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How to Diligence a CPG Firm

How to Diligence a CPG Firm

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Fundraising, Investing, Uncategorized

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    Overlooked Areas of Investment

    May 15, 2022

    1 min read.  There are a lot of opportunities to invest in early-stage companies, particularly in some of the areas of the country that have been overlooked in the past. We’ve seen areas such as New York City and San Francisco that have essentially turned into startup hubs. As more and more companies spring up in these hubs, investments get poured into these areas. However, we are starting to see a shift outside of these hubs as other, typically overlooked, areas begin to show more and more potential for both startups and investors.  For example, Houston is making tremendous progress in terms of building an ecosystem and creating an environment that will nurture and support startups. The Houston area has positioned itself to keep those startups in the city as they grow. Other cities are beginning to follow suit due to cheaper business costs compared to larger, more expensive cities like San Francisco. Examples of this are Charlotte, NC, and Columbus, OH. As more and more hubs begin to pop up, it’s important to build a culture of early-stage investing. An example of a city doing this today is Houston, TX. The more we continue to pay attention to these previously overlooked areas, the more investment opportunities will arise. Read more blogs at TEN Capital Network 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

    Aerospace Investing: All You Need to Know

    May 8, 2022

    2 min read The aerospace sector is a rapidly growing and underfunded space. This makes for profitable investing. But proceed with caution. As always, you need to do your due diligence before diving in. In this article, we share a brief overview of the current aerospace industry and what you need to know before investing. What is the Aerospace Industry? The aerospace industry deals with companies that research, manufacture, and employ flight vehicles. This ranges from commercial use to military use to space travel. This space is currently on the rise in the investing realm due to the large part it plays in US exports and the increased interest in space exploration. Current Trends in the Aerospace Sector Sustainability is a huge area of interest. Two or three years ago the commercial aviation industry was trying to ask the question: “How do we be part of the wide solution space dealing with climate change?”  This refers to creating better outcomes in terms of their carbon footprint and increasing the efficiency and sustainability of their engines, operations, and fuels. Unique challenges exist in certifying aircraft and engines within the existing airspace construct. Being able to understand the nuances wherein small changes can actually yield significant benefits is what will set some manufacturers ahead in this space, making them a valuable investment opportunity.  Besides sustainability, digital twin and digital threat are most certainly areas in both manufacturings and in the maintenance space that are coming a lot more interesting. These concepts revolve around creating not just better safety outcomes in the production and maintenance of these systems, but also increasing efficiencies when it comes to sourcing and assembling these very complex machinery to perform their various transportation outcomes.  Deal Flow in Network VS. Proprietary Deal Flow  Whare are investors in the space currently doing? Do they rely mostly on deal flow based on their network, or do they also have proprietary deal flow? We talked with three experts in the field, and they all shared a similar answer. It turns out, they are engaging in both. Working within their networks, especially with universities, However, they are still incorporating proprietary deal flow. As said by expert Greet Carper- ” We’ll take deal flow where we can find it.” Investing in Aerospace When investing in aerospace, patience is fundamental. From an angel perspective, it’s not simple to make other networks or other partners in our common sport of investing. It can be seen to be difficult to invest in something that does not have that reversal beachhead market. It’s also important for investors to keep in mind when it comes to the space travel niche of the aero investing space that the challenges of space are extremely technically dense. Try to recommend the company you invest in to not go about their journey on their own, but rather to start looking at partnering up. If you see that in order for you to get some solutions out of space, you might need that infrastructure piece, or, you might need other components, or, you might need other things that create that ecosystem. If you can encourage the company to start thinking like a system, you’re more likely to find a way to succeed.  In essence, aerospace investors need patience, an open mind, and a willingness to go the extra mile. 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

    Are They Serious?

    May 1, 2022

    1 min read The startup world is full of big ideas. Entrepreneurs have grand plans to make these big ideas a reality. It is the venture world, so you better have large ideas. However, the talk about the idea is often full of overstatements and amplification. It paints a picture of a future so bright that it’s blinding. So blinding that all they see are the possibilities, not how serious it is to follow through and do the work.  The problem is some entrepreneurs are full of big ideas and nothing more. The startup world is open to anybody. Since the space is so open, it seems like everybody comes through it at some point in time. Unfortunately, this leads to some individuals passing through who are not serious enough to propel a startup toward success.  What to Look For Here are a few signs that an entrepreneur may not take the business seriously enough to be successful: Job titles are overly important to them. They are generally more concerned with receiving titles and credit for the work than they are about the actual work. They are not focused on the customer. In fact, they may not even have a clear understanding of who their customer is or what that customer wants. They don’t take responsibility for problems the startup may have. They blame others for the issues and may claim there is nothing they can do to fix the problem.  Know your entrepreneur. An entrepreneur who isn’t committed to the cause will raise funding and ultimately waste it. You do not want to invest money in those who aren’t going to see it through. 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 do VCs Make Money?

    April 25, 2022

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

    How do you know when to invest in a startup?

    April 8, 2022

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

    Startup Investing: What You Need to Know

    December 17, 2021

    2 min read Startup investing is an attractive venture for many in the world of investing. Before investing in a startup company, its 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 in 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 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 on 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 for 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 writeup in light of the outcome may update your investment thesis.     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.

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