Startup Funding

Menu
Subscribe
Search

•
Fundraising, Investing

Related Guides

    Search Startupfunding above or view our

    Timing Your Exit

    2 min read For every business, there comes a time to sell. Whether you are a startup or an investor, recognizing when this time is key to success. In this article, we cover when you should consider selling a business, how long it takes, and the benefit of taking an early exit. When to Sell Your Business Ask the following questions to find if now is the right time to sell your business: Do you still want to run the business? You may want to move on to new projects and opportunities and the current business may no longer be fulfilling. Do you still believe in the business and what it can do for you? Sometimes the market changes and the business opportunity is no longer there. What can you get from the business today versus two years from now? Waiting a few years to sell may give you a better exit. Do you need more funding, and can you raise it? If your business needs funding to continue and you can raise it, then do so. If you cannot, then consider exiting. What do the other team members want to do? Aside from your own interests, what do the other stakeholders want? It takes a team to run a business. If they want an exit, that should be part of the consideration. Early Exits In setting the exit, most investors look to maximize the exit value. It’s important to remember that the metric investors use, IRR or Internal Rate of Return, has a time component to it. The faster the exit, the higher the IRR. As an investor, consider pursuing the highest IRR over the biggest dollar exit as bigger exits take longer. While the news highlights the biggest exits, the vast majority of exits are under $20M. Selling a business for under $20M is not that hard. Growing a business and selling it over $100M is very hard. Most acquirers don’t need the business to be large, they only need to know the business model is defined and is profitable. Staying in the deal longer opens up the investor for dilution and other events that reduce the return on investment. A startup should be proving its business model and turning it into a repeatable, predictable process. With funding and time, it will scale. As an angel investor, you should look for early exits and structure your investments accordingly. Timeline for an Exit Most startups are launched with the idea of selling the business for a substantial gain in five to seven years. Many companies reach that stage and find they can’t sell the business, at least not for the price they want. It takes six months to a year to complete a buyout. Delays often come from the startup not being prepared or ready for the M&A process. Also, setting valuation and final terms can take substantial time for research and negotiations. To shorten the time, consider the following: Identify and contact the likely buyers and build a relationship before starting the process. Position the startup leadership as a thought leader with published articles and keynote speeches to provide credibility. Build a data room of key documents that will be used in a transaction process. This is basically a gathering process but does take some time. Beware of competitors in the diligence process as they will have access to your detailed financials and other information. Understand the interest level from the buyer and what other activities may delay their work on your deal. Set realistic expectations for how fast things will go. Read more in the TEN Capital eGuide: http://staging.startupfundingespresso.com/how-to-achieve-an-exit/ 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 »

    Startup Exit Strategy

    2 min read  The end goal of most startup organizations is to eventually exit the marketplace. This is when everyone involved in the deal makes their largest profit off the business. Strategy is key to a successful exit. In this article, we discuss how to plan for an exit, ways to exit, and how to negotiate the exit. Planning For an Exit Startups should start planning for an exit after they achieve product-market fit. The following are some key points to consider when planning your approach to an acquirer: What are the key metrics the acquirer will look for? What are the company’s metrics and how do they currently look? How big is the market for the company’s product? What initiatives are underway that will produce value for the company? How is your companies product compared to the competitor? What is your primary competitive advantage? How consistent is your growth rate? What is your forecast for the coming three years? How will your company be perceived by the potential buyer? Use them to guide your funding, hiring, and strategic plans. Looking For An Exit Startup investors look for an exit in the 5– to 7-year range. As a startup, you need to consider the exit from the beginning as the exit strategy can inform your decisions around funding, hiring, and more. Here are several exit options to consider: Mergers and acquisitions – most companies exit by being bought by a bigger company. Going public – some companies still use an IPO for an exit. It can be expensive due to compliance, so fewer companies take it. Private equity firm – more companies are staying private longer and often use PE firms to give the early investors an exit. Revenue sharing – some investors exit by taking a revenue share for their return. Liquidation – some companies can be sold for the assets to provide a return to the investors. Share buyout – some investors will accept a buyout of their shares from the company to provide an exit in the event there is no other option. If your investors are family members or others who do not expect to be paid back, then you can skip the exit and just maintain the business.  As you launch and grow your business, keep a list of potential exit options and consider what you would need to do to achieve it. Negotiating The Exit In negotiating the exit with an acquirer you’ll need to know the following: Key metrics about your business, both those that show the company in a positive light as well as a negative one. The total addressable market for your company. The top three opportunities your company can attack. The company’s competition and competitive advantage. The company’s track record in meeting forecasts and accomplishing milestones.  Also, acquirers will ask why you are selling the company and why now? Why is the acquiring company a good fit for your company? How closely aligned in operations is the company to the acquiring company’s operations? How much integration work will need to be done? What role will the CEO play after the acquisition? Think through the answers to these questions as most of them will come up.  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 »

    Startup Investing: What You Need to Know

    2 min read Startup investing is an attractive venture for many in the world of investing. Before investing in a startup company, its important to have a well-thought-out plan. In this article, we discuss what percentage of discretionary funds investors typically allocate for startup investing, the difference in early- and late-stage investing, and how to apply your investment thesis to a startup. Allocate Funds The first thing you need to do when preparing to begin investing in startups is to set aside funds for this purpose. In most cases, investors dedicate 5% to 15% of their discretionary funds to angel investing. There are several issues with asset allocation for angel investing compared to publicly traded stocks, bonds, and mutual funds. Startup investments are illiquid as there’s no market for reselling. Transferring stock is greatly limited due to SEC rules. To achieve again, you must hold the stock for up to 7 to 10 years in most cases. Many startups fail completely and are tax write-offs. Determine upfront how much you want to invest based on 5% to 15% of your portfolio. Divide by ten to get the total number of startups you can invest in. Divide the investment amount by 2 to get the initial investment per startup leaving the second half for a follow on round.  For example, let’s say I have a portfolio of $3.5M. 15% of $3.5M yields $525K to invest in startups. Dividing $525K by 10 gives me $52K per startup that I can invest. Dividing the $52,500 by 2 means I can invest $26K for each startup leaving another $26K for each follow-on investment. It’s important to be selective in the beginning. You should start with only 3 investments per year. After a few years and some gains, you can re-invest some of the profits into more startups. There are tax laws that make it attractive to roll your gains from one startup investment into another.  Choose Your Niche Venture capitalists have two choices in funding startups- they can invest in early-stage or late-stage companies. Each option has its own pros and cons Early-stage companies come with a high risk for startup failure, but an easier time to reach a successful investment exit. Late-stage startups have a lower risk for startup failure but a more challenging time to reach a successful investment exit. As the rule of 5 tells us, a good investment requires an exit of 5 times the post-money valuation.  Later stage companies often come with $20M to $30M post-money valuations which means they would need to exit at $100M to $150M to be a successful investment. Early-stage startups simply need to launch and grow reasonably well. Later stage startups need to become the leader in their category as acquisitions usually focus on the leader and not the various followers. Apply Your Investment Thesis Before investing in a startup apply your investment thesis to it to see if it makes sense. Write out the company’s strategy and how it fits into the overall market. Review their position relative to the competition. For the target company, look for a material event that recently occurred such as a jump in sales or hiring of a new CEO. Write out what is significant about the change and why. Include any challenges the company may face. Consider what factors may impact their performance such as the economy, a new competitor, etc. Writing it out helps you think through the investment thesis and gives you a document to reference later to check your thinking. Reviewing your writeup in light of the outcome may update your investment thesis.     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.

    Read More »

    Startup Valuations

    2 min read Startup valuations differ from standard valuations in that they don’t solely rely on expected cash flows, book value, or other tangible aspects of the business. Intangibles such as quality of the team, intellectual property, product status, and customers are the driving factors. In this article, we look at why startups may want to perform a valuation and how they can maximize their results. Why Perform Startup Valuations Most angel investors want 25% of the equity for an initial round of investment. In addition, they want to have a say in the business through a board of directors or advisory role. To justify your startup value, focus on articulating the values that are already in the business as follows: Highlight the team you have built so far and their experience. Show what the team is doing to make the company successful. Show the current product development and highlight what has been done so far. Outline the intellectual property you have including provision patents. Make sure you file your provisional patents in advance of launching a fundraise so you can point to having patent-pending technology. Always note customers even if they are not yet paying for your product. Customer involvement results in a higher valuation. If you have revenue, use it to prove market validation showing customers will pay for it.  If you cannot sell the proposed valuation for the raise consider cutting the fundraise target in half to make the risk appear lower. Maximizing Your Valuation Valuation is a negotiation and not a formula. While there are formulas and rules of thumb to help determine valuation, it ultimately comes down to positioning and negotiating. Here are some key points to maximize your valuation: Emphasize the team and show what they are doing to help your business. Highlight the repeatable, predictable nature of your revenue rather than the absolute value of it. Emphasize your most recent milestones showing customer demand and past market success. Calculate your valuation with various models to find the one that puts your deal in the best light with the highest valuation. Consider the market in timing your fundraise.  The hotter the stock market, the higher the valuation you can demand. Investors pay more for new, trendy technology. Connect your startup to a technology trend if possible. Positioning your deal properly will earn you a higher valuation. And remember, valuation is a negotiation. This means everything counts.    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.

    Read More »

    Tips For Starting an Angel Investment Group

    2 min read There are many things to consider when starting an angel investment group. What kind of deals you will pursue, how much you will invest, and who will be on your team are all things you will need to consider during the planning process. Below are some tips and best practices for recruiting members, branding, and allocating funds for your angel investment group. Recruiting Members It’s important to recruit members to join your angel investment group. The first step of recruitment is showcasing the deals you have to prospective investors to gauge interest. Send them recently funded deals as an example of the type of deals your group offers. You can also give them access to all of your deals for a period of time and then see if they want to join. Network through your current investors to find potential new members. Have the current members bring friends and colleagues to the presentation meetings and invite them to invest in deals the members are funding. Provide the returns for the group to show the track record. It helps to have a fund that investors can join for those who don’t have the time to review specific deals. For every four investors who want to participate, three will join the fund and one will join the group. Setup a syndicate that takes care of the diligence and makes it easy for investors to join the deals. Make the goal and mission of the group clear to prospective investors as the why is stronger than the return in gaining new members. Branding Your Group In running an angel network it’s important to establish a brand for the group and to then promote it. Branding can make your group appear larger and shows it is an established and well-thought organization. A brand consists of a unique name, logo, mission statement, and mantra. Your brand helps your group stand out from the crowd. It helps build trust and is a promise to the investors and startups you serve. It helps people remember your group by giving them a name to associate it with. A brand also helps attract investors as investors want to belong to a group that stands for something. Finally, a brand helps attract startups. Startups need to recognize your group as a viable source of funding for their company.  Allocating Funds In preparing for Startup investing, determine upfront how much you are willing to invest. In general, it’s best to keep your startup investing to 3-5% of your discretionary investment funds- funds you can lose and not impact your lifestyle or other investments. When determining how much you plan to invest, use a five-year window. Separate these funds from the rest of your investments to make it easier to manage the process. The amount you invest per deal will determine what platforms you will use. You invest $5K you will most likely be on an online funding platform. If you invest $25K you can join a group and invest with angel investors. If you invest $50K you can join a syndicate. And if you invest $100K or more you can invest through investment banks.  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.

    Read More »

    Understanding Impact Investing

    2 min read Impact investing seeks to fund startups with social or environmental benefits. Impact companies have the intent of providing social or environmental aid and solutions with measurable results. The investment must provide a benefit that is more than what would have occurred without the aid of the organization, a concept referred to as additionality. In this article, we will understand how to predict and measure the impact of your startup’s investment. Indicators of Successful Impact Investment The indicators of a successful impact investment are as follows: Shows a measured impact over time, based on its business model forecast. The company brings innovation that provides for significant impact. The company has a sustainable business model and strong entrepreneurial skills and capabilities. If you have these elements, you have a true impact investment that is making a difference. How To Measure Impact Impact startups need to know and understand how to measure their impact in addition to their financial return. Here are some ways to measure impact: The startup could measure the impact for each unit sold. This works well when the impact is the same for each customer. An example would be a bottle-less solution for water distribution. The startup could measure the impact based on a sample and then extrapolate across the entire business. This works well when the impact is not exactly the same for each customer. An example would be the graduation rate of a student through an education program. Look at comparable solutions with a stated impact and adopt those metrics. An example would be the reduction in carbon emissions based on reduced fuel usage. The startup could then apply that metric to their own user base. Impact investors will look for impact metrics from the startup, so it’s important to measure and track them. Impact Measurements The measure of impact is in the eye of the beholder. What impact you see may not be shared with the investor or company you are working with. Using a measuring system helps offset bias in this regard. There are several systems you can use. Some examples include: GIIRS (Global Impact Investing Rating System): This system rates companies based on social and impact performance metrics. This system is considered one of the primary standards.   IRIS (Impact Reporting and Investment Standards): This system provides metrics for social, environmental, and financial performance of a company.  B Analytics: This system was developed by B Lab, and it provides a tool to assess, compare, and improve impact. SASB Standards (Sustainable Accounting Standards Board): This system provides sustainability standards for over 70 industries. GRI Standards: This system was one of the first to provide standards for sustainability reporting. International Integrated Reporting Council: This system provides reporting with an emphasis on bringing cohesion and efficiency to the reporting process.  The above tools can help immensely when comparing metrics across sectors. Impact metrics In addition to measuring, startups in the impact space should also show their impact metrics. Investors will be looking for the impact metric results. A common mistake by impact companies is to focus on the size of the market to be served and the needs in those markets. Instead, you should measure the actual impact results of your business on the market you are serving and show those results. For example, you can show how many students graduated, how many bottles of plastics were removed from the waste stream, or how many students improved their test scores. Focus on the primary impact on the customer rather than the secondary impact on the employee of the business. There are several metric systems including GIIN’s IRIS+ metrics, the IRIS Thematic Taxonomy, and the Impact Management Project. In short, no one system covers all impact sectors. To learn more about the impact metrics your startup fits, review the UN’s Sustainable Development Goals. 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.

    Read More »

    Doing Your Due Diligence

    2 min read There are several approaches to due diligence. The most common is the “Thorough Approach” in which you review each aspect of the business and focus on the top items. The main areas to cover in due diligence are the market and the team. In this article, we will cover how to diligence the market, how to diligence the team, and what key documents you should have in your due diligence box in following the thorough approach. How To Diligence the Market When implementing due diligence in a startup, the size of the market is a key question. The larger the market, the greater the growth potential of the startup. There’s rarely a need to pay for research as so much exists on the web. In searching the web, you’ll find research reports giving market sizes, trends, analysis, and more. The key here is to analyze the market at three levels. The first is Total Available Market which is anyone the company could ever sell to. The second is the Serviceable Market which is the target market the company wants to serve. The third is the Beachhead Market, which is the first niche the company will pursue. Ideally, this is a small but well-defined group of companies that fit the startup’s current product. The startup should have some interactions with the companies in the Beachhead market already. How To Diligence the Team In doing diligence as a startup, the team is the most critical factor in the process. For implementing diligence in the team, first, review the resumes of those who are on the team or plan to join when funding becomes available. Next, look for domain knowledge. Who has it, and how current is it? After that, look for complementary skills. Is there someone who has sales skills and will spend their time selling the product? Is there someone who is going to build the product and will manage either an internal development team or an external one? Outsourcing the product development with no one actively managing it is a recipe for disaster. Next, look at how long the team has worked together if at all. Ideally, the team has some experience working with each other. The more the better. Finally, look at completeness. Many successful teams follow the Designer, the Hacker, and the Hustler formula. The Designer knows the customer problem and plans the product development, including how it will be monetized and promoted. The Hacker is the developer who builds the product, and the Hustler is the one who sells it. Due Diligence Box Key Documents You’ll need to gather your basic company documents for investors to review. In preparing a due diligence box also called a data room, the following are basic documents to include: Income statement Balance Sheet Three- to five-year financial forecast Cap Table including shares outstanding Entity filings (LLC, C-Corp, and 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. 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.

    Read More »

    How to Set Up and Organize Deal Flow

    2 min read Deal flow is key to successful startup investing. It can take a substantial amount of time for the startup investor, so it’s important to build a strong process for managing it. A well-structured and organized deal flow lead to maximum efficiency for the startup investor. In this article, we will learn how to set up deal flow, how to organize it, and how to automate the process How To Set Up Deal Flow Start with these key steps for running deal flow: Set up a deal flow source with angel groups, venture funds, online portals, and others. Capture key deal information into a software tool. Run an initial screen to see if a deal meets your criteria- have 3-5 key points to check. Set up a first call to find out more details. Update the deal flow software with the results. Set up a partner meeting to review the deal with others in your fund, syndicate, or network. Negotiate valuation and terms. Perform diligence on the deal. Close the investment. Set tasks and reminders for ongoing follow-up and reports. In each step, capture the results into software. Ask the following questions to aide in this process: Which sources gave you the best deals? How much time did the calls take to capture the necessary information to decide? What key factors died the startup need to go all the way through to funding? After anaylysis, update your process to screen out details that wont make the cut. How To Organize Your Deal Flow It’s important to keep your deal flow process organized and efficient. Below are some poiters on how to keep your deal flow well organized:  Set up a separate email for deal flow and use it to capture deals from websites, social media, and other sources. Have everyone on the team send any new deals to that email address. Take all submitted deals and place into a CRM with contact information, sector, stage, and other key information. Update that record with the deal status and next steps. Create a series of follow-up emails to send to those in the deal flow pipeline such as how your deal flow process works and when to expect a follow up. Develop a process for screening the deals for basic criteria and send “pass” notices to those deals that don’t meet them. Set up calls with those that meet the criteria to qualify them and move them through your standard process. Run reports to understand the deal flow and how well it is providing quality deals. It’s important to review your successfully funded deals for key information so you can prioritize those deals for follow up. How to Automate the Deal Flow Process When your process is well organized, you can automate to achieve maximum efficiency. Some key pointers to help you automate the process include: Standardize the information you collect by using forms on the website. Capture referral partners or sources so you can measure the results. Collect the startup submissions to run metrics and track progress. Use well-structured data sets so you can apply automation tools for analysis and data pulls from other platforms and software applications. Set up search tools to look up the founder and company to provide background information. Maintain a filled-out dataset to enable running reports on trends on the deal flow such as sector, stage, and fundraise amount. Capture information from online databases such as Crunchbase and other tools to fill out more details. 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.

    Read More »

    Guide To Startup Ecosystems

    2 min read If you are a serial entrepreneur or are otherwise serious about startups, building a startup ecosystem may be an attractive option to you. Startup ecosystems provide built-in connections and ongoing support, making the growth of a startup from the grassroots stage to a mature business far easier to manage. In this article, we discuss the best way to begin building your startup ecosystem. What Is a Startup Ecosystem? A startup ecosystem is a network of startups, investors, and others who come together to foster startup formation and growth. At the core of the network are startups led by founders who launch high-growth businesses. This network encourages innovation through shared resources such as capital, talent, and mentorship. Each member in the network has something to offer: Accelerators and incubators: provide education around the initial launch Investors: provide potential capital Universities: provide talent for launching and supporting startups Freelancers: provide additional talent in the form of labor Providers: offer support for legal, financial, marketing, and other services Mentors: provide coaching and guidance on how to grow the business How To Build a Startup Ecosystem In building out your startup ecosystem, consider these points: First, investigate every kind of funding and consider where it may fit into your overall funding plan. It’s most likely that you will use two or three types of funding over the life of your business. To understand the type of funding you should look for, ask: “How will you pay the investor back?” For example, equity funding should be considered if you plan to pay back when you sell the business. On the other hand, if you plan to pay back out of the company’s cash flow, then debt funding is a better choice. If you have a consumer-facing product, consider crowdfunding which offers both debt and equity options. Break your funding down into parts, and consider using more than one type of funding for your business. How to Prepare for a Raise Before launching your fundraise campaign, prepare your business, complete your investor documents, and build your investor network. Start with a group of entrepreneurs interested in startups and meet regularly. Encourage startups to share their projects and invite others to support through coaching and making introductions. Set up a blog and publish a newsletter each week on startup activities in the area. Interview startups and investors. Build a resource list for all startups to use. Recruit lawyers, accountants, and other professionals to join the meetings and support early-stage companies. Set up events such as pitch sessions and happy hours to expand the network and recruit more people into the community. Put the group on website lists for startup communities to generate awareness. Set up a coworking space to give startups a place to work. Recruit startup programs to your area, such as the 3 Day Startup, to provide additional programming. Start small and grow your startup community through regular meetings and consistent newsletter mailings. Remember that your role in building a startup community is to create connections and networks for players in the space. Therefore, facilitating communication and connection is key. 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

    Read More »

    Site Map

    Scroll to Top