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The Diligence Playbook for Frontier Innovation

The Diligence Playbook for Frontier Innovation

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Fundraising, Investing

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    Startup Organizations: Finding Funding

    January 13, 2022

    2 min read Every startup eventually asks the question: “Where will our funding come from?” There are several sources of funding that your organization can tap into. Some of the most common funding sources include consultation, contractor, crowdfunding, and supplier funding. Let’s take a closer look at each. Consultation Funding Consultation funding is using consultation work to pay the bills and salaries while you are building out your product. Consider looking for consultation work in addition to selling the product as some customers want more assistance in installing and using the product than in just buying the product itself.  The consultation also brings new insight into how the customer intends to use the product and what problem they are trying to solve. This is useful information to guide your product roadmap. Consulting work gives you more information about the market and the competition as you’ll encounter competitive solutions. This is also a great way to generate positive references to use when you launch your standard product into the market. While consulting may not be your ultimate goal, it can be a useful way to fund a portion of your product development. Contractor Funding Many enterprise software programs come from service businesses solving a problem for their clients. In searching for a solution on the market, they find none, so they build their own. Later, other clients come ready to buy it. This is one of the most overlooked forms of funding in the startup space. In contractor funding, you sell a customized version of what you want to build to an anchor customer for a substantial one-time fee and then use the funds to build out the platform you envision of which the customer gets a non-exclusive license.   The advantage here is you have a customer telling you exactly what they need and what they will pay for. They improve the product by testing it and telling you what changes to make. They become a happy customer that you can use to attract prospective customers. After three more of these engagements, you will have $1M of investment in your platform with zero dilution. Crowdfunding Crowdfunding can be sourced as prepayment for a good or service, or from accredited or non-accredited investors. Prepayments let you pre-sell your product before you build it. This works best for physical products that require funding for the design and manufacturing of the product. It’s a great way to test the market for a new product as it provides customer feedback on the product, price, and promotion. There are several platforms available for showcasing your product. There’s also crowdfunding from non-accredited investors. On these platforms, anyone can invest in your startup. It is for equity, so you need to understand the implications of it on your cap table. Finally, there’s crowdfunding from accredited investors which is no different than raising funding through angel investors and venture capitalists. The only difference is using a crowdfunding platform to find and engage the investors. There are a growing number of crowdfunding portals offering both general and specialized sites. Crowdfunding works well for startups with a product that is clear to grasp and easy to understand.  Supplier Funding Another source of funding is supplier funding. Supplier funding comes from those who provide services to your company such as contract manufacturing, software development, legal, accounting services, and more. Suppliers provide their services in exchange not only for cash but also for equity. This reduces the amount of equity funding you need to raise from investors. Contract manufacturers will invest in your business and in exchange they look for the startup to use their manufacturing services. Software development firms invest in startups by taking a portion of their software development fee in the form of equity. There are other examples, including lawyers and accountants who provide services in return for equity. This aligns their interest with your interest as the business must succeed for the equity to be worth something.  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

    Best Practices for Entrepreneurs Seeking Funding

    November 24, 2021

    2 min read Working with entrepreneurs every day who are going through the fundraising process. Over time, I’ve found some entrepreneurs employing practices that make the process go smoothly. For those who seek funding here are some best practices to consider in your fundraising efforts: Develop a relationship with investors early on. Entrepreneurs often say that they do not need funding right now so they don’t need to talk with investors. Ask when they will need funding and surprisingly the answer is usually six to twelve months later. I advise the entrepreneur to start developing relationships now. If you wait six months and then start looking you’re behind. In meeting with an investor the entrepreneur can state that he’s not ready for investment but then lay out the plans for developing the business. By building a relationship now and keeping the investor informed of your progress, the entrepreneur will be in a better position when it comes time to raise the funding. Have ready the executive summary, slide deck, and business plan with financials. It helps to have the core three documents – executive summary (one-page only), slide deck, and business plan already developed and ready to go. As the entrepreneur meets prospective investors he can use the appropriate docs for each meeting. Publish a periodical email newsletter for interested investors. In the fundraising process, some entrepreneurs send out email updates to highlight the progress of the company. Some come as often as weekly to show progress in sales, product plans, and other milestones. This shows the company’s ability to execute. Find a lead angel to develop a terms sheet and start off the funding round. By finding a lead angel and creating a terms sheet, the entrepreneur removes the biggest barrier to fundraising – the negotiation process. There are numerous angel investors who find the initial negotiation and due diligence process too time-consuming. By eliminating this hurdle, the entrepreneur opens up the deal to a larger number of investors. Make the deal terms “investor-friendly” Of course, every deal must be negotiated. The harder the terms for the investor to accept the longer the time it will take to negotiate. By making the terms “investor-friendly” through reasonable pre-money valuations, preferences, and other terms, the faster the process goes. Due diligence docs to a password-protected website The due diligence phase can be sped up by having all the key docs already available. I’ve seen some entrepreneurs put everything on a protected website and then give out the password to interested investors. This knocks down the hurdle of trying to send 600 MB worth of documents through the email system. Quarterly email newsletter after funding  It’s important to keep investors up to date even after the funds are raised since investors can help in other ways. Some investors bring a rolodex of contacts while others bring experience and coaching. By keeping them informed of your progress and challenges, they may be able to help. This practice is also useful for when it comes time for follow-on fundraising. 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.

    5 Common Misconceptions About Starting Your Own Business

    October 18, 2021

    2 min read Starting your own business is extremely appealing for a lot of reasons.  Being your own boss, running things how you want to, and doing something you love are key reasons why people consider making the immense investment in time and money — and taking on the significant risk of failure. This risk can be minimized if you actually know what you’re getting yourself into. Here are 5 common misconceptions of starting your own business with a dose of reality to clear up any confusion.  If I have my own business I won’t have to work as much. That is completely false, especially when getting your idea off the ground and trying to make a profit. Expect longer hours, more tasks, and in all likelihood more headaches than when working under someone else. You can have staff, however, you still have to set them on the right course, deal with payroll, hiring, and management, etc.  I’ll be able to set my own hours and create my own schedule. There is some truth to this statement, however, a business’ priorities lie with customers and clients. Your business has to be there for them, and as head of a business, you have to be there for your employees as well. In the mindset of being ready to assist at all times in any way necessary to keep running well. If you are looking at other business models an online-based business allows some more flexibility. It will be easy to attract investors and customers to my business. There’s a lot of competition out there for peoples’ dollars, whether it be from investors or customers. You have to appeal to both markets, and often, there is no such thing as an easy sell. Be prepared for some slow (and low on revenue) times and be prepared for the frequent “no”. To make yourself more attractive to investors and customers, just be prepared: have a polished, plan to present to potential investors and have an equally high-quality product available for potential customers and clients. The books will be easy. Taxes, payroll, and money management can be hard to understand. There are a lot of numbers to keep track of and (hopefully) a lot of money to be accounted for. Make it easier by getting an accountant and Human Resources personnel. Business owners are rich and someday I will be too. The reality is that many business owners are just scraping by, hoping to keep their business and personal finances just barely in the black. Sacrifices will be necessary until the business becomes profitable, and for many, never do. Starting your own business can be an incredibly rewarding and exciting venture, but it takes a lot of hard work and does not always end up the way you may think or wish for it to.  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

    Five Fundraising Myths Facing Entrepreneurs

    October 7, 2021

    2 min read Raising funding is difficult for many entrepreneurs, and there are fundraising myths out there making it even harder. In this article, we plan to bust those myths one by one so that you can start raising funding with confidence. Myth #1: Fundraising is about getting the check Many entrepreneurs believe that fundraising is all about making their startup money. On the contrary, fundraising is about building a relationship with the investor. Investors start as mere contacts in your network. A relationship begins to develop through mailers and updates on your startup’s core results related to the team, sales, product, and fundraise, and your potential investor is promoted from prospective donor to a partner in your journey.  Myth #2: My product will carry the day The reality is that your product is not what carries the day- your business is. No matter how great your product is, it isn’t going to win over any significant share of the market without a strong business structure behind it. Investors will base their decision in part on your past and current financials, how much funding you are seeking out and how you plan to use it, your exit strategy to calculate an expected rate of return, and proof of market validation. Myth #3: It should only take a few weeks to raise $1M In reality, it’ll take you a calendar year for every $1M you want to raise at the seed stage. This accounts for the time it takes to prepare the company, the investor documents, and the pitch as well contacting, pitching, and following up with investors. In addition to this, investors will need to have time to complete their due diligence process. Remember, you are likely not the only entrepreneur your investor is working with, and you will need to be patient and work with their schedule. Myth #4: The investor didn’t follow up after my pitch session, so he must not be interested Don’t expect an immediate decision from your prospective investor. Investors spend the first three to five interactions trying to figure out what you are doing. To help push things to the next level, try prompting your prospective investor with the following questions: Would you invest? What number do you have in mind? Can you commit to that number? If not, what holds you back from committing? What date before the close can you commit to signing the docs and wiring the funds? You can also communicate that the following raise will be at a much higher valuation. If the investor is going to commit, they will do so for a better valuation now. Try tacking on incentives such as redemption rights, warrants, etc. Myth #5: I only need to source five investors to raise $250K You’ll need more than five investors to raise $250k. In fact, you’ll need about fifty. Don’t let this number scare you. There are many sources of capital- loans from family and friends, bank loans, revenue share loans, and equity investments in the form of convertible notes and equity ownership. Search your network for potential investors, including your contacts list and your LinkedIn connections. You can even search the web for local angel networks. 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

    What We’ve Learned Over the Years- How You Can Tell you are Talking to a Pretend-preneur

    May 8, 2019

    The startup world is open to anybody, and it seems like everybody comes through it at some time or another. I receive calls daily from entrepreneurs seeking to start a business, raise funding, or hire a team member. I can always tell who is the serious entrepreneur and pretend-preneur – someone who likes the idea of running a startup but is not committed to the work required to make it a success. That’s important because a pretend-preneur who raises funding will ultimately waste it, and there are too many good startups to spend money on those who don’t see it through. Here are some telltale signs of a Pretendpreneur –They are more worried about job titles and credit for the work. –They don’t seem too focused on the customer and what it will take to make them happy with the product, as that’s a detail to be figured out later. –They focus on the superficialities of the business and not the core functions of building the product and selling it. –They look for ways around the hard work rather than working their way through it. — Problems are everyone else’s fault, and nothing can be done about it. –They don’t know who their customers are, and it doesn’t bother them. –They think funding will solve all problems and make life easier after the raise. –They don’t know their numbers, but someone else in their organization does, and that’s good enough. Everyone dreams of a successful startup and fundraise, but it takes more than a dream to be successful. Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies

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