Startup Funding

Author name: startup_admin

Fundraising 101

2 min read Are you considering starting a round of funding for your startup? If this is your first time running a raise, you likely have a lot of questions. In this Fundraising 101 guide, we will share when you should consider starting a round of funding, what type of funding to consider going after, how to prepare, and how long it will take. Read below to better understand the basics of fundraising for your startup. When to Raise Funding Most founders go out for a fundraise prematurely because they need money, not because they are ready for fundraising. Consider the following to understand when it is best to raise funding: Do you have a compelling idea that you can articulate? Do you have a validated customer, market, and product lined up? Are your investor documents prepared? Your pitch deck will change over time, but it always needs to show the core product, team, and fundraise. Can you demonstrate the product, even at an early stage? Can you show customer interest through engagement as well as revenue? Have you spoken with some investors to identify what risks they see in the deal? Do you know how you can mitigate those risks? Only after completing the above preparations should you consider launching your fundraise. You can then successfully engage investors with your deal, and remember to never show up to an investor meeting empty-handed. Always have some customer engagement to discuss. Types of Funding Before choosing a type of funding, consider the following: Investigate every kind of funding and think about where it may fit into your overall funding plan. It’s most likely that you will use two or three types of funding over the life of your business. To understand the type of funding you should look for, ask: “How will you pay the investor back?” For example, if you plan to pay back when you sell the business, equity funding should be considered. On the other hand, if you plan to pay back out of the company’s cash flow, then debt funding is a better choice. If you have a consumer-facing product, consider crowdfunding which offers both debt and equity options. Break your funding down into parts, and consider using more than one type of funding for your business. How to Prepare for a Raise Before launching your fundraise campaign, prepare your business, complete your investor documents, and build your investor network. Preparing your business is the first step in preparing for a raise. The preparation consists of checking in with your team, the board, and both potential and current investors to gain alignment- your fundraise launch should not come as a surprise to them.  Next, complete your investor documents, including a pitch deck, financial proforma, and diligence room. Your financial proforma should lay out how much you should raise and what you will do with it. If you’re unsure how to set this up, write down your current revenue and the revenue you predict to have in the next 24-36 months. From this, you can extract how much funding you will need to raise and how many people you’ll need to hire. Finally, your pitch deck should tell the story of how your business makes money and why it will succeed. Finally, build your investor network. Make a list of investors to contact, including existing investors. Setup a few initial meetings and tell the prospective investor you plan to launch a fundraise in three months. This removes the pressure from the investor and often elicits feedback on how much to raise, how to structure the deal, and more. What Are Fundraising Differences by Stage In raising funding over the life of the startup, you’ll find there are differences in the fundraise at each stage. The goal at the Seed stage is to show you can sell the product. At this stage, the investors will look primarily at the team since there’s little product or revenue. However, you will still need to show a working prototype and initial customer validation. Finally, you must convince the investor that customers will pay for the product and use it. At the Series A stage, the goal is to show you can grow the business. At this stage, you need to establish a repeatable and predictable process for acquiring the customer, delivering the service, and retaining them. Show a sales funnel with prospects tracking through the process of turning into customers.  At the Series B stage, the goal is to show you can scale the business. You need to show you have growth drivers built into the business that scales the company in this stage. This includes systems that can drive scale growth, such as a partner network, sales force capability, and expanding into new markets with the same platform. At each stage, the pitch deck will need to reflect the goal for the fundraise and show what the business is doing to achieve it. Fundraising Timeline As a rule of thumb, for every $1M of funding you want to raise as an early-stage startup, you should expect one calendar year to grow it. This includes time to prepare the company, the investor documents, the pitch, and contacting, pitching, and following up with investors.  It’s best to have your pitch deck and financial projections prepared before the fundraise, as well as a primary data room with the essential documents investors expect. This shows you have the fundraise well organized. Investors have their diligence process and are remarkably busy, so you have to work through their schedule. Fundraising should be a full-time job for the CEO, with support from the team for document preparation. The first few investors are the most difficult as no investor wants to go first. Therefore, this stage takes the most time. Once you reach 50% of your fundraise goal, you can estimate the remainder of the raise will take about 30% less time than the first half of the raise. The process may run faster if you have

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How Much Funding Should You Pursue?

2 min read How Much Funding Should You Pursue? This question is the place to start, but you’d be surprised how many startups either, don’t have an answer, or the answer is not well researched.  When I ask entrepreneurs how much they are raising, the automatic answer is $1M. It just seems like the thing to do. And when I ask what they are going to do with it, many seem unsure. Or they provide generalizations like, “We need it for marketing, hiring key personnel, or developing products” (and so on). The response from investors (myself included) is usually along the lines of, “No S!#t?” What’s The Plan? Before pursuing investments, one needs to consider how much to raise and how it will be used. Then, when you go to pitch investors, it should be clear from your financials exactly how you have come up with these specific funding requirements and how you plan to use the money.  Of course, it’s still an educated guess, but having these items researched and detailed in your business plan (and pitch presentation) will build more credibility with the potential investor. Figuring out how much you need to raise starts with: How much do you need for equipment, inventory, contract services (legal costs, marketing, sales, and more.)? This financial model is a MUST before setting the fundraising amount. The Magic Number I often recommend raising as little money as possible before you have customers and or sales because the valuation (how much the investor considers your company worth) will be pretty low. In addition, any money you raise in the beginning will cost a more significant portion of the equity in your company than follow-on investments down the road. In other words, the greater the risk, the greater the equity the investor will require. It’s also better to raise a lower amount (say $250K) to get the product up and running and sold to a few customers. Of course, you always present a larger round of funding later. Still, at that point, it should be a much better valuation for the entrepreneur–with the product and customer risks mitigated, you don’t have to give away as much equity. Also, for every $1M you are trying to raise, you’ll spend one year raising it and NOT doing much of anything else on your business. So raising only $250K will reduce the amount of time spent fundraising, allowing you to work on your product, marketing, sales, and team building. Feel free to try out our calculators and contact us if you would like to discuss your fundraise: https://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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Startup Illusions: What to Look Out For

2 min read  I know what you’re thinking, “Startup illusions; what does that even mean?” Don’t worry, we aren’t talking about magic here. Illusions are often based on cognitive biases or fallacies. Illusions are normal, but they can hinder the ability of a startup to thrive. There are four illusions that as a startup you need to be aware of.  it will help you be prepared and think clearly in regards to decisions being made that will affect the growth and prosperity of your startup.  Illusion of Control The illusion of control phenomenon is defined by Wikipedia as the tendency to overestimate one’s degree of influence over other external events. Startups often display an illusion of control about how their product and sales efforts will take over a market. Just as the gambler in the casino cannot make the dice come up the way he wants, the startup cannot predict how fast his product will gain adoption. A few organic sales often lead startups to believe they have a working sales and marketing plan, when in fact they have not yet developed a way to drive the process. To convince investors the startup must show a repeatable, predictable process for generating leads, qualifying the sale, and finally closing the sale. Even at the early stage startups can track the number of leads generated through a channel and how many leads convert to a sale. By showing this on a unit economics basis, you can overcome the illusion of control and provide clear evidence that you have a customer acquisition process in place. Those with strong organic sales that come without much effort are the ones most likely to believe that they can grow sales without a program or process. Money Illusion The money illusion effect is defined by Wikipedia as the tendency to concentrate on the face value of money rather than its value in terms of purchasing power. In pricing the product, a startup should list their product price in the smallest unit possible such as daily cost rather than annual cost. For example, if the price of the product over a year is $2000, then list the price as $5 per day rather than $2000 per year. The smaller dollar number will attract more customers. Startups raising funding should focus on what the funds will buy rather than the dollar amount alone. The Illusion of External Agency The illusion of external agency is defined by Wikipedia as when people view self-generated preferences as instead being caused by insightful, effective, and benevolent agents. Founders often believe someone else can make their fundraise successful. The responsibility of a fundraise for startups lies solely on the founder’s shoulders. While others may help through introductions and mentorship, the duty to follow through lies with the founder. To overcome the illusion of external agency, consider the following: The strategy and content of the fundraise comes from the founder no matter who is driving the campaign. Part of the fundraising process is to build a relationship with the investor. The founder must be integral to the fundraise campaign to do so. The founder is responsible for the outcome of the fundraise as investors look to the fundraise campaign as a proxy for the founder’s skills including communication, execution, and follow-up. The fundraise campaign is an opportunity to demonstrate those skills. While others can help, it’s the founders themselves who must own the campaign. Illusory Superiority Illusory superiority is defined by Wikipedia as overestimating one’s desirable qualities and underestimating undesirable qualities, relative to other people. New startups tend to have the perception that they are superior. Believing that they are the best of the best and should receive funding accordingly. The startup world in which investors have the advantage of seeing many startups while the founder sees far fewer. In fundraising, there’s a competition for startup investment. To overcome illusory superiority, consider the following: Maintain awareness of illusory superiority throughout the fundraise process. Remember how many other startups are raising capital and the challenge that imposes. Look at startups outside your own circle to see how they compare. Always be learning about startups and the startup world. Get an independent view of your startup to see how it compares to other startups. Look for critical views of your startup to see how you can improve. Through constant improvement, you can overcome illusory superiority. Feel free to try out our calculators and contact us if you would like to discuss your fundraise: https://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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Overcoming Common Investor Biases

2 min read In this article, we look at five common investor biases.  It’s natural to have biases – we all do. We’re only human after all. However natural or not, some of these biases may be interfering in our relationships with our startups. It’s important to be aware of these biases so that we can do our best to overcome and understand them. Overcoming these biases can help strengthen your startup relationships and your deals. Who knows, you may even break through a current issue with a startup and see a higher return on investment. Bias Blind Spot The bias blind spot is a cognitive bias defined by Wikipedia as the tendency to see oneself as less biased than other people. To clearly identify more cognitive biases in others than in oneself. All investors have blind spots and biases, investing in experiences causes one to be biased unconsciously. To overcome biases, focus on self-awareness. Learn more about the common types of bias such as anchoring and confirmation bias. Pay attention to how you react and respond to different pitches. Question your judgment to see if it’s based on fact or on personal feeling or opinion. Identify what type of deals and founder types make you uncomfortable. Question your judgment process to see where it may be flawed. Are you biased against certain types of people because of past experiences? If certain types of startups and founders make you uncomfortable then spend more time with them. Becoming familiar with them will make you more aware of potential biases you may have. Self-Serving Bias The self-serving bias is a cognitive bias defined by Wikipedia as the tendency to claim more responsibility for successes than failures. Investors use successful investments as proxies for their skill but attribute the failures to other causes. Investors are naturally optimistic, and when things go wrong it’s easy to blame external factors. To overcome the self-serving bias, consider the following: Maintain awareness about the self-serving bias. Check yourself when giving yourself the credit and give credit to other factors for success. For failures, take some time to review it so you understand it well. Make yourself accountable for any failures on your part. And look for ways to improve your skills and process. Selective Perception Selective perception is a cognitive bias defined by Wikipedia as the tendency for expectations to affect perception. Investors tend to see what they want to see in a startup deal. Investors choose those elements in the pitch that match their experience and expectations. Selective perception comes from previous experiences with startups both good and bad. Make sure you are an active listener, truly hear what the person speaking is saying. Ask questions to confirm understanding and that you heard correctly. Check with other investors for their perception to see how it matches and differs from your own. It’s easy to focus on parts of the deal that matches your understanding and ignore those elements that don’t fit.  Stereotyping Stereotyping is a cognitive bias defined by Wikipedia as expecting a member of a group to have certain characteristics without having actual information about that individual. Investors can stereotype startups based on their previous experience. This can be a bias against a sector of business, a leadership style, or other. To overcome stereotyping, investors should set aside preconceived notions and examine the facts available. Investors should look at the deal, the team, and the market as a growth opportunity. Look at similar investments by other investors to learn more about the deal. Investors need to generate self-awareness to understand biases that come into their decision-making. Staying in the know will make changes easier as the startup world is constantly changing. Out with the old and in with the new.  Reactive Devaluation Reactive devaluation is defined by Wikipedia as devaluing proposals only because they purportedly originated with an adversary. Founders tend to ignore and or discredit lessons and or advice given by their competitors as they see it as just that, their competition, and how would their competition know better than them.  To overcome reactive devaluation, consider the following: Maintain awareness of reactive devaluation and watch for it when making decisions. Separate yourself from the situation and view it as an impartial bystander to evaluate the information without bias. Consider the same information but coming from another source.  Would you perceive it differently? Check with others about their view of the situation and if the information is worthy of consideration. If so, review the information with other founders to verify it is legitimate. It’s helpful to separate the information from its source in order to remove any bias either for or against it. Feel free to try out our calculators and contact us if you would like to discuss your fundraise: https://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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5 Common Misconceptions About Starting Your Own Business

2 min read Starting your own business is extremely appealing for a lot of reasons.  Being your own boss, running things how you want to, and doing something you love are key reasons why people consider making the immense investment in time and money — and taking on the significant risk of failure. This risk can be minimized if you actually know what you’re getting yourself into. Here are 5 common misconceptions of starting your own business with a dose of reality to clear up any confusion.  If I have my own business I won’t have to work as much. That is completely false, especially when getting your idea off the ground and trying to make a profit. Expect longer hours, more tasks, and in all likelihood more headaches than when working under someone else. You can have staff, however, you still have to set them on the right course, deal with payroll, hiring, and management, etc.  I’ll be able to set my own hours and create my own schedule. There is some truth to this statement, however, a business’ priorities lie with customers and clients. Your business has to be there for them, and as head of a business, you have to be there for your employees as well. In the mindset of being ready to assist at all times in any way necessary to keep running well. If you are looking at other business models an online-based business allows some more flexibility. It will be easy to attract investors and customers to my business. There’s a lot of competition out there for peoples’ dollars, whether it be from investors or customers. You have to appeal to both markets, and often, there is no such thing as an easy sell. Be prepared for some slow (and low on revenue) times and be prepared for the frequent “no”. To make yourself more attractive to investors and customers, just be prepared: have a polished, plan to present to potential investors and have an equally high-quality product available for potential customers and clients. The books will be easy. Taxes, payroll, and money management can be hard to understand. There are a lot of numbers to keep track of and (hopefully) a lot of money to be accounted for. Make it easier by getting an accountant and Human Resources personnel. Business owners are rich and someday I will be too. The reality is that many business owners are just scraping by, hoping to keep their business and personal finances just barely in the black. Sacrifices will be necessary until the business becomes profitable, and for many, never do. Starting your own business can be an incredibly rewarding and exciting venture, but it takes a lot of hard work and does not always end up the way you may think or wish for it to.  Feel free to try out our calculators and contact us if you would like to discuss your fundraise: https://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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The Most Common Reasons Why Startups Fail to Raise Funding

1 min read There are many reasons why startups fail, these are the most common. Working with entrepreneurs every day on starting and growing their business, in addition to building a product/service that the market wants, recruiting a team that is effective, and finding customers, they must also raise funding.  A select few have the funding to start and grow the company but the vast majority of today’s startups do not.  They have to raise funding from outside sources and they know it. The most common reason why startups fail to raise funding is that they don’t budget the time or financial resources to do it.  When they ask me for help in fundraising, I ask for their business plan.  In reviewing it I find they have a time and financial budget for building the product.  They also have resources set aside for marketing and selling it. When I ask for their time and financial budget for raising funding, I often receive a blank stare. The four components of a startup are product, team, customers, and funding.  They budget time and dollars for the first three but many miss the fourth one–funding. Fundraising typically doesn’t require a lot of financial resources upfront but it does take some.  Pitching to angel groups requires application fees. Putting investor docs in order requires some cost as well.  The cost is not great but a budget of zero dollars makes it harder. The primary cost in raising funding is time.  It’s nearly a full-time job for three to six months in most cases.  Who on your team is dedicated to the process?  Closing investors is not unlike closing a customer.  You must have several interactions.  For a new company with a new product is almost never one visit and you’re done.  You have to go back and show how the product is improving.  Getting the first customer is the hardest and as you gain more users it does get easier.  The same is true with investing from investors.  If you’re starting to raise funding, I recommend you review your time and financial budget and make sure you are prepared for it. Feel free to try out our calculators and contact us if you would like to discuss your fundraise: https://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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How To Start Investing Busting The “One-Size-Fits-All” Myth

2 min read There’s a lot of information out there about how to start investing. As a new investor entering into an unfamiliar field, it can be confusing and overwhelming when figuring out where to begin. Unfortunately, this is why many first-timers fall prey to the “one-size-fits-all-myth”. But the truth is that there’s no right way and there’s no wrong way to do it. There is no “one-size-fits-all” for investing. Different approaches work for different people, and what it really comes down to is finding the best approach that works for you. Ultimately, your approach to investing in Startup A should in fact be different than Startup B. With this new perspective, we hope you can confidently go out into the field and make informed investment decisions based on the specific company you are planning to work invest in.  Why Can’t One Size Fit All Startups? For starters, not all startups are even the same size. I’ve learned over the years that where you are in the world molds your definition of what counts as a startup.  In Austin, if you have a great idea, and two people working on it, then you’re a startup.  In Dallas, if you have $1M of revenue, then you’re a startup. If you have less than $1M then you don’t exist.  In Shanghai, if you have $10M of revenue then you are a startup.  I once heard a fund manager refer to a $20M company as a startup. What makes entrepreneur communities vibrant is their inclusion of all players in the ecosystem, not just those with substantial traction. Startups with differing levels of experience and revenue streams require different investment approaches. Growing Number of Potential Deals In the past, angel investors followed the one-size-fits-all approach, writing $50K to $100K checks for the deals that looked promising.  If the deal went well, they would write another $50K or $100K check to add on to their investment.  However, in today’s world, there are so many deals that it’s hard to invest this much into each deal unless you know it’s going somewhere. This is another reason to approach each startup as a unique investment opportunity. An Easy Rule of Thumb The one-size-fits-all investment approach is a likable theory due to the fact that it makes investing easy. But if there isn’t one solid approach to startup investing, and there isn’t even a standard definition of what a startup company is, then how do you know what to invest where? We’ve generated a rule of thumb for you to follow in future investments. But keep in mind, each scenario is unique, and you may need to just go with your gut. In most cases, we advise to invest: $2500/deal for a seed company $5000/deal for a growth company $10000/deal for an expansion company Feel free to try out our calculators and contact us if you would like to discuss your fundraise: https://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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Three Important Questions to Ask Before Investing

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 layout 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. Feel free to try out our calculators and contact us if you would like to discuss your fundraise: https://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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Three Important Questions to Ask Before Investing

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 layout 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. Feel free to try out our calculators and contact us if you would like to discuss your fundraise: https://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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