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Focus on the Investment Decision Rather than the Pitch

Focus on the Investment Decision Rather than the Pitch

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    Investing in Diversity

    August 14, 2023

    2 min read  Investing in Diversity As an investor, it’s essential to consider investing in human and social capital. Research suggests that investing in human and social capital alongside traditional capital is most predictive of any startup’s success. Data shows that having diversity on a team benefits a startup’s performance. An additional dataset from the likes of McKinsey, American Express, and the Kauffman Foundation shows that diversity makes for better financial outcomes for a company. Given the data, looking at diverse teams should be a priority for investors. Here are a few benefits of investing in team diversity: Superior decision-making and problem-solving Diverse backgrounds mean diverse solutions being brought to the table. This leads to a more informed and well-rounded decision-making process and improved results from the team.Increased innovation A diverse team is a melting pot of ideas. People with different backgrounds and views will bring different solutions to a problem. This, in turn, pushes innovation forward. More talent and skills Individuals from different backgrounds each bring in their own set of skills, talents, and experiences. Not only does this increase performance, but it also creates a natural learning environment in which team members can learn from each other. A larger talent pool and long-term employees Diversity means attracting more candidates. A progressive company is attractive to prospective employees who value equality and higher employee retention is likely with a more diverse 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

    Three Important Questions to Ask Before Investing

    July 31, 2023

    2 min read Three Important Questions to Ask Before Investing The startup world is full of big ideas. Entrepreneurs have grand plans to make these big ideas a reality, and in some cases investing in these plans can lead to a hefty ROI for investors. But how do you know if this startup is the one to invest in? We’ve boiled this down to three main questions to ask before investing in a startup company. If even one of these answers is wishy-washy, you may want to consider saving your investment for a company in steadier waters. Let’s take a look at what these three questions are. Do They Have Sufficient Traction? The first question to ask is if the startup has sufficient traction.  You can track them on their sales growth, team changes, product development, and fundraise.  As you receive reports, you can start to build out a list of crucial traction points– leads, sales, channels, etc.   As one investor said, “I don’t invest in dots. I invest in lines.”  It’s essential to build out a picture of how the business is growing. By watching the deal over time, you can better understand it and hopefully see an upward trajectory, at which point an investment makes sense. Are They Serious? Here are a few signs that an entrepreneur may not take the business seriously enough to be successful: Job titles are overly vital to them, and 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 can be nothing 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. Do They Have a Well Thought Out Plan? They might have a great idea, but they’ll need to do more than just lay out a slide deck with goals they hope to achieve. A promising startup must be able to back it up with a well-thought-out plan to accomplish those goals. Here are some questions you can ask to get a better idea of what kind of plan they have in place: How will they generate leads, and what does that look like? What is their current sales pitch/angle, and how will it work for them? Where are their customers coming from, and how do they make the sale? It shows potential for investment if they’ve done their homework and have clear answers and processes in place. 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 Three Levels of Due Diligence

    October 28, 2022

    2min read How much due diligence is enough? While there are many checklists and rules of thumb surrounding the process of due diligence, the endpoint never seems clear. Most investors dedicate a certain number of hours, 20, 30, or more, and when those hours are used up, they make the investment decision. In my experience, there are three levels of due diligence: First Level The first level answers the question, “do we invest or not?” After reviewing the standard documents and talking to customers and industry professionals, the investor decides if the potential rewards outweigh the risks. Second Level The second level of due diligence answers the question,” what will the startup have to accomplish to be successful?” This is not always an obvious answer, such as making sales, or gain a 10% market share, or ensuring the product works. There are often one or two critical factors that determine success. In today’s world, it increasingly comes down to cost. The cost of customer acquisition, product development, or something else. Yes, the startup can find customers and sell a product, but at the end of the day, the margins come out razor-thin, if not negative. Another critical factor I see is building the team. Can we find the right people to fill the gaps (and there are always gaps)? Do you know what the startup must do to achieve success? Third Level The third level of due diligence answers the question: What can the investor do to help the startup succeed? Nothing is more frustrating than seeing a startup failing and not being able to do much about it due to a lack of knowledge of the industry, the market, or the technology. If you can’t help the startup, it’s questionable that it’s a good investment for the angel.  I’ve never invested in a startup that, at some point, didn’t need help. On the other hand, if I can help the startup through connections, mentorship, or team building, then it may be a good fit. 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

    Five Characteristics of a Lead Investor

    October 23, 2022

    2min read Five Characteristics of a Lead Investor I often hear of entrepreneurs stuck in their fund raise efforts with several prospective investors but no one willing to be the first.  That’s because the first investor could be the last in a deal, and no one wants to be that investor. The lead investor breaks down that barrier by providing the initial capital and due diligence that paves the way for others to join the deal. Here are some key characteristics of a lead investor: The Lead investor provides a substantial sum of capital, at least $100K. The $25K check writer should not be leading the deal. The Lead investor also gives advice. He should have experience in the industry and know well the problem the company is solving. By going first, he’s putting his reputation on the line, making him your lead advocate.  Keeping the lead informed is essential as he’s championing your deal more than other investors. He should also bring a strong reputation that attracts others to your deal. Finally, the lead investor performs the initial due diligence. All investors should be performing their due diligence, but most will use the lead investors’ work as the basis for their decision.  This can easily reach 30 to 40 hours of work.  Signing up a lead investor can be challenging if the entrepreneur doesn’t offer compensation. Finding a lead investor helps to start with those who know your industry and market.  Those with a successful business track record are ideal candidates. They say it takes seven touches to close a sale, so it takes seven touches to close an investor. Read more TEN Capital Network 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 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

    Five Key Elements to a Startup Story

    April 13, 2022

    2 min read Your story is a critical part of your fundraise pitch. There are five key elements to a startup story and they are the purpose, the hero, the mission, the obstacle, and finally, the plot. Continue reading below to learn more about each of these elements and how to incorporate them into your startup story. Purpose The purpose comes from what inspired your startup. There’s something about the world that you want to change, so you started the company to fix it. Next, connect your theme to a universal principle or truth that everyone recognizes. Now, build your story around that theme. Show how your startup’s mission reflects your core principles and values in your story. Also, avoid common mistakes such as trying to tell the investor how your product works in minute detail. It’s better to focus on the benefits of what your product does rather than the features. Hero The hero is the character whose journey the audience cares about the most. In a startup fundraise story, this is the CEO. Most heroes are trusty and likable. The audience empathizes with them in some way. Your story should focus on the hero and not just the product. Investors are seeking to build a relationship with people. The company takes on the persona of the CEO. If the CEO is trustworthy, then the company will be considered reliable. In your startup fundraise story, think how the CEO fills the role of the hero. Mission The Mission is the job to be done. It’s the goal of the hero both now and beyond the story. For your startup story, focus on what the CEO is trying to accomplish and how they plan to solve it. Outline how complex the problem is for the customer and how it can be easier. Show how the proposed solution will save time and money for the customer. Talk about the steps to accomplish the mission and how you will bring the solution to the market.  Finally, show how the product achieves the customer’s desired outcome. In telling the startup story, use the mission to set the direction. Obstacle The obstacle stands between the hero and the goal. All good stories have a conflict that needs to be overcome. Obstacles could be competitors, lack of knowledge, regulations, and more. The obstacle creates tension which holds the audience’s attention and helps them experience the story for themselves. For your startup story, show the CEO facing the challenge of bringing the product to the market.  Investors will empathize with the plight as they have been there themselves. Show how the CEO overcomes those challenges as the investors look for grit, determination, and persistence. Plot The plot is a series of events that leads to achieving the mission. Plots can be set up in several ways and choosing the right model will help make the story more engaging. You could play the David fighting Goliath, the small startup taking on the big corporation. You could tell a Rags to Riches story- how a small startup hit upon a big idea. Or you can position it as a quest by showing the entrepreneur’s journey and the lessons learned. From the story, the investor should see how you, the CEO, had an idea that changed the world.  Read more on the TEN Capital eGuide: How to Craft a Startup Story 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

    The Art of Pitching Q&A with CEO Hall Martin

    April 7, 2022

    2 min read Strong pitching skills are imperative when trying to communicate your idea and capabilities to an investor. The art of pitching goes beyond presenting the standard deck. It includes crafting a story through the intentional use of language, tailoring the pitch to each interested investor, and emphasizing how your current systems will lead to long-term success. The Craft of Writing When pitching investors, sometimes we need to condense our pitch deck into an elevator pitch. Instead of thinking about this as a rushed version of the pitch deck, you should think of it as presenting the information in story format. Instead of talking faster to cram more words into the allotted time, choose your words carefully and craft a meaningful anecdote about your organization and its mission. Think about keywords and phrases that communicate the value of your deal. Choose only one or two key financial numbers to share at this time. The key here is this: anecdotes tell and numbers sell. Tell your story, and then top it off with the crucial financial elements. Tailor the Pitch When pitching your deal to an investor, it helps to know your investor first. You’ll find you can make a much better presentation by customizing it a little bit. There are different kinds of investors out there that you may be pitching: venture capital, angels, and high net worth. The key is that they each have different care. And so, you want to think about the whereabouts and concerns are of the investor that you’re working with, and cater to those in your pitch.  Venture capital investors want a 10x return.  You need to prove there is a very large market and a very high growth rate. Angels have some capital preservation and therefore look for initial traction and revenue. They want to see some of the risks coming out of the deal. High net worth investors are also looking for very good returns, but there tend to be risk-averse. Emphasize Long-Term Success Most startups don’t have a lot of revenue- almost no one does as an early-stage startup. What investors care about more is predictable revenue. Use your pitch deck to show investors that you have systems running in your startup behind the scenes that are generating leads, closing sales, keeping the customers happy, and retaining those customers. Even if the numbers are small now, you can show that with these systems in place, the numbers will grow over time in a predictable manner. A scalable, growable organization is a real value proposition for the investor.   Read more on the TEN Capital Fundraise Launch Program 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

    Alternate Startup Funding Options

    April 7, 2022

    2 min read There are several ways for startups to gain capital. At times, the most common methods, for example, securing investors, aren’t the most beneficial. If your startup is looking for alternative funding options, consider one or more of the methods below. Promissory Notes A promissory note is likely used to set up a loan it is for friends or family. Here are some key points to consider in reading a promissory note: The ‘Note Summary’ section establishes the relationship between the borrower and the lender, the date of the note, the total loan amount, and the agreed-upon interest rate.  The ‘Terms of Repayment’ section defines how the loan will be repaid. The ‘Late Fee’ clause typically includes a late fee penalty. This clause documents either a fixed amount, such as $100 in addition to the current payment due, or a percentage of the payment due such as 1% per week. There is an option to include a prepayment option, which may help the lender as well as the startup. For example, follow-on accredited investors might prefer a loan to be paid off prior to closing their investment deal. Family and friend loans are intended to be more supportive, so you may choose a language that allows time to remedy the default within a predetermined number of days or weeks.  Revenue-Based Funding Revenue-based funding makes a startup investment and pays back the investor at the rate of top-line revenue. This aligns the investor and founder to the same goal, to create a business and grow sales. The higher the sales, the faster the payback to the investors and the higher the compensation to the founders. Revenue-based funding typically sets the payback rate at 1-3% of top-line revenue. In revenue-based funding, the investors receive a revenue share until they reach a predetermined payback amount. This is different from a loan which sets the payout rate regardless of the seasons or cycles within the business.  Revenue-based funding keeps early-stage investors off the cap table so it’s clean for future investors. Once the payback amount is reached, the investors are finished and are no longer in the picture. It works well for businesses that have recurring revenue and healthy margins and is a good way to reduce dilution for the founders. Salary-Based Funding Salary-based funding makes a startup investment and pays back the investor at the rate of compensation the founders take. This aligns the investor and founder on the same goal: to create a business that can sustain itself and pay the team. The investors receive an agreed-upon percentage of any salary or profit the business takes in. In salary-based funding, the investors receive payback until they reach a predetermined payback amount. This is different from revenue-based funding which is a debt instrument that pays out based on a percentage of top-line revenue. This keeps early-stage investors off the cap table so it’s clean for future investors. The investor can choose to take their payback in cash, or they could convert it to equity. This is a good way to run an initial raise when it’s not clear if additional funding will be required.   Read more on the TEN Capital Network eGuide: Alternate Investing 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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