Startup Funding

Menu
Subscribe
Search
From Diligence to Discipline: Building an Investment Process That Scales

From Diligence to Discipline: Building an Investment Process That Scales

•
Fundraising, Investing

Related Guides

    Trending

    The most popular articles on Startup Funding in the past day.

    From Diligence to Discipline: Building an Investment Process That Scales

    March 1, 2026

    5 min read From Diligence to Discipline: Building an Investment Process That Scales How to turn subjective deal evaluation into a repeatable, data-informed process across multiple sectors and funds. Every investor starts with instinct. A compelling founder. A trending sector. A deal that “feels right.” But instinct doesn’t scale. As portfolios expand across sectors, stages, and geographies, subjective evaluation becomes inconsistent. One partner underwrites vision. Another prioritizes metrics. A third leans on pattern recognition. Over time, standards drift. Professional investing requires more than diligence. It requires discipline. The firms that outperform don’t just analyze deals. They systematize how analysis happens. Below is a practical framework for turning individual judgment into a structured investment process that scales across teams and funds. 1. Define the Investment Lens Before the Deal Arrives Scaling starts with clarity. Without a defined lens: Evaluation criteria shift mid-process Bias enters quietly Partners debate philosophy instead of facts A scalable process begins with codified principles: Mandate Clarity Sector boundaries Stage focus Check size parameters Risk tolerance profile Return Design Target ownership Power-law assumptions Loss ratio expectations Follow-on strategy If the mandate isn’t precise, screening becomes interpretive. Discipline starts before the first pitch. 2. Standardize Initial Screening Diligence is expensive. Screening is leverage. Before deep analysis, every deal should pass through a consistent first-pass evaluation framework. Core screening pillars: Market Structure Is this market expanding structurally? Is timing accelerating adoption? Competitive Positioning Is differentiation structural or narrative? Does the advantage strengthen with scale? Economic Logic Are unit economics viable at maturity? Does capital efficiency align with fund strategy? Execution Credibility Has this team demonstrated evidence of learning velocity? Each pillar receives a structured score, qualitative inputs, and quantified outputs. The goal isn’t precision. It’s comparability. Across 100 deals, patterns emerge. 3. Convert Judgment Into Scoring Models Subjectivity doesn’t disappear. It gets organized. A scalable investment process translates qualitative insight into structured scoring systems: Weighted evaluation categories Defined scoring thresholds Documented rationale for deviations For example: Market (25%) Defensibility (20%) Economics (25%) Execution (20%) Governance (10%) Each category contains defined sub-criteria. Each sub-criterion includes evidence requirements. This creates: Transparent partner discussions Historical pattern recognition Auditability across funds When analyzing future performance, firms can trace decisions back to structured inputs, not memory. Data accumulates. Insight compounds. 4. Institutionalize Diligence Depth Not every deal deserves the same effort. Scaling firms create tiered diligence levels: Level 1: Screen Deck review 30-minute founder call High-level scoring Level 2: Structured Diligence Market validation Customer references Financial model stress test Cap table analysis Level 3: Investment Committee Independent partner memo Risk articulation Scenario modeling Exit pathway mapping Clear gates prevent over-investment in marginal opportunities. Discipline protects time. 5. Build a Centralized Data Architecture Process scales through infrastructure. Leading firms implement centralized deal tracking systems that capture: Screening scores Diligence notes Market theses Decision outcomes Post-investment performance Over time, this creates: Cross-sector pattern recognition Bias detection Performance attribution analysis Improved underwriting calibration Without historical data, learning remains anecdotal. With structured data, pattern recognition becomes institutional. 6. Separate Excitement From Conviction As firms grow, signaling risk increases: Hot sectors generate internal pressure Competitive rounds compress timelines External validation replaces independent analysis A disciplined process forces: Explicit risk documentation Pre-mortem analysis Return scenario modeling Defined “walk-away” triggers If conviction can’t survive structure, it isn’t conviction. It’s enthusiasm. 7. Align Governance With Process Scaling funds fail when decision authority becomes ambiguous. Institutional discipline requires: Clear IC voting thresholds Documented dissent Defined escalation procedures Post-mortem reviews on both wins and losses Governance turns the process from a suggestion into a standard. It ensures that discipline survives growth. 8. Review the Process, Not Just the Portfolio Most firms review company performance. Few review underwriting performance. Annual process audits should examine: Were top-performing deals high-scoring at entry? Did low-scoring deals outperform expectations? Where did false negatives occur? Did risk flags materialize? Refining filters improves future capital allocation. Scaling isn’t just deploying more capital. It’s improving decision quality over time. Why Discipline Outperforms Pure Diligence Diligence is deal-specific. Discipline is system-wide. Without structure: Standards drift Bias compounds Lessons fade With structure: Evaluation becomes comparable Insights compound Teams align Risk becomes intentional The objective isn’t eliminating uncertainty. It’s creating a repeatable framework that performs under uncertainty—across sectors, across partners, across funds. Final Thoughts From first fund to multi-vehicle platform, the inflection point isn’t capital raised. It’s process maturity. Great investors don’t just refine companies. They refine how they decide. They: Define their lens before the pitch Quantify qualitative judgment Gate diligence intelligently Capture decision data Audit their own thinking Over time, discipline compounds faster than instinct. And that compounding, not individual brilliance, is what builds enduring investment performance. Want access to structured investment scorecards, IC memo templates, and scalable diligence frameworks designed for multi-sector funds? Join our investor community for practical tools that transform subjective evaluation into disciplined, data-informed capital allocation, so your process scales as effectively as your portfolio.

    How to Diligence the Team Behind the Tech

    February 22, 2026

    5 min read  How to Diligence the Team Behind the Tech Assessing leadership readiness, decision velocity, and team adaptability as predictors of scaling success. Technology attracts attention. Code demos impress. Product roadmaps inspire. But companies don’t scale solely because of technology. They scale because of the people making decisions behind it. Professional investors understand this: great technology in the hands of an unprepared team rarely survives growth. Meanwhile, capable leadership can iterate, pivot, and rebuild even when the first product misses. When evaluating early-stage opportunities, diligence is not a soft exercise. It’s a predictive one. Below is a practical framework for assessing leadership readiness, decision velocity, and adaptability, the core traits that determine whether a team can scale what they’ve built. Leadership Readiness → “Are They Built for the Next Stage?” Founders often succeed at starting companies. Scaling them requires a different skill set. Early-stage leadership is about creativity and hustle. Scaling-stage leadership is about structure, delegation, and capital allocation. The key question: Is this team prepared for the company they’re trying to become? Pressure-test: Have they hired executives before, or only individual contributors? Do they understand financial drivers beyond product development? Can they articulate a 12–24-month hiring roadmap tied to milestones? Have they operated through a prior growth phase, or only early formation? Strong readiness signals look like: Clear recognition of their own capability gaps Defined role ownership across leadership Thoughtful sequencing of hires Comfort with accountability and reporting structures Red flag: “We’ll figure out management when we get there.” Scaling punishes improvisation. Leadership maturity reduces operational drag before it compounds. Decision Velocity → “How Fast and How Well Do They Decide?” In scaling companies, speed is a strategic weapon. But speed without judgment is volatility. Decision velocity isn’t just about moving quickly. It’s about moving decisively with incomplete information—and learning from outcomes. Evaluate: How long does it take them to prioritize? Do decisions require consensus—or is authority clear? Can they explain past pivots in terms of logic, not emotion? Do they track the outcomes of major decisions? Strong velocity signals look like: Documented decision frameworks Defined escalation paths Willingness to kill underperforming initiatives Evidence of rapid iteration cycles Red flag: Endless debate disguised as collaboration. Markets move. Competitors adapt. Capital runs out. Teams that cannot decide under uncertainty create internal bottlenecks that stall growth. Scaling companies don’t fail from a lack of ideas. They fail from decision paralysis. Team Adaptability → “Can They Evolve Without Breaking?” Every growth stage introduces friction: New customer segments New compliance requirements New pricing pressures New competitors The team that built version 1.0 may not automatically be the one to build version 3.0. Adaptability is the ability to: Reallocate resources quickly Replace underperforming leaders Adopt new systems Accept external expertise Pressure-test: Have they pivoted before? Did they blame the market, or analyze their own assumptions? Are they coachable? How do they respond to critical board feedback? Strong adaptability signals look like: Transparent post-mortems Iterative roadmap updates Openness to external advisors Recruiting talent stronger than the founders Red flag: Attachment to original vision at the expense of evidence. Technology evolves. Markets shift. Investors change expectations. Teams that treat adaptation as weakness often collapse under scale pressure. Talent Density → “Who Do They Attract?” Strong leaders attract strong operators. Examine: Early key hires, are they high leverage? Retention of top contributors Clarity in organizational design Cultural alignment with performance expectations High-talent teams show: Intentional hiring, not opportunistic Clear performance metrics Fast removal of misaligned hires Leadership depth beyond the founder Red flag: Overreliance on one visionary individual. Scaling requires distributed competence. When decision-making, product insight, and customer relationships concentrate in one person, fragility increases. Alignment Under Stress → “What Happens When Things Go Wrong?” Every scaling journey encounters setbacks: Missed revenue targets Delayed product releases Capital shortfalls The real diligence happens in how teams describe difficult moments. Listen for: Ownership vs. deflection Structured problem-solving vs. emotional reaction Cohesion vs. internal blame Strong stress signals look like: Shared accountability language Clear corrective action plans Data-driven explanations Confidence without denial Red flag: Narrative revisionism. Teams that rewrite history rather than analyze it repeat mistakes at scale. How These Factors Interact Leadership readiness without decision velocity creates bureaucracy. Decision speed without adaptability creates reckless pivots. Adaptability without alignment creates internal churn. Investors aren’t looking for perfection. They’re looking for: Clear growth awareness Defined authority structures Evidence of learning Capacity to recruit beyond themselves Resilience under pressure Technology scales when leadership scales with it. Why Team Diligence Outperforms Product Diligence Products change. Markets evolve. Models iterate. But leadership patterns tend to persist. A disciplined team: Improves weak products Adjusts pricing Finds distribution Raises follow-on capital An undisciplined team: Burns capital faster Creates internal confusion Resists oversight Blames external factors When technology fails, strong teams rebuild. When teams fail, technology rarely saves them. Final Thoughts Diligencing the team behind the tech is not about personality fit or charisma. It’s about operational indicators of scaling readiness. Ask: Are they built for the next stage? Can they decide under uncertainty? Will they adapt when conditions shift? Do they attract and retain talent? Do they hold alignment under stress? The strongest predictors of scaling success are rarely in the demo. They are in the decision patterns, hiring discipline, and leadership maturity of the people running it. Technology may open the door. Leadership determines whether the company walks through it. Want structured team-diligence scorecards, leadership assessment templates, and scaling-readiness evaluation tools used by experienced investors? Join our investor community for practical frameworks designed to help you underwrite teams, not just technology, and invest with greater clarity and conviction.

    The 3×3 Framework for Predictable Startup Investing

    January 19, 2026

    5 min read The 3×3 Framework for Predictable Startup Investing Early-stage investing is not about eliminating uncertainty; it’s about controlling duration, defining liquidity, and aligning incentives before risk compounds. While traditional venture models rely on long holding periods and binary outcomes, most returns or losses are determined far earlier than the exit slide suggests. The 3×3 Early Exit Framework was designed to address this structural mismatch. Instead of underwriting distant, hypothetical outcomes, it introduces clear time horizons, multiple liquidity paths, and systematic evaluation criteria that make early-stage investing more predictable and repeatable. Whether you’re an angel investor, family office, or disciplined venture fund, the 3×3 Framework offers a practical alternative to story-driven investing—one grounded in execution, capital efficiency, and realistic exit logic. Below is a structured, investor-ready breakdown of the 3×3 Early Exit model’s 3 pillars and 3 outcomes. 1. Time Discipline: Three Years, Not a Decade   a. Defined Investment Horizon Traditional venture investing assumes holding periods of 8–12 years. The 3×3 Framework instead evaluates whether a company can reach meaningful de-risking or liquidity within 36 months. Assess: Can the business reach revenue, profitability, or strategic relevance in three years? Are milestones tied to execution, not future fundraising? Is the company survivable without perfect market conditions? Shorter horizons reduce duration risk and force operational clarity. b. Milestone-Based Capital Deployment Capital is deployed with intent—not hope. Evaluate: What risks does each dollar retire? Are milestones technical, commercial, or regulatory—and measurable? Does progress increase exit optionality? Companies that can’t articulate near-term value creation are poor candidates for early liquidity. c. Optionality Over Dependency The model avoids companies that require multiple follow-on rounds to remain viable. Look for: Revenue paths independent of venture markets Controlled burn relative to progress Strategic relevance without scale-at-all-costs pressure Time discipline creates leverage—for both founders and investors. 2. Liquidity First: Three Realistic Exit Paths   a. Strategic Acquisition Readiness Instead of betting on unicorn outcomes, the 3×3 model underwrites who could buy this company—and why—within 24–36 months. Assess: Clear buyer profiles Metrics that matter to acquirers Strategic positioning inside industry workflows Exit readiness is not an afterthought—it’s a design constraint. b. Structured or Partial Liquidity Liquidity doesn’t have to mean a full sale. Evaluate: Secondary transactions Redemption or revenue-based structures Early return mechanisms tied to cash flow Partial liquidity improves capital recycling and reduces binary risk. c. Downside-Resilient Outcomes The framework assumes not every company exits perfectly. Look for: Capital preservation scenarios Businesses that can sustain modest outcomes Paths to return capital even without breakout success Defined liquidity beats theoretical upside. 3. Incentive Alignment: Execution Over Hype   a. Founder Incentives Aligned to Outcomes The 3×3 model favors founders who value: Capital efficiency Revenue clarity Sustainable growth Optionality over valuation chasing Founders are rewarded for building real businesses, not just raising rounds. b. Investor Discipline Over Narrative The framework replaces gut feel with structure. Assess companies based on: Execution readiness Capital-to-milestone efficiency Buyer relevance Operational maturity This enables consistent screening and comparability across deals. c. Systematic Evaluation The 3×3 Framework integrates cleanly with: First-pass filters Scoring matrices Diligence checklists Early Exit fit assessments Predictability improves when process replaces improvisation. Early-stage outcomes are never guaranteed—but they are rarely random. The same forces repeatedly determine success: time, liquidity, and alignment. The 3×3 Early Exit Framework brings those forces forward, making them explicit rather than implied. Great investors don’t rely on best-case scenarios.They design portfolios that perform across many futures. The 3×3 model doesn’t eliminate risk—it makes risk visible, measurable, and manageable.

    The Importance of Diversity in Your Portfolio

    October 29, 2023

    1 min read The Importance of Diversity in Your Portfolio According to a Harvard Business Review study on increasing diversity in venture capital partnerships, the more similar the backgrounds shared by the investment partners, the lower the investment performance. Diversity, put, leads to better-performing teams. Diversity of perspective breeds a startup that has a better understanding of the pain points that they’re trying to solve. The more a startup ensures that its team includes both women and minorities, the more likely it is to uncover the solution to the problem it set out to solve, and the more likely it is to yield a high performance. However, the fact remains that minority and women-owned businesses still struggle with funding when compared to their white, male, counterparts. While the investment space is working to shift this imbalance, the work is far from over and many still face an uphill battle toward equality. Minorities and women continue to face both structural barriers and biases when it comes to career paths. These individuals are expected to fit within a specific mold and stay within that mold. For example, less than 30% of the CEOs in the US are women. Statistically, however, there are more women in the US than men at roughly 97 men to 100 women. As Ola Gambari, COO of Hungry Fan explains: “It’s the idea of this preconceived notion that we have a lane, and we’re supposed to stay in it and, as a minority, if I’m not running a business focused on minority problems, I shouldn’t be running that business, neglecting the fact that I share all of the other pain points of other human beings in this society.” Instead, investors should be evaluating the business on its merits, not just the fact that it has minority founders. Again, it breaks down to recognizing that different perspectives matter and yield better results. As more investors embrace this knowledge, the more equality we’ll begin to see. Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

    To Invest or Not to Invest

    October 9, 2023

    2 min read To Invest or Not to Invest In the startup world, everyone has a grand idea, but how do you know when to invest? The startup needs more than just goals in the slide deck; they need systems in place to accomplish the goal and show the growth story in progress. As an investor, how do you know which startups can talk the talk and walk the walk? There are characteristics to look out for in a startup that raise either green or red flags. When to Invest After you have applied the traditional investment thesis to the startup’s plans, check for the following positive traits: There should be a strong team with integrity, industry knowledge, and business experience. They should have product validation and market validation, meaning that the product works and people will pay for it. The startup should already have the prospects for high growth and be demonstrating this at some level now. The business needs to be scalable and something that other companies will want to buy into eventually. The potential return needs to be significant to allow you as the investor to reach a 44% IRR or better. Finally, you need to help the startup in some way, such as finding other investors, providing domain knowledge, or making other meaningful connections for the startup. When Not to Invest There are traits you can look for that will tell you not to invest in the startup. Here is a checklist of showstoppers: There’s no business plan, as well as no plan for an exit. There’s no vision for the company. There’s no growth in the target market. The business doesn’t provide enough of a return on investment. The team has too many holes to stand up. The projected growth rate is too high and is unrealistic. There’s no differentiation over the competition. You should also beware of the “Pretend-preneur,” the entrepreneur who likes the idea of running a startup but is not committed to the work required to make it a success. Here are some tell-tale signs to watch out for: They are overly 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. They view this as a “detail to figure 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 the fault of everyone else, and there’s nothing that they can do about it. They don’t know who their customers are, and this doesn’t bother them. They think funding will solve all problems and life will be easier after the raise. They don’t know their numbers, but someone else in their organization does, and that’s good enough. Making The Final Decision The decision to invest or pass is entirely up to you. No one knows what the future may hold. But we can make the most informed, rational, and logical choice possible in this scenario. Taking the positive and negative characteristics lists above into consideration, you can use the process of elimination to remove deals from your potential investment list, allowing you to focus on the ones that can bring success to you and your team. Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

    What Investors Look For

    October 5, 2023

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

    Startup Investing: What You Need to Know

    September 18, 2023

    2 min read Startup Investing: What You Need to Know Startup investing is an attractive venture for many in the world of investing. Before investing in a startup company, it is 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 between 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 this 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-up 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 of 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 write-up in light of the outcome may update your investment thesis. Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

    Bootstrapping Your Business

    September 7, 2023

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

    The Many Startup Investor Types and Who is Right for Your Deal?

    September 4, 2023

    2 min read The Many Startup Investor Types and Who is Right for Your Deal? There are many kinds of startup investors today. Venture Capital, MicroVC Funds, Corporate Venture funds, Family Offices,  Angels, High Net Worth Individuals (HNI), and crowdfunders to name some of the current types of investors. Venture Capital- Most startups think of venture capital when they start their fundraise. The reality is that venture capital is only for a small number of startups. VCs draw their funds from outside sources called LPs or Limited Partners. The VC charges a management fee and a carry (share of the profits) from the funds raised. There are VCs who still raise the funds in what is called committed capital- the funds are committed by the LPs. Newer VC funds are often called “Pledge funds” in which the LPs pay the management fee for access to the deal flow but they review each deal before funding and have a say in the funding process. For some VCs you may notice the turnaround time on questions and deal flow takes longer. For pledge funds, the VCs must gain the approval of the LPs to move forward- hence the turnaround time is longer. VCs fund only the top 10% of all qualified startups. They look for high-growth, large target markets with scalable business models. MicroVCs are venture capital funds with less than $100M in funding. Typically, MicroVCs start with $25M to $50M funds and then deploy the funds to 10-12 companies. They often have very specific investment criteria since the management fee on the fund doesn’t add up to much and one needs to keep the costs low on such a fund. Corporate VCs are often called strategic investors in that they invest for strategic reasons rather than financial ones. They seek new technologies, talent, and other tools to help grow their business. They often invest as follow-on investors and typically do not lead the fundraise for startups. Some firms had a strategic fund in the past, but today just about every company has a fund for startup investment. Family offices are investors based around a family partnership that allocates some of their funds to startup investing. Some family offices go it alone and are called single-family offices while others band together into groups and are called multi-family offices that share the deal flow and due diligence. For every venture capital fund in the US, there are five family offices. They are less prominent since they invest privately and provide very little publicity around their work. Angels are individuals that meet the SEC-accredited investor requirement. That means they have $1M in net worth not counting the house they live in. Angels invest their own money. Some band together into groups to share the deal flow and the due diligence. Sometimes the group is formed around the “dinner club” model and a formal application process is used to recruit the deals. Others form syndicates in which a deal that is led is shopped to others in the group. The dinner club model can be a heavy time sync since most of the meetings are in person and only occur at specific times of the year. The Syndicate model is lighter and focuses on deals that have a lead. Angels look for the same thing as VCs but often invest outside those parameters since it’s their own funds.  They often invest in something that matters to them personally such as impact funds. High Net Worth Individuals are similar to angels but typically have more investing experience. They most often invest their own funds in areas they understand well. Some HNIs band together in informal syndicates to share the deal flow and due diligence. Crowdfunders are either accredited or unaccredited investors seeking to make a return by investing with many other investors in startup deals. Because their investment size ranges from $100 to $5000 in most cases, the startup needs a large number of them to complete a round. Crowdfunders more than any other investor make their investment decision on factors other than financial return. They often invest to support family and friends, or businesses they care about in some manner.  Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

    Site Map

    Scroll to Top