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How to Diligence a Therapeutic Startup

How to Diligence a Therapeutic Startup

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    Startups: Do You Need an Advisor?

    2 min read. Startups: Do You Need an Advisor? Many startups collaborate with an advisor at some point in the process of their development. Advisors can aid startups in many ways, yet it always comes at a cost. In this article, we discuss how to know if your startup is in need of an advisor, what roles an advisor can play, and how to select the right one for you and your team. Do You Need an Advisor? Advisors can be helpful to your startup. Here are some key points to consider when determining if you need one: If you haven’t run a startup before, you’ll most likely need an advisor. If you plan to raise funding, you’ll find advisors add gravitas to the team as well as potential contacts. If you have holes in your team, then advisors can help you close them. If you are in a domain you have not worked in before, then an advisor can be helpful. If the business technology has changed dramatically, then an advisor can be useful to guide in the implementation of the latest tech. If you find yourself asking anyone, and everyone questions about your business decisions, then an advisor may be the answer. If you have a team that always agrees with you, then you may benefit from an advisor who will be more honest with you. If you need help for your own growth, then look for a mentor.  Remember that mentors are different from advisors. Mentors typically help the individual grow, while advisors help grow the business. Advisor Roles In addition to there being many types of advisors, advisors also take many roles in their work with startups. For example, some advisors’ role is simply to fill gaps in the early stage of the startup. Advisors can be signed on as formal advisors, or some may provide support as informal advisors. In this scenario, there are no set goals, meetings, or formal advisor agreements. This is the most common way startups work with advisors. Some advisors take the role of a mentor in providing guidance. These mentors tend to focus their efforts on the founder. Some advisors take the role of consultant in performing very specific tasks for the company, while others take on general responsibilities. Others may take on the role of a board of directors. This can be helpful in early-stage companies that are not yet ready to form a board of their own. Advisors here can provide oversight to the company and help the founder keep the broader picture in mind. Regardless of the role, you choose to fill, as an advisor, you will aim to bring experience, contacts, and networking to the startups you work with. Advisors can help startups achieve higher growth, avoid problems along the way, and give the founder confidence. Here are some key points in choosing an advisor for your startup: Avoid the dabbler: These advisors want to dabble with startups but don’t have any substantial experience to share. Avoid “Yes” men. These advisors confirm everything you say because they don’t want to go through the heavy lifting of explaining better ways of doing things. Stay clear of generalists: Generalists have general business experience but know very little about your specific industry or growth strategy. Look for advisors who know your industry and space very well.  Seek advisors who are well-connected.  Look for advisors who challenge you and remind you of the goals you have set. You may want to recruit a group of advisors and have them meet both individually and as a group to discuss key issues. Remember the time commitment that comes with advisors and set aside time for it.   Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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    What is Your Competitive Advantage

    2 min read What is Your Competitive Advantage Many entrepreneurs are unaware of what gives their product a competitive advantage, confusing anecdotal stories for concrete evidence. Recurring Revenue Competitive advantage increases revenue by 30% over the competition. This creates a loop where the extra money coming in becomes a competitive advantage to improve the startup’s product or offered services. In today’s world, you would think every business has recurring revenue. Yet, most companies that are raising funding did not structure their business for recurring revenue. Recurring revenue helps your business in several ways: Opens up your business to new customers who could not afford your product previously because the one-time payment was too high; breaking the payment into smaller steps means that more customers will be able to afford it. Provides an ongoing revenue stream to plan your business better as you know how much you will have coming in. Helps you maintain engagement with the customer and gives you the chance to find new opportunities to serve the customer. Platform-Based Solution Consider adopting a platform-based approach to your business. A platform-based solution is a competitive advantage over a single product company as platforms reuse the research, design, architecture, and product packaging. Customer support is also turned into a recurring factor. Network Effects Most businesses increase in value as the customer base grows and validates the product/service. When users encourage others to join the platform, it is called Network Effects. As the number of users increases, so does the value of the platform. If a business can harness that customer base and turn it into a community that more aggressively attracts other users, this will become a competitive advantage. Virality Virality is a key competitive advantage in which users invite other users to join your platform. This approach, in turn, reduces your cost of customer acquisition. Though this is similar to Network Effects, Virality is different. Network Effects shows the platform increasing in value based on users interacting directly, while Virality seeks to engage via social platforms online. If you build virality into your product, you will have a trackable pool of prospects to monetize and a lower cost of customer acquisition. Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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    What is Your Competitive Advantage

    2 min read What is Your Competitive Advantage Many entrepreneurs are unaware of what gives their product a competitive advantage, confusing anecdotal stories for concrete evidence. Recurring Revenue Competitive advantage increases revenue by 30% over the competition. This creates a loop where the extra money coming in becomes a competitive advantage to improve the startup’s product or offered services. In today’s world, you would think every business has recurring revenue. Yet, most companies that are raising funding did not structure their business for recurring revenue. Recurring revenue helps your business in several ways: Opens up your business to new customers who could not afford your product previously because the one-time payment was too high; breaking the payment into smaller steps means that more customers will be able to afford it. Provides an ongoing revenue stream to plan your business better as you know how much you will have coming in. Helps you maintain engagement with the customer and gives you the chance to find new opportunities to serve the customer. Platform-Based Solution Consider adopting a platform-based approach to your business. A platform-based solution is a competitive advantage over a single product company as platforms reuse the research, design, architecture, and product packaging. Customer support is also turned into a recurring factor. Network Effects Most businesses increase in value as the customer base grows and validates the product/service. When users encourage others to join the platform, it is called Network Effects. As the number of users increases, so does the value of the platform. If a business can harness that customer base and turn it into a community that more aggressively attracts other users, this will become a competitive advantage. Virality Virality is a key competitive advantage in which users invite other users to join your platform. This approach, in turn, reduces your cost of customer acquisition. Though this is similar to Network Effects, Virality is different. Network Effects shows the platform increasing in value based on users interacting directly, while Virality seeks to engage via social platforms online. If you build virality into your product, you will have a trackable pool of prospects to monetize and a lower cost of customer acquisition. Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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    What Investors Look For

    2 min read What Investors Look For So you’re about to raise funding for your startup and wonder what investors look for. Startups can be pretty shy about discussing their current revenue in the business’s early stages. Being pre-revenue or just beginning to show traction is typical in the beginning, and investors know this. Even if you are pre-revenue, you can show traction with your startup. You define your traction as customer activity, and you don’t need to have revenue to show there’s traction with customers. To exhibit that you have traction while pre-revenue, focus on customer engagement at all phases, even before you have a product. One of the most important things to understand as an early-stage startup is this: The investor doesn’t care about the size of the revenue. What investors look for is the predictability of that revenue. If you do have a sales funnel, it’s helpful to share that with the investors. Having visibility on that progress is vital because the investor can then see the traction you have in your sales prospecting process. Use the funnel in multiple investor updates to show how prospects are moving through it. When speaking with investors, mention your process with phrases such as: “For every ten leads, we generate one customer worth $5000 in revenue.” Showing leads is precisely what investors are looking for. It shows that you have a system with repeatable and predictable outcomes. Additionally, when communicating with investors, always include the customers in your discussions. Never engage in an investor meeting without new information about your customers and always mention any updates you have on revenue. TEN Capital helps startups, growth companies, and investors, raise funding through its extensive network of accredited investors. Our Funding as a Service program includes investor introductions, an email campaign with updates, pitch events, webinars, podcast interviews, and assistance with investment closing documents including pitch decks and data rooms. In short: we provide the leg-work, saving you time and money. Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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    Bootstrapping Your Business

    1 min read Bootstrapping Your Business At its core, bootstrapping is about starting your business from the ground up without the help of outside sources. This process works by using personal funding in addition to the revenue of your initial customers to launch your business. There’s no doubt about it: bootstrapping can be tough. Limited income can sometimes inhibit growth. It also places all of the possible financial risks on the founder, which can be stressful. On the plus side, bootstrapping a business allows the entrepreneur to maintain total control over the company during its beginning phases. Perhaps the most significant benefit to bootstrapping a business is its appeal to investors. One of the most attractive elements of bootstrapping is that it is an excellent way for investors to see how serious you are about your business. It shows them just how much work you are willing to put in and your level of commitment. Additionally, bootstrapping your startup is a great way to stay disciplined with your cash flow. When you spend your own money, you’ll find that you spend much less of it. If you have the means to do so, think about bootstrapping your startup. It can lead to many more investment opportunities later on. Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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    Technical Due Diligence

    2 min read Technical Due Diligence Technical Due Diligence (TDD) is a detailed evaluation of a company’s technical side, including existing software and hardware products and those in development. Potential investors must gather detailed information about a prospective company to highlight any potential risks associated with their investment. While the Technical Due Diligence process may seem intimidating to some small business owners initially, it is, in fact, a routine step. If efficiently planned and executed, a TDD should be able to answer investor questions in easy-to-understand terms. Whether you are a potential investor, or a startup new to the process, the following article provides an insightful take on making the process work. When embarking on the TDD process, investors typically want to know about 4 major areas: Strategy: Do the company and its product(s) fit within the investor’s overall growth objectives? Does the company’s own strategy match up with the investors’ strategy? Quality: Are there quality issues with the company’s product that will require fixing? If product development or fixes are needed, what are the expected costs? Growth:  Is the company or its product poised for growth? What roadblocks would hinder growth in terms of labor, manufacturing, infrastructure, and development? Can the product be scaled? Stability:  Are the company founders and their employees in it for the long haul? Are their processes organized and well-documented? Are there contingency plans and redundancies in case of an unforeseen event? Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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    Building a Financial Model

    2min read Building a Financial Model Building a financial model is an important aspect of running a startup and achieving investor funding. Below, we learn how to create a quick version of the financial model, how to capture assumptions and drivers, and what mistakes to avoid in financial modeling. Quick Version of the Financial Model When setting up your fundraising plan at a high level, set a revenue target five years out. Then, draw a line from today to that five-year mark. Your fundraise and hiring plan will come from that. To calculate this quick and dirty version of the financial model, follow these steps: Start with current revenue. Apply your organic growth rate and map out your top-line revenue for five years. Calculate your revenue per person metric. Apply your expenses for five years using the revenue per person metric. Identify the negative profit line.  Set your fundraise to cover the negative working capital. If the amount is greater than one million dollars, break the fundraise into two rounds. This will give you a rough idea of how much you need to raise and how many people you will need to hire.  Assumptions and Drivers In building out your financial model, make explicit the assumptions you are using and identify the drivers in your business. Create a tab on your financial modeling spreadsheet for assumptions and drivers for the investor to review. As you build out the revenue forecast, capture the assumptions behind the growth rate. For the costs, make clear which are fixed and which are variable costs. Identify the drivers within the business. Typically, this is the number of products sold or the number of customers signed up. This drives the revenue line as well as the variable costs. For example, the more customers targeted for revenue, the higher the cost of sales and sales commission. Investors look to see if the costs align with the revenue forecast. Understanding what drives your revenue and costs will help you build out your financial model and create more accurate projections. Mistakes to Avoid in Financial Modeling Your financial model can be used not only for fundraising but also for running your startup. Avoid these mistakes in setting up your financial model: Tying your revenue to a factor that doesn’t actually drive revenue. Instead, figure out what actually drives sales and build your model around that. Trying to identify exact numbers for factors such as conversion rate. Instead, use a range of numbers to account for variations. Skipping the research into companies in your sector. Instead, spend time looking at similar companies to find out what drives their business. Trying to include too many drivers in your business model. Instead, focus on the top drivers that account for the majority of your sales. Setting up the financial model for generating financial statements only. Instead, set up the model so it also calculates key performance indicators. Design the spreadsheet for running the business in addition to raising funding.  Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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    Due Diligence Box: What Is It and How to Prepare One

    2min read Due Diligence Box: What is it and How to Prepare One After an investor expresses interest in funding your deal, the first question to ask is: “What is your diligence process?” Having a due diligence box with the standard documents helps a great deal. It shows you are prepared and typically only requires minor additions for each investor.    The Due Diligence Process While most diligence processes follow the same document review and analysis format with a round of follow-up questions, each investor has their own start time, work timeframe, and specific documents they look for. It’s best to ask for their process, and then follow along with it. If the investor does not have a specific process, then presenting the due diligence box should be enough. For new investors who are not sure what to do, you can offer to walk them through the diligence document by showing them all the relevant information. It can be helpful to contact the associate or analyst who will be doing the detailed work and open a direct line of communication with them. By building a rapport, you may contact them directly for progress status and updates. You can also position your calls as opportunities to answer questions and to help the associate find specific pieces of information. Investors are busy and can get drawn away by other deals, so it’s important to be timely with your follow-up. Having a due diligence box with the standard documents greatly helps with this. It shows you are prepared, and typically only requires minor additions for each investor.   Due Diligence Box In preparing a due diligence box, also called a data room, there are basic documents to include. These documents consist of:  Income Statement and Balance Sheet 3-5-year Financial Forecast Cap Table- including shares outstanding Entity Filings including Articles of Incorporation Intellectual Property Filings- including patents, trademarks, etc. C-level Team Resumes  There may be other documents you may need to add based on your situation.   Reps and Warranties Contract One document that is helpful but not required to include in the due diligence box is a reps and warranties contract. Information taken in by investors about a startup’s product, team, financials, revenue, and more can change rapidly during the startup phase of the business. One method of assuring the investor the information provided is true and accurate is for the startup to sign a Reps and Warranties contract. This is often tied to the diligence provided.   This contract states that everything provided in the diligence is true and accurate and that no material has been omitted. If it later turns out that there’s a material difference between the business and the diligence, then the Reps and Warranties contract provides legal recourse to the investor for recovering any damages. For example, if the financial statements indicate there’s no debt in the business, then the investor assumes the business is debt-free. If the startup does in fact have debt, then the investor can take legal action against them.  Some investors demand such a contract to be signed to ensure they have the full picture of the business. Signing a Reps and Warranties Contract can strengthen a startup’s case on the diligence provided.   Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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    Two Key Elements of a Crowdlending Campaign

    2min read Two Key Elements of a Crowdlending Campaign The key to success is compelling presentations and getting the word out to as many people as possible. Let’s start with the presentation. You need to provide a simple, well-organized explanation of your business. The things that are requested are things you already know – what your business is, how you would use the proceeds of the offering, simple financial information, the people behind your business, and the risks related to the business and the offering. You already know all of this. Your potential investors need to know it, too, so they can make an educated choice on whether or not to invest in your loan. Securities laws also require certain kinds of information since you are essentially issuing “mini securities” under the Texas intrastate crowdfunding exemption.  All this could get somewhat confusing, but a good crowd-lending platform should provide you with organized and straightforward instructions. The second step is getting as many people as possible to look at your project.  This would be time-consuming if you had to make the presentation personally.  But you don’t.  All you need to do is interest people in your project online.  Using personal contacts, email lists, daily customer contacts, social media, or whatever means will get the simple message to as many people as possible.  “You know me and my business. I am raising money to expand.  I am conducting an offering at “Your URL.” Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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