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The Due Diligence Box

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2 min read The Due Diligence Box: What Is It and How to Prepare One. After an investor expresses interest in funding your deal, the first question to ask is: “What is your diligence process?” Having a due diligence box with the standard documents helps a great deal. It shows you are prepared and typically only requires minor additions for each investor. The Due Diligence Process While most diligence processes follow the same format of document review and analysis with a round of follow-up questions, each investor has their own start time, timeframe of work, and specific documents they look for. It’s best to ask for their process, and then follow along with it. If the investor does not have a specific process, then presenting the due diligence box should be enough. For new investors who are not sure what to do, you can offer to walk them through the diligence document by showing them all the relevant information. It can be helpful to contact the associate or analyst who will be doing the detailed work and open a direct line of communication with them. By building a rapport you may gain the option of contacting them directly for progress status and updates. You can also position your calls as opportunities to answer questions and to help the associate find specific pieces of information. Investors are busy and can get drawn away by other deals, so it’s important to be timely with your follow-up. Having a due diligence box with the standard documents helps a great deal with this. It shows you are prepared, and typically only requires minor additions for each investor. The Due Diligence Box In preparing a due diligence box, also called a data room, there are basic documents to include. These documents consist of: Income Statement and Balance Sheet 3-5-year Financial Forecast Cap Table- including shares outstanding Entity Filings including Articles of Incorporation Intellectual Property Filings- including patents, trademarks, etc. C-level Team Resumes There may be other documents you may need to add based on your situation. Reps and Warranties Contract One document that is helpful but not required to include in the due diligence box is a reps and warranties contract. Information taken in by investors about a startup’s product, team, financials, revenue and more can change rapidly during the startup phase of the business. One method of assuring the investor the information provided is true and accurate is for the startup to sign a Reps and Warranties contract. This is often tied to the diligence provided. This contract states that everything provided in the diligence is true and accurate and that no material has been omitted. If it later turns out that there’s a material difference between the business and the diligence, then the Reps and Warranties contract provides legal recourse to the investor for recovering any damages. For example, if the financial statements indicate there’s no debt in the business, then the investor assumes the business is debt-free. If the startup does in fact have debt, then the investor can take legal action against them. Some investors demand such a contract to be signed to ensure they have the full picture of the business. Signing a Reps and Warranties Contract can strengthen a startup’s case on the diligence provided. Read more in the TEN Capital eGuide: https://staging.startupfundingespresso.com/due-diligence-and-leading-the-deal/ 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 Answer the Investor’s Questions

Fundraising /

1 min read In raising funding, the startup will meet with many investors, so how should they answer the investor’s questions? First, listen to the investor’s questions carefully. Answer each one directly and to the point. If a question requires a number, give that number. For example, if the investor asks how much revenue do you have, answer with: “We have $200K of revenue so far this year” or, “We have $10K of monthly recurring revenue”. Be careful not to answer every question with a story. Long-winded answers waste the investor’s valuable time and often miss vital information. If the investor wants to hear the back story for a particular question, they will ask. For example, “That sounds interesting. Tell me how you arrived at that model”. The investor often has a list of questions to go through and a limited amount of time. Not responding with direct and to-the-point answers only serves to lengthen the pitch process. Also, some investors may interpret the long and winding response as avoiding the answer, which raises a red flag. It’s best to be straight up. Read more in the TEN Capital eGuide: https://staging.startupfundingespresso.com/the-art-of-pitching/ 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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Healthcare Trends in a Post COVID-19 World

Investing, Other /

2 min read Covid is going to be a long story, but the silver lining is the positive changes we will see in the healthcare sector. These changes point to lofty opportunities for investment. Let’s look at the foreseeable healthcare trends post-COVID. What do current experts in the field see coming up, what sectors have COVID-19 accelerated, and what future trends and changes in the healthcare industry should the investor look for? Bottom-Up Budgeting In pharma and the medical device space, we see that companies cannot spend as much money as they have been able to in the past. They cannot get into hospitals and operating rooms or conduct clinical trials as they were able to before COVID because of the amount of space and resources required to manage the disease. These restrictions also cause the spending lifecycle of a medical company to change. Typically, the most considerable output of resources happens in the middle of their life when they reach clinical trials. However, companies now cannot use the planned funds in this way, which means that they need to rethink and strategize their budget. By doing this, they can cut between 20 and 30% of the G&A budget, which allows them to at least a few more months, which hopefully can get them out of COVID and raise money easier again. As an investor, this means that you should be looking at a medical company’s bottom line. The new environment being created in the healthcare sector calls for bottom-up budgeting. Companies need to understand the cost, their time to market, and what they need to succeed. Re-evaluation of Orphan Drugs A hugely positive trend we see resulting from COVID is the re-evaluation of orphan drugs. Orphan drugs are government-funded pharmaceutical agents used to treat rare diseases. They are typically easier to get through the FDA, and pharma companies can sell them at high prices. But due to changes in the U.S. government, the cost of orphan drugs is going to be re-evaluated. This is a significant shift, which we have already begun to see and will continue to become even more substantial. This shift means two things. One is that orphan drugs won’t be as valuable to invest in. The other would be a redirection of funds to other circuits such as cancer drugs. Increased Government Investing in Medical Infrastructure The world is seeing that the medical infrastructure is globally underfinanced. We are experiencing the missing number of beds, doctors, nurses, and more. Over the next decade or two, the government will be investing more capital in infrastructure in medical systems- good news for the big med-tech companies, and this increased funding will put pressure on hospitals to turn out much better results. We’ll likely see hospitals shift towards using home treatment digital health monitoring at designated clinics to shorten the required length of stay a patient has to go to the hospital for care. These things can only be done with technology. Read more in the TEN Capital eGuide: TEN Capital eGuide: Investor Perspectives on Chronic Pain 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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Five Things Investors Love to Hear in a Pitch

Fundraising /

1 min read What are some things Investors love to hear in a pitch? Investors hear pitches continually throughout the year. There are so many that it can be hard to truly hear them all. But, from time to time, an entrepreneur will make a pitch that stands out from the crowd. Investors are listening for a few key things that show you have a real business with real growth. The rest is filler. Every entrepreneur has a story. Many are interesting; some are not. For investing purposes, there has to be five key elements to capture their interest: Real Traction Entrepreneurs who have sales and show it are head and shoulders above the rest. Most talk about the traction they will have in the FUTURE but not what they have today. In an investor’s mind, this equates to “No Traction.” Real Pain Point The entrepreneur has found a real pain point in the market and is filling it. Someone once said, customers pay for pain to go away. They don’t pay for nuisances or inconveniences. Real Team The company has someone building it and someone selling it, and those team members know what they are doing. Real Product The product works and is non-trivial to build. It’s more than just spin marketing. Real Growth Prospects The market opportunity has strong growth potential and will not run out of steam in a year or two. A startup pitching with each of these elements in place will always capture the investor’s attention. Read more in the TEN Capital eGuide: https://staging.startupfundingespresso.com/the-art-of-pitching/ 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 Effects of COVID-19 on the Healthcare and Chronic Pain Markets

Investing, Other /

4 min read What will be the COVID impact on Healthcare and Chronic Pain Markets? Effects on The Healthcare Sector The current focus on COVID-19 and things around it will eventually run its course. But the post COVID impact on healthcare-investment opportunities is going to be tremendous. Changes and advancements in healthcare technology are predicted to skyrocket, from non-touch transactions and telehealth advancements to AI-enabled procedures. Hopefully, there will be fair outcomes for the patients, providers, the healthcare system, insurers, and investors because when everything works in balance, it’s a win for everyone. In the beginning, there was also a lot of uncertainty related to investments in companies in therapeutics or MedTech because no one knew how COVID-19 would affect their clinical trials. Overall, however, the pandemic has had a positive impact on investment in the healthcare sector. For example, diagnostics is a field that does not get reimbursed very well and is therefore presents a risk for investors. Since diagnostics plays such an essential role in COVID-19 procedures, there have been a lot of financing of new diagnostic tools and an increase in reimbursement, especially in infectious diseases. The other sector that is seeing an increase in funding is digital health. Not all sectors have been so lucky, however. Their highest margin of loss is on optional procedures and non-critical procedures. Many of the hospitals’ cash flow has been severely hurt by COVID, causing them to rethink, and a lot of them are cutting back on things like adding new facilities. Bringing healthcare to the top of the mind on all fronts has highlighted and made transparent some of the inequities in the developing markets and the developed healthcare markets. This has worked to charge subsectors of the industry such as telemedicine, remote-patient monitoring, and point-of-care diagnostic. One of the most significant changes COVID has had on the industry is the way we view healthcare. A good analogy is the way our views on phones have adapted to the technology. In the past, when you would think of a phone, you would think of a physical location. When you had someone’s phone number, you were calling a place. Through cellular phones, they’ve changed the way we view this process. Your phone number is you now, no matter where you are. And that’s what we’re seeing happen in healthcare. One area that is changing in this way is triage. Triage is how you determine who should be seen and when. We can now add to that equation how. Positive things are happening in the healthcare industry. We’re getting better utilization of our resources and hopefully will provide the best healthcare solutions for people at a more reasonable price point. Changes in Business Operations Everyone is aware of how the all-hands-on-deck routine went when COVID first broke out. Many current business activities were shut down, and in turn, many new activities such as massive refocusing on vaccines and personal protective equipment. There was enormous redirection involved, moving assets and money from one effort to another, which always creates a disruption. The shutdown has disrupted our country’s economic health as well, meaning companies even unrelated to COVID-19 have been massively affected along with venture investment, venture capital, and investors. Stressors across all industries are leading to change, especially in the healthcare sector. The changing of regulations that have been overdue for revisiting, such as those restricting the Medicare programs from reimbursing anything related to telehealth, are being accelerated. Even the FDA has been pressured to accelerate the deployment of reviewing technology, policies, processes, and procedures. Hopefully, these items that the FDA was forced to expedite will stick after the pandemic is over. Some of the most prevalent changes we see as a result of COVID is companies going remote and digitizing their processes. The ability to change in these ways is an excellent indicator of how flexible and agile some of the larger companies in an industry are or are not. Any startup has to be nimble on its feet and ready for a surprise at any time. They rarely, if ever, have funding to throw money at problems. They need to be creative and reactive in their response to opportunities as well as negative surprises. COVID has made this all the more relevant. Companies need to be able to adapt quickly to customer changes, even if it’s a matter of them being able to access them differently and with separation. The reality of the situation is that some business practices are not available to us now, and companies have to be agile and react to them to survive. Changes in Production COVID had the impact of accelerating some parts of an industry and de-accelerating other parts. In the healthcare space, vaccine development, manufacturing, and clinical trials were vastly scaled-up along with an unusual amount of business opportunities for otherwise commodity products. There is significant opportunity in hand sanitizer, face masks, gloves, office cleaning, and sanitizing services. It’s remarkable how many commodity products and services that have not been historically tremendous growth opportunities are now a lucrative direction for some businesses. We see some companies pivoting to fill that gap, while other companies are doing it to overcome loss of traction on their core business. At some point, this is all going to come to an end. There will be warehouses and warehouses full of hand sanitizer from 50-500 companies that never existed before. It will be interesting to see how that is set aside, ignored, or disposed of when companies redirect back to business as usual. One thing we have already seen as an effect of these changes is the redirection to bring manufacturing and other operations back to the U.S. Even if a factory in Shanghai can ramp up production to provide double or triple the assets in a short time, that doesn’t mean we can physically get it here quickly. This has led to a trend in onshoring manufacturing capacity that will likely remain. The pandemic has also

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How to Pitch Investors Through Email

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1 min read To pitch investors online is a skill one can learn. Here are some crucial steps in reaching out to potential investors through email to pitch your deal. Choose investor prospects carefully. Don’t spam an entire list but rather research each lead and identify qualified candidates. Search for connections to those candidates and topics of interest. Then devise strategies for how to reach out to them. Indicate why you are reaching out to them. Show why that person and company could be interested in your deal. They may be interested based on a past investment, a network connection, or a group affiliation. Answering the “why” will keep them reading. Show your connection to the reader. Finding a common link will significantly improve your chance of a response, so it’s worth looking for someone who is in their network that can provide social proof that you are legitimate. Show the problem you solve. And not just the problem, but the solution that you offer and the market that you target. Do this in one or two sentences and not one or two pages of text. Show indications of traction. Use 3 to 5 examples of traction such as leads generated, sales closed, number of users in a beta program, etc. Introduce yourself and show social proof. There’s a tendency to start the email with this information but showing your position in the community and credibility comes after establishing a topic relevant to the investor. Close with a one-sentence ask. Make clear the next step such as a conference call, a meeting, advice, etc. Also, remember the following points: Write in a conversational but business-style tone; not marketing-speak. Keep it short and to the point avoiding long blocks of text. Use numbers to make your pitch stronger as it shows specificity. Remember to attach the executive summary or pitch deck. Read more in the TEN Capital eGuide: https://staging.startupfundingespresso.com/the-art-of-pitching/ 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 Secure Investor Funding

Fundraising /

2 min read How to Secure Investor Funding: A Guide to Your First Investor Meeting. Preparing for your first investor meeting can be daunting. You have to consider what you need to prep, how to answer investor questions, how to pitch the deal, and more. Preparing to Meet a Prospective Investor In meeting with a prospective investor, come prepared to discuss the following: Sales: ALWAYS have something to say about customer interactions. Even at the pre-revenue stage, you should talk about prospective customers and their reactions to your product idea. Team: Talk about your team and how they are closing sales, generating leads, building product, and in general, how great they are. Product: Talk about the customer’s ROI from the product, but don’t talk about how the product works in minute detail. Stay at the benefits level. Fundraise: You should talk about how other investors are interested in your product idea and demonstrate your fundraise traction. Also, ask questions of the investor such as: What do they invest in? What can they do for their investments beyond the check-writing? What advice do they have for you based on what they see so far? Who else do they recommend you talk to? How to Answer Investor’s Questions In raising funding, the startup will meet with many investors to answer their questions. So, how should the startup answer the investor’s questions? Listen to the question and answer it directly and to the point. If the problem requires a number, then give that number. For example, if the investor asks how much revenue you have, answer with: “We have $200K of revenue so far this year”, or “We have $10K of monthly recurring revenue”. Be careful with answering every question with a story, as this takes time and often misses the critical information. The investor usually has a list of questions to go through and a limited amount of time, and not responding with direct and to-the-point answers lengthens the process. Some investors may also interpret the long and winding response as avoiding the solution, which raises a red flag. It’s best to be straight up. How to Pitch the Deal to the Investor In pitching your deal to an investor, it helps to know your investor first. What type of investor are they- angel, family office, high net worth, or venture capital? What is their investment thesis- are they swinging for the fences, or do they want to make a series of doubles and triples? How much do they know about your market or application? What angle would be best for this investor? Should you focus on the market, the traction, or some other factor? In your pitch, emphasize the appropriate return for that investor and explain how your deal compares to other deals they have had. Spend time describing the market and how your product fits into the landscape. The best way to pitch an investor is to know something about them and adjust your pitch accordingly. Raising Funding Is Hard Lastly, raising a fund is hard. A Few Points to Remember: Build relationships first and find investors second. Divide your raise into tranches and give yourself a reasonable timeline for each. Investors will critique the business. Consider your business as an operational machine. Perform as much diligence on the investor as they are performing on you. Get a sense of which way it is going with your deal and adjust your approach. Just as you tailor the sale to the customer, tailor your pitch to the investor. Adjust accordingly. Start meetings with those you know and give you real feedback. Use analogies to help investors understand your deal’s value. Securing Investor Funding is a process; for every ten prospects, you’ll get 8 “Nos,” 1 maybe, and eventually 1 “Yes.” Keep going ‘til the money is in the bank. Read more in the TEN Capital eGuide: https://staging.startupfundingespresso.com/running-a-fundraise-campaign/ 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 Pitch Exercises

Fundraising /

2 min read What are some startup pitch exercises to practice before approaching investors? Entrepreneurs know the importance of the pitch to investors. There are many blog posts explaining tips and techniques on how to communicate your vision, passion, and story to the investor. Keep in mind the best practices. As an exercise in building your pitch, try the following: Give your pitch in numbers. Use only 10 words or less. Present your deal from your customer’s point of view. How would your customer describe your business? What value do you offer the customer? Also, try a pitch from the investor’s point of view. How would the investor describe your pitch? How your business makes money? And don’t forget your employees’ point of view. How would your employee describe your business? What your company does on a day-to-day basis? Lastly, give your pitch from your competitor’s perspective. How would your competitor describe your business? What is unique about your business? Most pitches tell a story Some entrepreneurs use their entrepreneurial journey as the format which goes something like this: I had a problem I couldn’t find a solution So I created my own solution Others started asking me for it So I started a business Walk Through the Executive Summary Another approach is the “Walk through the Executive Summary” which takes the audience through the sections of your one-pager. Here’s the problem and how much it’s costing the world This is my solution to the problem This is the product I came up with for the first version Here’s the advantage of it Here’s how the business model works Etc. As the saying goes, practice makes perfect. Read more in the TEN Capital eGuide: https://staging.startupfundingespresso.com/the-art-of-pitching/ 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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Finding Funding

Fundraising /

2 min read Finding Funding: When and How Your Startup Should Look for Investors. If your startup is beginning to gain traction in your market, yet you feel held back by lack of capital, you may be wondering if it is time to start your first fundraise campaign. In today’s article, we will talk about how to gauge whether or not you are ready to source funding for your organization, and if so, where to look for it. Are You Fundable Yet? I talk with entrepreneurs every day about their fundraise. The most common question I am asked from those running early-stage startups is: “Am I fundable?”. My initial response is always to find out whether or not they have a growth story. For starters, are things clicking forward on sales, team, and product development? If you can answer those questions with substance, then you are in the game to consider funding. It doesn’t matter where you are on the journey; you just need to show you are making consistent and meaningful progress. What’s Your Trigger? When launching your startup, look for a trigger that indicates when to start your fundraise campaign. Common triggers include: Closing a lighthouse customer account or achieving a revenue target Signing up a new team member or advisor Finishing a beta version of your software or an MVP version of your product Closing funding from a lead investor In short, investors look at sales, team, product, and fundraise as the four core areas for progress. When you achieve a milestone in one or more of these areas, it can be considered a trigger to consider launching a fundraise campaign. Remember that when approaching an investor, you should have a milestone completed AND a milestone to accomplish. Where to Look for Funding I’m often asked where startups should look for funding. Luckily, there are many sources. First, start with your family and friends. These are the people who already know you and believe in you. Second, expand the circle to include current and previous coworkers. If accelerators are appropriate for your deal, then consider those not only in your geographical area but also in your sector. Most accelerators take companies from across the country. Many are now offering funding of $150K or more. Third, look for a local network of angel investors or family office investors in your area. These are high-net-worth individuals who have organized their startup investments into a formal process. Finally, you can approach venture capital. This option is only applicable if you have a deal that fits the VC funding model, which looks for a 10X return, scalable business model, healthy growth, and an experienced team. It’s best to start with those you know and use their funding to show support and momentum to those further out in your network. There are tens of thousands of investors in the startup world today. The key is to gain an introduction, make a pitch, and then follow up to close. How Long Will It Take to Raise Funding? I’m often asked how long it will take to raise a round of funding. It will generally take you one calendar year for every million dollars you are raising if you are working on it full-time. If you are only working towards your fundraising goals part-time, then it will take you longer. You’ll need approximately two months to prepare for the raise. This preparation phase includes preparing the company, the investor documents, and the initial investor list. It takes another 2-3 months to engage investors and bring them up to speed on your deal. They’ll want to monitor the startup for a few months to see the traction in motion. Finally, it takes about a month to close. After you close those investors, you’ll need to find another round of investors and repeat the process. For a million-dollar raise, you’ll need to do repeat this process three times on average. Some companies don’t need all of their funding in one go. Companies based on recurring revenue have the option of growing incrementally and can raise funding incrementally as well. Read more in the TEN Capital eGuide: https://staging.startupfundingespresso.com/running-a-fundraise-campaign/ 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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