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The Benefits of a Family Office

The Benefits of a Family Office

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    Investor Connect Interview: Ander Iruretagoyena of Impact Engine

    January 13, 2022

    2 min read On this episode of Investor Connect, Hall welcomes Ander Iruretagoyena, the Senior Associate at Impact Engine. Headquartered in Chicago, Illinois, Impact Engine is a women-owned and led venture capital and private equity firm investing in companies driving positive impact in education, economic empowerment, health, and environmental sustainability. Impact Engine was launched in 2012 as an accelerator fund with the goal of identifying promising entrepreneurs starting businesses with the potential to drive both attractive financial returns and positive social impact. Impact Engine raised two subsequent accelerator funds in 2013 and 2014, all focused on investing in pre-seed stage companies. Across the three accelerator funds, Impact Engine invested in a portfolio of 23 companies. Between 2015 and 2016, Impact Engine shifted its investment strategy and raised a $10 million venture fund which invested in 22 companies. Between 2018 and 2019, they began operating as a public benefit corporation, raised a $25M second venture fund, and raised a $31.5M first PE fund, allowing them to invest in impact funds for the first time. Impact Engine’s investors include institutions, family offices, foundations, and individuals who believe in investing for both financial return as well as social impact. They are also committed to cultivating community among their investors. Their goal is to help their investors learn from each other and leading-edge impact investors who deploy capital across asset classes and geographies. Prior to joining Impact Engine, Ander was an investment banking associate at Bank of America Merrill Lynch, working with Latin American corporations. During these years, Ander worked on a total of 17 transactions for $10.7B across 4 products, 9 industries, and 6 geographies. Ander also previously worked on financial inclusion strategies at the Bill and Melinda Gates Foundation. Ander holds a BA in Economics as well as Latin American Studies from the University of Chicago and earned his MBA degree from the Chicago Booth School of Business. Ander is originally from Mexico and loves FC Barcelona. Ander shares what excites him now and discusses the state of impact investing, how he sees the industry evolving, the challenges investors and startups face, and more.  You can visit Impact Engine at www.theimpactengine.com/, via LinkedIn at www.linkedin.com/company/theimpactengine/, and via Twitter at www.twitter.com/TheImpactEngine.  Ander can be contacted via email at ander@theimpactengine.com, and via LinkedIn at www.linkedin.com/in/ander-iruretagoyena/.  If you would like to read the full transcript click here or listen to the interview 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

    SAFE Notes vs. Convertible Debt

    January 26, 2021

    1 min read Many startups use SAFE Notes and Convertible Notes for their early-stage investments. So what’s the difference? A Convertible Note is a debt instrument that converts into equity later upon an event such as raising an equity round or reaching a maturity date. A SAFE Note is a Simple Agreement for Future Equity, a warrant to purchase stock in a future priced round. The SAFE can convert when you raise any equity investment amount and does not give the entrepreneur control of when. You can consider Convertible Notes to be legal debt while SAFEs are warrants. Neither a SAFE or a Convertible Note set the valuation but instead takes the equity round valuation. Convertible Notes include an interest rate while SAFE’s do not. Most Convertible Notes have a maturity date while SAFEs do not. Convertible Notes contain a discount rate that provides additional shares to the investor for investing early. SAFEs have no discount rate. SAFEs are often considered the more straightforward option than a Convertible Note, but as you can see, the Convertible Note provides more opportunities. Take our Convertible Notes vs. SAFE Notes Calculator here: http://staging.startupfundingespresso.com/note-calculator/ 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

    The Convertible Note: How Does it Work?

    January 11, 2021

    1 min read A commonly used investment tool for funding startups is the Convertible Note. What is a Convertible Note? A short-term debt instrument that converts into equity later. If the issuer wants a debt instrument without conversion to equity, a promissory note would be a better option. With a convertible note, the investor receives accruing interest while holding the note. Why Use a Convertible Note? It works well for seed-stage startups as it removes the burden of a complex equity-based terms sheet which requires details on control and boards, and avoids issues of dilution and taxes. It’s easy to set up compared to most equity terms sheets which can be quite costly to develop since valuation must be negotiated and set at the time of signing. The convertible note also works well for investors who want to invest relatively small amounts. Investors seeking to make large investments typically want valuation set, board seats determined, and control provisions set which often requires an equity terms sheet. The convertible note is a useful tool for early-stage startups where there are still many unknowns about the deal. The Three Components: A Convertible Note has three components: the interest rate, discount rate, and cap rate. The interest rate determines the annual interest that will accrue. The interest is not meant to be paid out monthly or quarterly like a bank loan but will convert to equity later along with the principle. The discount rate is the amount of additional equity the investor will receive when the note converts to equity as compensation for investing early. The cap rate determines how much equity the investor will receive upon conversion. How Does it Work? The conversion from debt to equity is usually based on a future financing round. If there is no follow-on financing round, then the note often sets a time limit (say 5 years) at which point it will convert at the cap rate. The interest rate is typically a simple interest rate. If the price per share is $4 and the interest rate is 10%, then the investor receives $4*.10= $0.40/share in the form of interest. The discount rate gives a reduced price to the convertible note holder. If the price per share is $4 and the discount is 15%, then the note holder receives their share at a price of ($4 * (1-.15)) = $3.40. The cap rate sets a maximum limit at which the convertible note can convert to equity. For example, if the cap rate is $3M and the next round of financing comes in at $5M, and the share price is $4.  Then the price per share to the convertible note holder is $2.40. (3/5=.6; $4*.6=$2.4). Read more about Convertible Notes and take our Note Calculator here: http://staging.startupfundingespresso.com/note-calculator/ 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

    NDAs, Not on the First Conversation

    February 9, 2017

    Everyone once in awhile I’ll come across an entrepreneur who wants to tell me about his deal but before giving me any details wants me to sign an NDA which is a Non-Disclosure Agreement that requires the signer not divulge the details of the subject matter to anyone for a certain period of time (usually 2 to 5 years). To an angel investor this is a red flag. When an entrepreneur won’t even show me his one-pager without my first signing his Non-Disclosure Agreement that tells me his deal is not protected and most likely is not protectable. I advise entrepreneurs to have a one-pager ready to share with investors who show interest after a brief discussion. The one-pager should state what the business does but doesn’t necessarily go into details about how the IP actually works. If the discussion goes far enough that it enters the due diligence phase and the investor wants to see the “secret sauce” then it’s reasonable for the entrepreneur to ask the investor to sign an NDA, but not at the beginning of the first conversation. While I understand the entrepreneur’s concern about protecting his idea and subsequently his business, it’s difficult to generate interest among the investors when you can’t even tell them the basic concept. The entrepreneur should be able to inform the investor about what the product or service does at a high level and what performance advantages it has over other methods. My rule for signing NDAs is that I should know exactly what is being protected – the technology, the business model, the concept, etc. Signing an NDA without knowing this could mean the investor is signing away his ability to invest in any deal that is related to the entrepreneur’s target market or application. To carry out the conversation, I invite the entrepreneur to tell me about the non-confidential matters. “Just tell me what you can without an NDA.” This potentially keeps the conversation going. Of course, the first subject to discuss after receiving the one-pager is how can one protect the idea – patents, copyrights, trademarks, trade secrets, etc. Best regards, Hall T.

    Non-Starters in Angel Investing

    February 2, 2017

    When the Conversation is Over Before it Begins I have an espresso each morning at the Trianon coffee shop in Westlake. It’s part of my daily routine. I often meet entrepreneurs and angels during that time to hear their story. In this blog you read about the up and coming companies and the story behind the people making it happen. What you don’t hear about are the non-starter discussions or as I call them, the conversation was over before it began. Here are some examples: “We’re raising money to build a software system to . . . “ Angels look for the entrepreneur to spend their own money to get the initial software up and running. It’s okay to raise money to develop it further but angels aren’t going to invest money to build the software in the first place. “We only need $8M to . . . “ The raise limit for the angel group is $2M. If it’s close to that then it’s a possibility but beyond $3M too far beyond that and it goes out of range. “Our premoney valuation of $20M is justified by . . . “ There’s almost no investment return in deals that start with a $20M valuation. I won’t say those deals will never get funded but it’s not far from there. “The market is $10B and we only need to get 3% of it to . . . “ Revenue projections based on achieving market share have little connection to reality. A bottom-up list of accounts in the sales pipeline is much more convincing. “We just hired our 14th employee and hope to complete our first customer sale later this . . . “ Startups with large headcounts bring the business plan into question. And finally, the ultimate conversation stopper: “We just ran out of money and . . . “ If you didn’t manage the last round of funding, what does that say about the next round? Best regards, Hall T.

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