Startup Funding

Menu
Subscribe
Search
The Benefits of a Family Office

The Benefits of a Family Office

•
Fundraising, Investing

Related Guides

    Trending

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

    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

    Building a Financial Model

    June 17, 2023

    2min read Building a Financial Model Building a financial model is an important aspect of running a startup and achieving investor funding. Below, we learn how to create a quick version of the financial model, how to capture assumptions and drivers, and what mistakes to avoid in financial modeling. Quick Version of the Financial Model When setting up your fundraising plan at a high level, set a revenue target five years out. Then, draw a line from today to that five-year mark. Your fundraise and hiring plan will come from that. To calculate this quick and dirty version of the financial model, follow these steps: Start with current revenue. Apply your organic growth rate and map out your top-line revenue for five years. Calculate your revenue per person metric. Apply your expenses for five years using the revenue per person metric. Identify the negative profit line.  Set your fundraise to cover the negative working capital. If the amount is greater than one million dollars, break the fundraise into two rounds. This will give you a rough idea of how much you need to raise and how many people you will need to hire.  Assumptions and Drivers In building out your financial model, make explicit the assumptions you are using and identify the drivers in your business. Create a tab on your financial modeling spreadsheet for assumptions and drivers for the investor to review. As you build out the revenue forecast, capture the assumptions behind the growth rate. For the costs, make clear which are fixed and which are variable costs. Identify the drivers within the business. Typically, this is the number of products sold or the number of customers signed up. This drives the revenue line as well as the variable costs. For example, the more customers targeted for revenue, the higher the cost of sales and sales commission. Investors look to see if the costs align with the revenue forecast. Understanding what drives your revenue and costs will help you build out your financial model and create more accurate projections. Mistakes to Avoid in Financial Modeling Your financial model can be used not only for fundraising but also for running your startup. Avoid these mistakes in setting up your financial model: Tying your revenue to a factor that doesn’t actually drive revenue. Instead, figure out what actually drives sales and build your model around that. Trying to identify exact numbers for factors such as conversion rate. Instead, use a range of numbers to account for variations. Skipping the research into companies in your sector. Instead, spend time looking at similar companies to find out what drives their business. Trying to include too many drivers in your business model. Instead, focus on the top drivers that account for the majority of your sales. Setting up the financial model for generating financial statements only. Instead, set up the model so it also calculates key performance indicators. Design the spreadsheet for running the business in addition to raising funding.  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

    Guide to Startup Ecosystems

    June 17, 2023

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

    How to Invest in Startups: Learn From Other Investors

    August 29, 2022

    2min read How to Invest in Startups: Learn From Other Investors As an investor, I helped launch three angel networks in Texas. In the process, I set up training programs, attended conferences, and talked with many other investors. Hearing and speaking to other investors was a wonderful learning tool. One of the best resources I found was a podcast by Frank Peters. Frank was an angel investor from the Tech Coast Angels in southern California. The Frank Peters Show Frank interviewed every angel, VC, and startup in the southern California community. After that, he later ran interviews across the US and worldwide. He ultimately recorded over 450 episodes which he posted on the web. As I drove my car, I listened to many podcasts and heard from angel investors about how they invested, their investment thesis, and the lessons they learned from the process. I recommend listening to podcasts that focus on startup funding. Podcasts are an excellent tool for learning from experts in the field. Some of my favorites are Jason Calacanis: Angel Podcast, Patrick O’Shaughnessy: Invest like the Best, and my podcast, Investor Connect.   Read more on the TEN Capital eGuide: http://staging.startupfundingespresso.com/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

    Site Map

    Scroll to Top