executive Summary,” which takes the audience through an Executive Summary section. Here’s the problem and how much it costs the world This is my solution to the problem This is the product I came up with for the first version Here’s the advantage of it Here’s how the business model works For a useful exercise in building your pitch, try the following: Give your pitch in numbers Give your entire pitch in 10 words or less. Give your pitch from your customer’s point of view (i.e., how would your customer describe your business; what value you offer the customer). Give your pitch from the investor’s point of view (i.e., how would the investor describe your pitch; how your business makes money, etc.) Give your pitch from your employee’s point of view. (ie. how would your employee describe your business, what your business does on a day-to-day basis, etc.). Give your pitch from your competitor’s point of view (how would your competitor describe your business; what is unique about your business, etc.). Read more from the TEN Capital Blog Post: http://staging.startupfundingespresso.com/startup-pitch-exercises/ 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

    Read More »

    Don’t Show Up Empty Handed

    1 min read  Don’t Show Up Empty Handed Bring more to the table than an idea. Before setting out to raise funding make sure of one thing- Don’t show up empty handed. I often read “How I raised it” stories from entrepreneurs who recently raised their funding. Most are filled with a (journey to hell and back) saga about persevering against all odds. The entrepreneur’s journey is hard but it doesn’t have to be a fiery march through hell and back. There are steps you can take to avoid such a journey. Bring more to the table than an idea. After talking with thousands of investors over the years, investing in startups comes down to two things: team and execution. Show up with both of those in whatever manner you can. Bring execution results to the table. Bring execution results to the table – not just promises for the future. Sales, team, product, IP, and fundraising are the core operational goals you need to show. Sales can come in the form of leads, LOIs, pipeline sales, and more. The team can include partners, distribution channels, advisors, and mentors. IP can be provisional patents or trade secrets. Fundraise can include soft circled interest, committed funds as well as invested funds. I’m amazed at how many startups take the strategic decision to not sell their product so they can focus on building it. With no revenue in hand, they’ve lopped off 80% of their potential investor prospects. Strategic decisions should expand your investor prospect list not shrink it. Start taking steps that make it easier to raise funding, not easier to live your lifestyle. And whatever you do – don’t show up empty-handed. Read more from TEN Capital: 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

    Read More »

    How Fast Do You Have to Grow to be Fundable?

    Startups ask me daily if they are fundable and I tell them one of the key factors is their growth rate. To raise funding you must be able to tell a growth story to the investors. Seed stage companies are growing from $0 to $1M in revenue proving product/market fit. Series A companies are growing from $1 to $10M in revenue proving consistent, repeatable growth. Series B companies are growing from $10M to $100M in revenue proving consistent, repeatable scaling. You are fundable: For the seed and Series A stage you should be doubling revenue year over year. For Series B stage there’s the rule of 40. The rule of 40 says your growth rate plus your profit margin should be greater than 40. For example, if you have a 50% growth rate and you’re not profitable (most venture companies don’t have profit), then  (50 + 0 = 50 total), means you’re fundable. A company that is growing 20% annually and has a 10% profit margin (then 20+10=30 total) means you’re not fundable. Here’s a blog post on the rule of 40 by Tomasz Tunguz showing growth metrics on a sample of companies In summary, if you want to raise funding then bring the message that you are doubling revenue year over year. 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.

    Read More »

    The TEN Consumer Product Goods (CPG) Syndicate

    At TEN Capital we continue to see a strong flow of consumer product good investments. The shifting landscape in the food and beverage industry brings new opportunities for investors. Food and beverage predominate but health and beauty products and other categories continue to raise funding. Investors give some sectors more attention than others. The move to “healthier” alcohol is an interesting one in which all natural juices and herbs/spices added to the alcohol command higher exit valuations. Alternatives to meat and dairy also receive quite a bit of interest from the investors—in particular the strategic corporate investors. Exits in these areas come at 3X to 5X multiples which is in the same league as SAAS-based tech businesses. I find the CPG space fits the angel investor well. When I led the Central Texas Angel Network for its first two years, I found that almost half the funded deals came from CPG. Investors often found the tech deals were too often “smoke and mirrors” so they had to spend a great deal of technical due diligence to figure out what was real. With CPG, the product is more easily understood and the business model is straightforward. When I helped launched Incubation Station (now called SKU), I found CPG deals held up longer than most tech startups. Half of the tech startups in an accelerator are dead within a year. CPG companies with a product in the market can carry on for many years as a loyal customer base is the same as a recurring revenue SaaS product. The key to investing in CPG is being in the right vertical and its ability to build a brand. It’s not hard to check interest with the strategic buyers to see what sectors they are looking for. Brand building can be taught and learned. In the Tech space, branding is an afterthought. In CPG it’s the primary skill. The basic criteria for most CPG deals is at least a 40% gross margin and a category growth rate of double digits. If the startup seeking funding doesn’t know what a category growth rate is then it probably should be a pass for the investor. There are many CPG deals to choose from but as the rule of startup investing says – the top 10% will return good money, the next 15% will return some money, and the rest will return no money.  It’s best to start with the right sectors and then explore for the best teams from there. You can learn more about CPG investing with TEN at this link: http://staging.startupfundingespresso.com/ten-cpg-syndicate  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.

    Read More »

    Site Map

    Scroll to Top