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    How do VCs Make Money?

    2 min read Many individuals looking to enter the investor realm will consider becoming a venture capitalist. This can be a profitable endeavor, however, it does come with unique challenges and obstacles to overcome. In this article, we discuss some of the challenges of being a VC as well as how VCs raise money and venture funding. Challenges of Being a VC Many people want to work for a VC especially those straight out of college. Most are not aware of the challenging dynamics that come with the VC life.  Here are a few: Raising Funding: Just like startups, the VC has to raise funds too.  LPs tend to be rear-view-mirror oriented and not focused on the cutting edge of new technologies and markets.  Working With Partners: You rarely make the decisions alone, but rather with the other partners.  Ego and other agendas are often at play. Getting Deals Done: You have to convince others you have a winner on deck and sell it all the way through the process.  Managing the Deal Flow: Untold numbers of startups want to talk with you and only a small fraction are meeting your funds’ criteria. Dealing with Co-Investors:  It’s rare for a fund to take the entire round. There’re usually other investors in the deal.  Who gets how much of the deal and what board seats, are often an issue.The rollercoaster ride that is the startup life- things often don’t go well at the portfolio companies and this weighs heavily on the VCs who invest in them. How VCs Make Money VCs charge the limited partners a management fee on the funds raised. This is traditionally 2% paid out every year for the life of the fund. Some funds stop the management fee around year six or seven as proceeds from the investments start coming in. MicroVCs often charge 2.5 or 3% of the funds raised since the number of funds is lower than standard.  The second source is called “carry” and is a percentage of any proceeds going back to the investor from the investments. This is traditionally 20%. Some funds start taking carry at the beginning of the investment returns, while other funds start this after the investor receives their initial investment. How VCs Raise Venture Funding VCs raise funding from limited partners which include family offices, high-net-worth individuals, foundations, pension funds, and other sources. Institutional investors, such as pension funds, require a track record. Due to this, first-time VCs tend to focus on family offices and high-net-worth individuals.  The VC develops an investment thesis which is a reason why their approach to selecting and funding deals will be successful. They build out their investment prospectus which includes the investment thesis, how it’s unique, the fees the limited partners will pay, and how the profits will be distributed. The VC then meets with limited partners to pitch the investment thesis, track record, and view of the market. Limited partners look to fund VCs who have a unique investment thesis and access to deal flow they do not. You can read more in our TEN Capital Network eGuide: How to Raise a VC Fund 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 do you know when to invest in a startup?

    2 min read As an investor, it helps to have a specified investment strategy. This helps narrow down investment decisions and ensures that you are making the right decisions for your specific circumstances. In this article, we discuss the difference between investing in funds and investing in startups. Investing in Funds Investing in a fund works best when you are not familiar with a sector or geography and don’t have the time to research and learn more about it.  Additionally, if access to deals is time-consuming or difficult, then a fund may be a better approach. If the funding requirements are greater than your resources, you may want to invest through a fund. For example, some sectors require several millions of dollars to participate in a deal so it’s a good strategy to pool your funds with others to participate. Finally, funds provide diversification that can be more difficult to achieve with direct investments.  Investing in Startups Startups are very risky, and managing a startup investment can be a lot harder than it looks. Here are the basic points to consider: How much should you invest in startups? Invest no more than 3% of your discretionary income.  There are many good deals out there but for the most part, the investment is illiquid for a long time.  Where do you find deals? There are many sources including angel groups, networks, syndicates, and MicroVC funds that let you invest directly in the startup as well as the fund. Should you invest alone or in a group? This depends on your investing style.  A group can give you access to more deal flow and due diligence support.  On the other hand, the group may pursue deals you are not interested in and vice versa.   How do you get started? Figure out what you want to invest in and then ask what resources you need to do so successfully.  Seek investors and groups that can help you achieve your goal.    Read more in our TEN Capital Network eGuide: How to Invest in a Startup 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 Venture Debt?

    2 min read Venture debt is a form of debt financing for venture-backed companies that lack the assets for traditional debt funding. Venture debt has been around for as long as venture capital has been writing checks for equity investments in conjunction with equity fundraising. It typically runs for three years and is secured by the company’s assets. This article discusses what venture debt is and how to use it. What is Venture Debt? Venture debt can reduce dilution and give your startup more runway. Venture debt used with equity funding can go towards the purchase of equipment, make acquisitions, or make up for funding not acquired through the equity raise. The points below will help when deciding if venture debt is a good fit: If the company is in a difficult cash position, venture debt will come with higher interest rates. Also, the proposed debt payments are higher than 20% of operating expenses. If the company has stable revenue and predictable receivables, then a line of credit may be a better choice than venture debt. Some tie venture debt to the company’s cash or accounts receivable. Covenants around venture debt such as ‘material adverse change’ can trigger a recall of the debt early. It helps to understand how the lender performs. Check their history to find out more. How To Use Venture Debt Venture debt is not for every startup or all fundraises. It is best used in conjunction with an equity raise. The equity funding provides ongoing working capital that does not need to be repaid. It works well between equity raises from institutional investors. The business must be up and running with stable revenue. Those with recurring revenue are a good fit. Those with healthy gross margins also do well. Investors will look at the business’s cash flow, so it’s essential to have a beneficial cash flow statement. It doesn’t work well for seed startups that are still looking for product-market fit. Established businesses will find it easier to raise venture debt as the investor will look at the company’s traction, track record, business model, and previous fundraises. Venture debt raises are typically limited to 25% of the equity raises, so a $3M fundraise most likely will not exceed $750K of venture debt. Venture debt loans can last for four years and are used for specific projects, not working capital.    Read more in our TEN Capital Network eGuide: Alternate Investing. 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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    Fundraising with Wefunder: Everything You Need to Know

    2 min read  Wefunder is a platform used by startup founders to source and manage investors. The platform gives the startup visibility and provides ease of access to fundraising metrics and contacts. Read on below to learn the basics of fundraising with Wefunder.  What is the minimum investment on a Wefunder campaign? Investors can choose to invest any amount between ($100 unless set higher by the founder) and the investor limit per year set by the SEC ($2,200). The average investment on Wefunder is $250, so founders should anticipate pretty small investment amounts.  The investor you designate as the lead investor will typically invest 5% of the round. If you are raising 500K, hopefully, the lead investor is putting in at least 25K as that lead investor is voting for the shares of the investors to follow.  What is the fee structure at Wefunder? Founders pay a fixed fee of 7.5% of the amount raised. So, if you raise a million dollars, the platform keeps 75K and sends you 925K. There arent any additional fees, including no fixed fees to launch a campaign.  What deal structures can you use on Wefunder? There are several deal structures available to choose from on Wefunder priced rounds, straight equity price rounds, convertible notes, SAFEs, straight debt deals, and an instrument called a revenue share where companies are paying investors back in multiple on their investment as a percentage of their revenue.   Does Wefunder require exclusivity to a fundraise campaign? Wefunder does not require exclusivity to a fundraise campaign. The platform does recommend streamlining your fundraising through the platform as it is simpler for the founder to keep track of investors and incoming funds. As a result, this feeds into their algorithm which is looking at investment velocity. However, it is only the investments made through their platform. The more investment velocity you have, the higher you will list in their rankings which comes with many advantages. Note if you bring an outside funder to the platform, Wefunder will waive the 7.5% fee.  Read more on the  Wefunder:  Click 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 a Startup Advisor?

    2 min read What is a startup advisor? Startup organizations often require guidance from those with more experience and connections in their prospective field. Many startups are experts at their products or service but lack the business know-how needed to thrive. Startup advisors can help bridge these gaps, helping the startup to launch, develop, grow, and ultimately succeed. Let’s take a closer look at what a startup advisor is and what they specifically do Types of Advisors There are several types of startup advisors. Some of the most common include:: The Brand Name: This type of advisor offers their name to your company. This can be helpful to attract investors, employees, and customers. They typically bring some value in the form of advice, but it’s primarily their name. The Domain Expert: This type of advisor knows the industry well, both in technology and business. They can be helpful if you are moving into a new domain or the industry is changing rapidly. The Networker: The networker knows everyone in the industry or region. Those with a Rolodex and the ability to make connections can be very helpful, especially in fundraising and growing sales. The Business Modeler: This type of advisor may come from other industries, but they know business models and can bring new monetization tools to your business. The Confidant: The confidant can coach on the emotional side of running a startup. Startups have highs and lows that take the founder through the full range of emotions. This advisor can help the founder navigate through the ups and downs. Consider which role you best fill, and market to your appropriate niche. 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 aboard. 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. Purpose of an Advisory Board An advisory board is a group of three to five people who provide advice on how to grow your startup. They bring experience, contacts, and domain expertise. Advisory boards help the company grow and succeed. In recruiting for your advisory board, startups typically try to consider the following: Advisory board members should contribute a diversity of skills, networks, and experiences. The advisors should fill in the gaps of the startup team which is most often a skeletal group. The board members should raise the profile of the startup with their reputations. They can additionally give the startup branding to help position the company with clients. Advisory board members should make a strong face for the company. Startups can use these members’ influence for recruiting the team, investors, and customers.  Advisory boards are different from a board of directors in that they don’t have any fiduciary roles and work informally with startups to grow the business.   Read more on the TEN Capital eGuide: Advising a Startup 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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    Best Practices for Startup Advisors

    2 min read Being an advisor to startup organizations can be rewarding in many ways. Advisors can make a significant difference in a startup’s likelihood of success with the right insight, connections, and resources. For those who are beginning their career path as a startup advisor, it is important to understand the industry best practices to ensure they are providing the best help possible to the startups they engage with. In this article, we discuss these best practices and provide advice on how to be the best advisor. Characteristics of a Good Advisor The following are characteristics of a good advisor and great goals to aim for as you develop yourself professionally: The advisor has first-hand experience in the industry, running a business, closing sales, and more. They listen and can relate startups’ problems to actionable solutions. The advisor has been through the same challenges and experiences as the startup is going through. They ask meaningful questions and probe to get to the bottom of things. Understand the startups’ point of view and can motivate them. They have opinions and share them even if those opinions are not popular. Advisory work is an important part of their time. They are effective communicators. They are articulate and can persuade. Provide actionable steps to help accomplish goals. They bring a network of investors, other advisors, and collaborators. Understanding of others’ opinions. Their work is their passion. How to Be a Good Advisor In choosing a startup to advise, it’s important to find the right fit. Here are some key points to make sure you are a good advisor to the startup you are aiming to collaborate with: Spend time with the startup to really understand if you can add value and if they are ready for an advisor. Make sure you communicate well with each other and ensure the personal style fits. Spend as much time on selecting a startup as you would an investment. If they have other advisors, check with them about their experience. Find out where they need the help the most.   Ask what’s slowing them down and where they avoid engaging. That’s an indication they need help. Avoid the day-to-day minutiae and focus on strategic objectives. For the day-to-day work, make introductions to people who can solve those issues. Make clear you will play the role of devil’s advocate and that you will ask a lot of difficult questions as part of your job. Spend the majority of your time with the startup listening and only talking when you have something important to say. Get to know the founder and others in the startup outside of work.  Come to an agreement about the time commitment for your work with the startup. Give the founder the hard answers as in the end, they will appreciate that more than the kudos. If the founder seems to be scattered, help them focus on a few key priorities. If it turns out not to be a good fit, then help the founder close it out. Finding a Startup to Advise Here are some key points to consider when finding a startup to advise: Choose startups that you can help. Make clear the work you plan to do such as introductions, networking, advising on the domain, or just sharing business experience. Define the duration of the advisor work- one to two years is a common timeframe. Determine the frequency and type of meetings, for example by phone, in person, or in a group meeting. Set aside time to do the work.  Negotiate compensation based on the work to be done. Compensation consists of a half percent to one percent of equity vested over time.  Be prepared to sign a non-disclosure and non-compete agreement. Have informal reviews with the company throughout the process to make sure you are meeting expectations. Add your name to the team as an advisor to help with fundraising activities. Join sales meetings where you can add value. Keep in mind, advising can be rewarding but it always comes at a cost: time and effort.   Read more on the TEN Capital Guide: Advising a Startup 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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    Presenting Your Pitch Deck

    2 min read Congratulations: You’ve landed a meeting with a prospective investor. It’s now time to prepare for your first meeting where you’ll present your pitch deck and hopefully convince the investor your startup is worth a gamble. To do this successfully, you’ll need to know what investors are looking for and how to prepare a solid pitch deck presentation. Continue reading below to learn more about how to do just this. What Investors Want One of the most important things to understand as an early-stage startup is this: The investor doesn’t care about the side of revenue. What they do care about is the predictability of the revenue. Investors look for systems in startups regardless of the size of the company.  As a startup, ask yourself:  Do you have a process for finding customers?  Does that process introduce them to your product?  Does that process also include closing? If you have a sale funnel, it is helpful to share that with the investors. This is key 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.  Purpose of the Pitch Deck A pitch deck is a brief presentation that provides your audience with an overview of your business. Ideally, the deck should answer any questions an investor might have. The basic goal of the pitch deck is to introduce your deal to an investor. Additionally, the pitch deck should also serve as a way to show exactly what is essential to an investor who may be considering an investment in your startup. Tips for Pitch Deck Success An ideal pitch showcases the proposed outcome of the business is going to happen with or without the investor. In other words, your pitch deck should show that the outcome is inevitable. Ideally, you want to use your pitch deck to show the potential investors that the results are there. Put those results up for everyone to see and show, what you have accomplished so far. The slides of your deck serve as the presenter, not the other way around.  When pitching, avoid discussing multiple scenarios. Investors will find it difficult to keep track of what you’re trying to accomplish.  Most importantly. focus on the core message.    Read more on the TEN Capital Guide: Presenting Your Pitch Deck 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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    Raising Funding for Startups

    2 min read Most startup organizations are running on limited resources, a vital one being funding. Successfully raising rounds of funding for your organization can make or break the business, therefore it is important you know how to do it well. Part of successful fundraising includes knowing how much capital to aim for and when to begin your raise. In this article, we provide some insight to help your organization better decide on these two factors. How Much Funding Should You Raise? Every day I ask entrepreneurs how much they are raising. Most begin with the big number; the full and complete raise they anticipate running. This ranges usually between $1M and $10M. It’s good to have the big picture in mind, but some entrepreneurs are anticipating to raise this big number all at once because “they want to get the fundraising out of the way.” I remind them that raising too much money around will cost you the equity you don’t have to give up. Your valuation is low at the beginning. It’s best to raise only the funding you need to reach the next milestone and no more. As you grow the business, your valuation will go up and you’ll give away less equity. With this in mind, it can be helpful to consider breaking your fundraise into tranches.  This approach will save you time as well as make each fundraise easier. When Should You Raise Funding? When considering how much funding to raise, consider your funding requirements. To start, calculate your cash burn and estimate the need for new cash. Next, consider the preparation and timing issues. Start your preparation six months in front of the launch. Launch you’re fundraise six months before you need the funding. Use this six-month preparation time to introduce the deal to the investors and educate them on your current status. Finally, there are seasonal issues to consider. I wouldn’t start in early June, but rather wait until late August to kick off a campaign.   Read more on the TEN Capital Guide: How to Prepare for a Fundraise 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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    The Structure of Angel Groups

    2 min read Angel investor groups require diligent administrative attention. There is a lot of required structure and organization. If you are managing or considering starting an angel investor group, it is important to keep the following structural considerations in mind. Investment Structure In setting up an angel network, you need to choose an investment structure. Here are some structures to consider:  Individual investments: The members can each decide if they want to invest and how much to invest in each deal. This allows for maximum flexibility for the members to invest in the deals they want. The drawback is the administration is high, as you must work with each investor in determining their amount of investment and signing of the documents. Group investments: The members invest as a group. In this structure, the investors can create a pledge fund to allow the group to decide which deals to pursue. Members have some decision-making control over the investment decisions. This reduces the administrative overhead. The group can choose to create a fund in which a screening committee or manager determines which investments are made. This requires the least amount of administration as the manager or committee makes the decisions on their own. Lastly, the group can choose to create a sidecar fund that invests from a fund into deals the members have funded individually. The sidecar fund provides members diversification on top of their individual investments. This is also a low-cost administrative structure as the sidecar investment is typically a calculation based on the members’ investment and does not require a manager to run it. Legal Structure There are several legal structures to use when setting up your angel network. Most angel networks form a Limited Liability Company (LLC). This gives the angel network a legal entity with which it can conduct business. The members often pay an annual fee to fund the operational activities of the company. Angel networks form in association with a university. Since the university is a non-profit organization, the angel group can work inside the university for its mentoring, networking, and other non-financial activities. For running a fund or making investments, the angel network inside the university must set up an entity outside the university, since non-profit organizations cannot engage in investment activities. Some angel networks form a not-for-profit LLC and then apply for non-profit status 501(c)3 with the IRS. Again, mentoring, education and other non-financial aspects can be done within the organization, but the financial aspects such as investing must be done outside. Finally, there are angel networks that form a not-for-profit LLC and then apply for trade organization status or 501(c)6. This structure allows the organization to engage in political activities. Those angel networks choosing a non-profit or trade organization structure must set up a separate legal entity for any funds they want to raise and deploy. Organization Structure There are two ways to organize your angel network: member-led or manager-led. Member-led groups let the member’s source deals, lead the investments, and recruit the members. They hire staff members to handle the administrative tasks. Alternatively, manager-led groups hire experienced professionals to perform key functions such as determining which startups to fund.   Managers work on screening the deals so only the fundable ones go through to the members. They prepare the founders to ensure that their documents and presentations are ready. They maintain communication with the startup throughout the process. They lead the diligence process and produce the diligence report.  Some angel groups partner with incubators, accelerators, universities, and other groups. The partner provides meeting space and shares the operational cost of the group. Some partners provide administrative support. The choice of member-led versus manager-led often comes down to the availability of someone to take the role of the manager.  Meeting Structure In setting up your angel network you’ll need to set up the meetings. Here are some key points to consider: How many deal flow cycles are you planning? Are you online, in person, or conducting both at the same time? How will you set up the screening meeting, the presentation meeting, and the diligence follow-up? Will there be time between the meetings? Do you include a meal, appetizers, or drinks? Where will you meet? How much time will the meeting take? What is the number of companies that will be pitching? How much time is set aside for networking? What are the duties to be done before, during, and after the meetings? How often will the board meet and when? Where do sponsors fit into the meeting agenda? Will there be education sessions? What are the needs of the members and how best to facilitate the education? Who is the best to provide the training? Consider these points in setting up the meetings as it’s a key decision set for the group. Read more on the TEN Capital eGuide: Leading an Angel Group 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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