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The Benefits of a Family Office

The Benefits of a Family Office

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    Tips For Using Your Financial Model

    December 22, 2021

    2 min read Financial models contain numerical data about the past, present, and future of your business. This information can be used to make business decisions, analyze the financial health of the company, and can also be presented to potential investors. In this article, we provide tips for using your financial model. Using Your Financial Model in Your Pitch The financial model is a key component of your pitch. You should be using key financial numbers from the model to tell the story of how your business can scale up. To do this, start with your unit economics to show the business works. Show how the systems you have built drive the business using the financial model. Highlight the market size and how fast the market is growing as well as how you will go to market if you are in the early stage. Call out key cost figures to demonstrate you know the numbers that drive your customer acquisition process and retention rates. Show how you will use the funds by pointing to the costs for building products, generating leads, or closing sales. Show your cash burn and how the fundraise will give you runway. The financial projections alone don’t tell the story of your business. You have to pull out key numbers to tell the story. Using Your Financial Model in Your Pitch Deck Many founders cut and paste cells from the financial model spreadsheet into a slide. This renders the information unreadable as the spreadsheet doesn’t fit with the presentation format. To show your financial projections, consider the following: Don’t cut and paste from the spreadsheet. Investors cannot take in a detailed spreadsheet on a slide, only the high-level information. Instead, choose specific numbers from your financial model and place them into the slide using the same font and format as the rest of the deck. Choose three sets of numbers: Revenue, costs, and profits. For these categories, show last year, this year, and projections for the next three years. This provides a five-year window into the company. For each of the three categories, create a line graph. Avoid hockey sticks as investors will discount those numbers as unrealistic. Investors will look for the growth rate you are projecting. They will look to see when you go cash flow positive. Investors will look at the burn rate on the profit line and then check the fundraise to see how much cash runway you are proposing. The key takeaway regarding how to present your financial projections is the importance of calling out three key numbers such as the growth rate, months to cash flow positive, and the number of months of cash runway. How Investors Use Your Financial Model Investors use the financial model to understand not only the business but also to learn about the founder and their skills.  Here are some key points investors look for: Salaries: How well is the team compensated, and does this fit the stage of the business? Customer acquisition and retention: Have you built a system for acquiring customers and retaining them? Traction: What traction do you have going so far? Knowledge of the business: How well do you know the costs of running the business as well as what factors drive revenue? Scale factors: Based on the costs and customer acquisition model, how well can the business scale? Use of funds: How are you are going to spend the funds raised? Does it make sense for the stage of the business? Potential outcome: Is this a venture business or a lifestyle business? Consider how the investor will view your deal in building out your financial projections.  Feel free to try out our calculators and contact us if you would like to discuss your fundraise: http://staging.startupfundingespresso.com/calculators/ Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group.

    What to Include in Your Financial Model

    December 22, 2021

    2 min read  Your Financial Model will consist of several KPI’s, or key performance indicators. The metrics show the business’s overall health and can influence business decisions. You will also share the metrics with investors to glean financial projections when choosing whether or not to invest. Below, we cover several KPI’s to include in your financial statements. Cost of Goods Sold (COGS) The cost to build and deliver your product or service. This includes the building costs of the product or hours to deliver the service.  Capital Expenditures  This KPI accounts for investments into assets. This includes real estate, intellectual property, equipment, facilities, buildings, computers, servers, and office equipment. Depreciation  Depreciation represents the reduced value of assets based on their useful lifetime. One can expense a portion of the value each year over the life of that asset.  Personnel Expenses  Each employee has a salary, benefits, and payroll taxes. Payroll taxes are a calculation off of the salary. In addition, commissions need to be included but are variable expenses related to sales.  Financing  Any financing you have must also be accounted for in the financial statements. So you’ll need to set up a tab in your spreadsheet to capture the details of a loan or other types of financing, such as accounts receivable financing. Valuation  For later-stage startups with revenue, one can use the financial projections to estimate the company’s valuation for fundraising purposes. Your financial projections should have the key elements, including projected cash flows, a chosen discount factor, and a net present valuation of the free cash flows to generate the DCF valuation. Operating Expenses Operating expenses are the day-to-day expenses a business incurs. They support the operational side of the business covering sales, marketing, product development, and administration. Working Capital Working capital is the capital you need to run the business’s daily operations and includes anything converted to cash. This includes cash, accounts receivables, and inventory. Accounts payable reduces your working capital as you must pay it out each month. Taxes  Taxes include payroll and social security taxes, which are based on employees’ salaries and are paid monthly. In addition, income taxes are taken from your profit and loss statement results.  Revenues  For sales forecasting, begin with your current sales funnel and revenue history. Next, use your current sales process for the first two years and then switch to your growth initiatives in years three to five.   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.

    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.

    How to Invest at an Opportune Time

    November 7, 2018

    1 min read How does one know How to Invest at an Opportune Time? As an investor, you want to monitor the progress of the business. We’re looking for how fast they are iterating on the business and how well they do with customers. After you are convinced this is a business you want to invest in, you look for an opportune time to invest. Some companies are moving from one-time raises to ongoing raises in which the company takes the funding at any time, while others run discrete fundraise campaigns, and when the goal is met, the fundraise is closed. For recurring revenue businesses, you have the choice of raising a little at a time ongoing, and you don’t necessarily need a large cash infusion to keep the lights on in the office. As an investor, you can approach the company and make your interest clear. It’s often the case that the company can accept you at the last round of terms because the note is still open. The message here is “just ask.” Read more on the TEN Capital 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

    How to Monitor a Startup for Progress Before Investing

    October 31, 2018

    2 min read When deciding on a venture, it is important to monitor a startup for progress before investing. At first blush, all investment opportunities look attractive. As the investigation progresses, the warts, blemishes, and challenges become clear. Take Your Time It’s important to monitor deals before investing as it takes at least three months for all of the relevant details about the deal to surface. It’s also important to assess the capability of the team. Steady progress with revenue, product development, and team deployment need to be measured. The way the startup runs the campaign is a good proxy for how they will run the business. Some come in and build out their documents expeditiously. They follow up with the investors in a timely manner and they are able to close an investment using strong communication skills. Others come in and have difficulty building out their pitch deck. They get distracted with other things in life and can’t follow up in a timely manner.  Some have a hard time closing investors because their business is vague and the goal is fuzzy.  This type of campaign indicates a weak team and makes for a questionable investment. It’s interesting to watch their investor relations campaign because it’s a good indicator of how they will run their sales campaign. At TEN Capital, we give updates about our deals’ progress. We rely on the startups to provide updates in the form of a campaign to give our investors ample time to monitor the deal before investing. Read more on the TEN Capital 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

    How to use Analytical Tools for Startup Investing

    October 24, 2018

    2 min read Some investors believe the rise of data analytics will take over the decision-making process for startup investing and that most venture capitalists will be out of a job in the next decade. Data analytics works well in some sectors, such as consumer product goods, because the business models are clearly defined, and analytics can make meaningful predictions. In tech-enabled models, it’s not quite as clear. Data is used to inform the investor, it does not decide for the investor. It’s useful to have additional analytics around a potential investment, but it’s unlikely that data analytics will completely take over. TEN has its own data analytics, which it has developed over the last ten years for identifying fundable companies.  On the TEN Capital Network website, you can see the details of TEN Capital’s Predictors of Funding. With ten years of funding history, we track the results of the investments and understand why most of them succeed; however, some exceptions did well even though they didn’t meet this criteria. Successful Startup Investing Criteria The criteria we found for successful startup investing are: There are two or more industry-experienced C-level leaders The company has a strong competitive advantage. The company is solving a hard problem. In every investment, the team comes first. Competitive Advantage A competitive advantage is more than just a fistful of patents. It’s an advantage that either increases the company’s revenue by 30% over that of the competition or decreases their cost by 30%. A hard problem is a problem that customers will pay for it, and it is non-trivial. The key here is you need both. Many universities are solving hard problems, but there’s no competitive advantage in the sense the market will pay a premium. There are also “execution plays” where a company is out-executing the competition, but without solving a hard problem, it won’t last long. You can read more in the TEN Capital 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

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