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The Benefits of a Family Office

The Benefits of a Family Office

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    The Benefits of a Family Office

    September 15, 2024

    5 min read  The Benefits of a Family Office In today’s complex financial landscape, many affluent families are turning to family offices to manage their wealth and ensure the longevity of their family legacy. A family office is a centralized entity that provides a range of services tailored to the unique needs of a family, particularly those with significant assets. Here are some key benefits to consider when contemplating the establishment of a family office. 1. Carry Out the Stated Mission of the Family BusinessA family office can help articulate and execute the family business’s mission and vision, ensuring that all activities align with the family’s core values and long-term objectives. 2. Optimize Wealth Through Investment StrategiesBy employing sophisticated investment strategies, a family office can optimize the family’s wealth, ensuring that assets are managed effectively and grow over time. 3. Reduce Taxes Through Tax-Advantaged StructuresFamily offices can implement tax-efficient structures that help minimize tax liabilities, allowing families to retain more wealth. 4. Provide Education for Future LeadersA family office can facilitate educational programs for family members, preparing them for future leadership roles and instilling a sense of responsibility towards the family legacy. 5. Ensure Continuity Through Succession PlanningEffective succession planning is crucial for the longevity of a family business. A family office can help create a structured plan for leadership transitions, ensuring a smooth handover of responsibilities. 6. Preserve Family Wealth Through Ongoing ManagementWith dedicated management, a family office can help preserve wealth across generations, implementing strategies that safeguard assets against market volatility and other risks. 7. Organize Services for Running the Family BusinessA family office can streamline operations by organizing various services needed to run the family business efficiently, from financial management to legal support. 8. Coordinate Advisors into a GroupBy bringing together various advisors—financial, legal, and tax professionals—a family office can create a cohesive strategy that benefits the family. 9. Provide Better Control of the Family BusinessA coordinated program allows for better oversight and control of the family business, ensuring that all aspects are aligned with the family’s goals. 10. Manage Trustee Functions More EffectivelyFamily offices can take on trustee functions, ensuring that trusts are managed under the family’s wishes and legal requirements. 11. Provide Investment OversightWith dedicated investment oversight, a family office can monitor and manage the family’s investment portfolio, ensuring it aligns with their risk tolerance and financial goals. 12. Estate Planning for the Family BusinessA family office can facilitate comprehensive estate planning, helping to ensure that the family’s wealth is passed down according to their wishes while minimizing tax implications. 13. Create a LegacyEstablishing a family office can serve as a testament to the family’s values and commitment to future generations, creating a lasting legacy that reflects their principles. Structuring a Family Office for Tax Benefits When setting up a family office, structuring it for tax benefits is a critical consideration. Here are some points to keep in mind: Separate Legal Entity: By establishing the family office as a separate legal entity, families can shift certain costs from individual family members to the family office, potentially reducing personal tax burdens. Tax-Deductible Expenses: Under Section 162 of the US tax code, investment analysis expenses may be tax-deductible, allowing families to optimize their tax situation. Criteria for Deducting Expenses: The case of Lender Management outlines specific criteria for deducting investment management expenses, emphasizing the importance of regularity, continuity, and the separation of ownership and control. Structuring a Family Office: Key Considerations Structuring a family office involves several important decisions: Identify the Beneficiaries: Determine who the family office will serve, typically the family and their descendants. Define Services Offered: Establish a core set of cost-effective services that ensure the family office meets its members’ needs. In-House vs. Outsourced Services: Decide whether to utilize in-house resources or outsource services, as this choice significantly impacts operational costs. Service Charges: Consider how to charge family members for services rendered to maintain financial sustainability. Profit vs. Cost Coverage: Determine whether the services should generate a profit or cover costs, considering the need for overhead management. Expense Oversight: Implement oversight mechanisms to monitor expenses, potentially including a controller function. Legal Structure: Choose an appropriate legal structure. Many family offices opt for an LLC with S-Corp designation, though other structures may offer distinct advantages. Establishing a family office can provide numerous benefits, from optimizing wealth and reducing taxes to ensuring continuity and creating a lasting legacy. By carefully considering the structure and services of the family office, families can effectively manage their wealth and prepare for future generations. If you’re contemplating setting up a family office, weigh these benefits and considerations to make informed decisions that align with your family’s goals.   Read More from 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

    Understanding the Types of Family Offices: A Guide for Family Businesses

    August 18, 2024

    3 min read Understanding the Types of Family Offices: A Guide for Family Businesses When managing wealth and ensuring the longevity of family legacies, family offices play a crucial role. However, not all family offices are created equal. They vary in type and structure, each catering to different needs and circumstances. Here, we’ll explore three primary types of family office structures to help you determine the best fit for your family business. 1. Single-Family Office The single-family office (SFO) is designed to provide services exclusively to one family. This structure offers the most customized program, allowing for tailored solutions that align with the family’s specific needs and goals. However, it is also the most expensive type of family office structure, making it best suited for ultra-high-net-worth families who can afford the bespoke services and dedicated resources that come with it. 2. Multi-Family Office In contrast, a multi-family office (MFO) serves several families, pooling resources to provide commonly used services such as accounting, tax, and investment advisory. This structure offers a lower cost model, as expenses are shared among the families involved. MFOs work best for high-net-worth families who seek professional management without the high costs associated with a single-family office. 3. Virtual Family Office The virtual family office (VFO) operates primarily online, utilizing technology to deliver services. This structure provides the lowest cost option, as it often employs fractional services from various professionals rather than maintaining a full-time staff. VFOs are ideal for families that do not require highly customized services and prefer a more flexible, cost-effective approach. As you consider setting up a family office for your family business, weigh these structures carefully to find one that best suits your family’s needs and financial situation. Key Functions of a Family Office A family office can provide many essential functions for managing a family business effectively. Here are some essential functions to consider including: Wealth Management: Setting objectives, identifying investment opportunities, and providing ongoing oversight. Impact Focus: Pursuing investments that promote social, economic, or governance causes. Investment Management: Designing an investment thesis and pursuing opportunities that align with it. Security and Privacy: Implementing measures to protect the identity of family members and mitigate cybersecurity threats. Succession Planning: Preparing the next generation for leadership roles and transitioning responsibilities. Tax Management: Handling tax returns and structuring investments for optimal tax outcomes. Compliance: Ensuring adherence to tax and regulatory requirements. Many of these functions can be outsourced to specialized providers, allowing your family office to operate efficiently while focusing on core objectives. Challenges in Running a Family Office While family offices can provide significant benefits, they also come with their own set of challenges. Here are some fundamental problems to watch out for: Treating the Family Office as a Hobby: It’s essential to recognize that a family office is a legal entity with employees, investments, and tax filings. Treating it as a business is crucial for its success. Lack of Clear Goals: Developing a focused strategy can be challenging without a defined purpose. Establishing clear goals is vital for guiding investment decisions and overall direction. Poor Governance: A family office needs clear rules and regulations to function effectively. Leadership is also essential; without it, the office may struggle to achieve its objectives. Succession planning is necessary to ensure continuity in leadership. By proactively addressing these challenges, you can enhance the effectiveness of your family office and ensure it serves your family’s long-term interests. Setting up a family office is a significant step for any family business. By understanding the different types of family office structures, the essential functions they can provide, and the challenges you may face, you can make informed decisions that will benefit your family for future generations. Take the time to review your family office and consider how it can best serve your family’s unique needs and aspirations. Read More from 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

    Understanding Financial Fraud

    June 30, 2024

    5 min read Understanding Financial Fraud Financial fraud is a significant risk for startups in the investment industry. Understanding the various types of fraud, their sources, and the red flags that indicate potential fraud can help protect your business. What Is Fraud? Fraud is “The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.” Fraud typically involves the following elements: Material Fact: A false representation of a material fact. Intentional Act: The false representation is made intentionally. Belief by the Victim: The victim believes the false representation. Action by the Victim: The victim acts on the false representation. Harm to the Victim: The victim suffers harm as a result. Four conditions usually present for someone to commit fraud: Opportunity: The chance to commit the fraud. Low Risk of Getting Caught: Belief that they won’t be discovered. Rationalization: Justifying the fraudulent act in their mind. Justifications: Rationalizations that make the act seem acceptable. Startups are particularly susceptible to fraud due to their often limited information and controls. Investors should be aware of these vulnerabilities and take appropriate measures to safeguard against fraud.   Types of Financial Fraud in Startups   Misrepresentations Fraudsters may lie about financial investments’ value, risks, and costs. This can include misrepresenting a company’s financial condition and omitting key facts that could influence investment decisions. Regulatory Violations This includes violating securities laws such as insider trading or selling securities without a license. Failing to register securities as required by law also falls under this category. IPO Fraud During an Initial Public Offering (IPO) or Special Purpose Acquisition Company (SPAC) offering, fraud can occur through misstatements in accounting information or the omission of crucial information. Misappropriation of Funds This includes Ponzi schemes, where returns are paid to earlier investors with funds from more recent investors, and the personal skimming of money by those in control. Trading Violations Trading violations involve market manipulation tactics such as pump-and-dump schemes, front-running, and insider trading. Cybersecurity Fraud This type of fraud includes data breaches and the failure to protect investor data, which can lead to significant financial and reputational damage. Money Laundering Money laundering involves falsifying statements in accounting books and records to disguise the illegal origins of money. Startups operating in the financial industry should be particularly vigilant about these types of fraud to protect their businesses and investors. External Sources of Fraud Fraud can also originate from external sources, often involving individuals or entities pretending to be someone trustworthy to deceive the business. Here are common external fraud tactics: Fake Invoices Fraudsters create invoices for services never rendered, hoping the company will pay without verifying the charges. Advertising Scams These scams involve paying for advertising services in directories or books that either don’t exist or are never published. Imposter Scams Scammers pose as creditors or service providers, claiming that the company owes money or services will be cut off if payment isn’t made immediately. Tech Security Scams A warning screen pops up on a computer, claiming a virus has disabled the system and demanding payment to remove it. Phishing Attacks Fraudulent emails or calls request personal information, such as Social Security numbers, to verify employee identity. Ransomware Cybercriminals encrypt company data and demand payment to unlock the files. Business Coaching Scams Scammers promise business training and services that are never delivered, taking payment without providing the promised value. Training employees to recognize these types of fraud is crucial for preventing external scams. Internal Sources of Fraud Fraud can also come from within the business. Here are some internal fraud sources to be aware of: Identity Theft Fraudsters capture and sell personal information for illegal uses, often by accessing employee bank accounts or tax returns. Asset Misappropriation This is essentially theft, often carried out through forged checks or unauthorized transactions. Embezzlement The illegal use of company funds for personal expenses, typically by charging personal expenses to the business account. Payroll Fraud Manipulating payroll records, such as claiming hours not actually worked. Employment Fraud Providing false work history or omitting critical information, such as criminal history, during the hiring process. Implementing strong internal controls is essential to prevent internal fraud. Red Flags Indicating Fraud Fraud in businesses often involves employees and management. Here are some red flags to watch for: Employee Red Flags Lifestyle Changes: Sudden acquisition of expensive items like new cars or homes. Substantial Personal Debt: Financial stress can lead to fraudulent behavior. Addictions: Gambling or alcohol addictions can result in changes in behavior. Avoiding Leave: Employees who never take vacation or sick leave. High Turnover: Frequent staff changes in certain areas. Management Team Red Flags Failure to Submit Information: Lack of transparency with auditors. Weak Internal Controls: Poorly managed business units. Frequent Bank Changes: Regularly changing bank accounts. Changing Auditors: Frequent switches in auditing firms. Inexperienced Accounting Team: Lack of skilled personnel in finance. Excessive Loans: Heavy reliance on borrowing. High Compensation: Unusually high pay packages for executives. Monitoring these red flags can help detect and prevent fraud. Financial fraud poses a significant threat to startups, especially in the investment industry. Understanding the various types of fraud, recognizing the external and internal sources, and being vigilant about the red flags can help safeguard your business from potential financial pitfalls.   Read More from 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

    Data Monetization: A Guide for Startups

    June 9, 2024

    3 min read Data Monetization: A Guide for Startups Monetizing data is a critical aspect that startups must consider in today’s digital landscape. They need to understand some essential components and models to generate revenue from their data. Data Monetization Requirements Acquiring Data It is crucial to acquire your own data rather than relying on external sources to increase the value of your data. Storing Data Utilize a data platform to store and manage the acquired data for analysis effectively. Modeling and Testing Model and analyze the captured data using databases and algorithms to achieve the desired results. Customer Requirements Understanding the needs and preferences of your customers is vital to building valuable data sets for them. Compliance and Regulatory Stay informed about data laws and regulatory requirements to ensure compliance in data usage. Skilled Team Employ individuals proficient in analyzing, interpreting, and presenting data appropriately. Consider integrating these elements to establish a robust data analytics program for your startup. Data Monetization Model Data as a Service Offer data your startup generates to other companies, such as weather data, through a machine-readable format. Direct Data Transfer Sell data directly from your startup to other businesses, like customer lists or email addresses. Data Augmentation Enhance your data sets by combining them with external sources, creating a more comprehensive product for sale. Explore these data monetization models to determine the best strategy for your startup. How To Monetize Your Data Mining Your Own Data Leverage your startup’s data to develop new services or products that cater to existing and potential customers. Providing Data Sets Offer valuable data sets, like stock market prices or foot traffic information, to other businesses for their use. Higher-Level Information Deliver analyzed data to address other businesses’ specific queries, enabling them to make informed decisions. By implementing these business models, you can efficiently monetize your data and drive revenue growth for your startup. In conclusion, the thorough understanding and strategic implementation of data monetization requirements and models are crucial for startups aiming to maximize the value of their data assets. Explore these approaches and tailor them to suit your startup’s unique needs to unlock the full potential of data monetization. Read More from 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 Thorough Approach to Due Diligence

    February 5, 2024

    3 min read  The Thorough Approach to Due Diligence. A startup investment goes through a series of stages. The first stage is the pitch presentation, in which the startup introduces the deal to the investors. Next comes a follow-up meeting where the investors can dig in to learn the details. After this meeting, investors typically take time to think about the deal and observe the startup as they continue to make progress. The third stage is the due diligence phase. In this phase, investors review the startup’s documents, team, and market thoroughly. If the terms sheet has been established by other investors, the investors review those documents. If not, the investor will negotiate the terms- including valuation. This article will look at the due diligence phase in detail, outlining how to perform a thorough diligence approach. The Thorough Approach There are several approaches to due diligence. The most common is the “Thorough Approach. ” In this process, you review each aspect of the business and focus on the top items. The main areas to cover in due diligence are: Market What’s the market size (total, serviceable, beachhead?) How fast is it growing? Product What is the state of the product, both technical and market? Does it solve a burning need or add a general value? What has actually been developed? What remains to be developed to go to market? Who has used the product, and what do they say about it? Legal What contracts are in place? Are there any lawsuits? Intellectual Property What patents have been filed/approved, and when? What trade secrets do they have? Financials What revenues have come in? What financials are pending? What is the burn rate? Capitalization What is the capitalization structure? Who are the major players? People Who are the key players, and what are their roles and responsibilities? What contracts are in place with each key player? Market Due Diligence As an investor running due diligence on a startup, the key issue to focus on is the size of the market- the larger the market, the greater the growth potential of the startup. Luckily, there is rarely a need to pay for research since so much exists on the web. In searching the web, you’ll find research reports giving market sizes, trends, analysis, and more. The key is to analyze the market at three levels: Total Available Market: Anyone the company could ever sell to Serviceable Market: The target market the company wants to serve Beachhead Market: The first niche the company will pursue Ideally, the beachhead market would be a small yet well-defined group of companies that fit the startup’s current product. It doesn’t necessarily need to be the biggest or most lucrative market but rather the easiest to pursue. The startup should already have some interactions with the companies in the Beachhead market. Team Due Diligence The team is the most critical factor for an investor to analyze during the due diligence process. Since the startup likely has only a nascent product and some intellectual property, the team is the only thing that can really be dug into. First, the investor team should review the resumes of those who are on the team or plan to join when funding becomes available. Placeholders of ‘We’ll look for someone later’ is a red flag. The CEO should know who they are planning to bring on. It is also important to find out how long the team has worked together and if they even have worked together in the past. Next, look for domain knowledge: Who has it, and how current is it? Investors should also look for complementary skills. For example, if there is a team member who has complementary sales skills, will they spend their time selling the product? Or will the person who will build the product manage an internal development team? This question is still valid even if the startup is choosing to outsource. Outsourcing product development with no one actively managing it is a recipe for disaster. Finally, look at ‘completeness’. Many successful teams follow the Designer, the Hacker, and the Hustler formula. The Designer knows the customer problem and plans the product development, including how it will be monetized and promoted. The Hacker is the developer who builds the product, and the Hustler is the one who sells it. Does the startup you wish to invest in have a formula? Quantitative vs Qualitative Due Diligence There’s a quantitative side and a qualitative side to due diligence. The quantitative side includes checking the list of documents in the data room to verify the accuracy of those documents. For example, Do the entity filings match what the company claims to have? Do the intellectual property documents match what they claim to have? The qualitative side of diligence includes evaluating the team and the growth prospects in the market, sizing up the competition, and predicting the company’s ability to execute. Somebody should do the quantitative side with industry experience as it requires more discovery. An analyst or assistant can help with the phase.   Read More from 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 Due Diligence Process

    January 24, 2024

    2 min read. The Due Diligence Process When embarking on a new investment, it’s essential to have a Due Diligence process in place to check the basics. This process will vary from deal to deal based on the risks associated with each one. Start by making a list of your concerns. In most cases, you’ll sign a terms sheet with funding contingent on due diligence. It helps to tell the company about your diligence process, such as what documents are required, what steps you take, and how long it will be, thereby eliminating the “how is it going” calls. There are three phases to diligence: Documentation Diligence, Team Diligence, and Domain Diligence. Documentation Diligence Ask the startup for a list of critical documents. If they are not all in one spot, ask the team to put them into a Google Drive folder or create a more secure Box.com account. It’s common for startups to continually add to their diligence boxes and have many people view them simultaneously, so keeping everything in one place is very helpful. The primary documents should be: Entity filings and articles of incorporation Patent filings Income statement Balance sheet statement 3-5 year financial projections Cap table Other documents related to the business, such as lawsuits, product breakdowns, customer breakdowns, etc., should be requested. Read each document and check to see if it matches what you understood about the deal. Note any differences and ask for clarification. You must review the diligence documents so you understand the business. You may need to sign a Non-Disclosure Agreement (NDA) for sensitive information. It’s standard practice to do so, as the documentation should be kept confidential, even without an NDA in place. Team Diligence Thoroughly researching the startup’s team is the most critical part of the Due Diligence process. Meet with the team and assess their skills. In almost every startup failure, the investor can trace it back to the team not being up to the task. It may be the task was underestimated by all upfront, but with the right team, the company can succeed. Gather references for the CEO and call them up to hear what they have to say about the founder, including management style, how they pivot, and their team dynamics. In most cases, you’ve heard the CEO pitch, but it’s essential to understand the CEO’s skill set, including what is there and what is not. The rest of the team needs to bring the necessary skills to succeed. Domain Diligence Let’s break this process down into steps: Research the competition to determine the company’s position in the marketplace Check the positioning of the company in the marketplace Identify the value proposition and how well it resonates with customers Look at their pricing compared to the competition Check the industry to see the conditions in which it will grow or decline Once you finish your diligence and have your questions answered, ask for their wiring instructions Remember, break it down into baby steps Finally, use the model of “fast no’s and slow yes’s” in reviewing a deal so the entrepreneur is not chasing you for a response.   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 Due Diligence Process

    January 24, 2024

    2 min read. The Due Diligence Process When embarking on a new investment, it’s essential to have a Due Diligence process in place to check the basics. This process will vary from deal to deal based on the risks associated with each one. Start by making a list of your concerns. In most cases, you’ll sign a terms sheet with funding contingent on due diligence. It helps to tell the company about your diligence process, such as what documents are required, what steps you take, and how long it will be, thereby eliminating the “how is it going” calls. There are three phases to diligence: Documentation Diligence, Team Diligence, and Domain Diligence. Documentation Diligence Ask the startup for a list of critical documents. If they are not all in one spot, ask the team to put them into a Google Drive folder or create a more secure Box.com account. It’s common for startups to continually add to their diligence boxes and have many people view them simultaneously, so keeping everything in one place is very helpful. The primary documents should be: Entity filings and articles of incorporation Patent filings Income statement Balance sheet statement 3-5 year financial projections Cap table Other documents related to the business, such as lawsuits, product breakdowns, customer breakdowns, etc., should be requested. Read each document and check to see if it matches what you understood about the deal. Note any differences and ask for clarification. You must review the diligence documents so you understand the business. You may need to sign a Non-Disclosure Agreement (NDA) for sensitive information. It’s standard practice to do so, as the documentation should be kept confidential, even without an NDA in place. Team Diligence Thoroughly researching the startup’s team is the most critical part of the Due Diligence process. Meet with the team and assess their skills. In almost every startup failure, the investor can trace it back to the team not being up to the task. It may be the task was underestimated by all upfront, but with the right team, the company can succeed. Gather references for the CEO and call them up to hear what they have to say about the founder, including management style, how they pivot, and their team dynamics. In most cases, you’ve heard the CEO pitch, but it’s essential to understand the CEO’s skill set, including what is there and what is not. The rest of the team needs to bring the necessary skills to succeed. Domain Diligence Let’s break this process down into steps: Research the competition to determine the company’s position in the marketplace Check the positioning of the company in the marketplace Identify the value proposition and how well it resonates with customers Look at their pricing compared to the competition Check the industry to see the conditions in which it will grow or decline Once you finish your diligence and have your questions answered, ask for their wiring instructions Remember, break it down into baby steps Finally, use the model of “fast no’s and slow yes’s” in reviewing a deal so the entrepreneur is not chasing you for a response.   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

    Startups: Do You Need an Advisor?

    January 18, 2024

    2 min read. Startups: Do You Need an Advisor? Many startups collaborate with an advisor at some point in the process of their development. Advisors can aid startups in many ways, yet it always comes at a cost. In this article, we discuss how to know if your startup is in need of an advisor, what roles an advisor can play, and how to select the right one for you and your team. Do You Need an Advisor? Advisors can be helpful to your startup. Here are some key points to consider when determining if you need one: If you haven’t run a startup before, you’ll most likely need an advisor. If you plan to raise funding, you’ll find advisors add gravitas to the team as well as potential contacts. If you have holes in your team, then advisors can help you close them. If you are in a domain you have not worked in before, then an advisor can be helpful. If the business technology has changed dramatically, then an advisor can be useful to guide in the implementation of the latest tech. If you find yourself asking anyone, and everyone questions about your business decisions, then an advisor may be the answer. If you have a team that always agrees with you, then you may benefit from an advisor who will be more honest with you. If you need help for your own growth, then look for a mentor.  Remember that mentors are different from advisors. Mentors typically help the individual grow, while advisors help grow the business. Advisor Roles In addition to there being many types of advisors, advisors also take many roles in their work with startups. For example, some advisors’ role is simply to fill gaps in the early stage of the startup. Advisors can be signed on as formal advisors, or some may provide support as informal advisors. In this scenario, there are no set goals, meetings, or formal advisor agreements. This is the most common way startups work with advisors. Some advisors take the role of a mentor in providing guidance. These mentors tend to focus their efforts on the founder. Some advisors take the role of consultant in performing very specific tasks for the company, while others take on general responsibilities. Others may take on the role of a board of directors. This can be helpful in early-stage companies that are not yet ready to form a board of their own. Advisors here can provide oversight to the company and help the founder keep the broader picture in mind. Regardless of the role, you choose to fill, as an advisor, you will aim to bring experience, contacts, and networking to the startups you work with. Advisors can help startups achieve higher growth, avoid problems along the way, and give the founder confidence. Here are some key points in choosing an advisor for your startup: Avoid the dabbler: These advisors want to dabble with startups but don’t have any substantial experience to share. Avoid “Yes” men. These advisors confirm everything you say because they don’t want to go through the heavy lifting of explaining better ways of doing things. Stay clear of generalists: Generalists have general business experience but know very little about your specific industry or growth strategy. Look for advisors who know your industry and space very well.  Seek advisors who are well-connected.  Look for advisors who challenge you and remind you of the goals you have set. You may want to recruit a group of advisors and have them meet both individually and as a group to discuss key issues. Remember the time commitment that comes with advisors and set aside time for it.   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

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