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The Importance of Diversity in Your Portfolio

Investing /

1 min read The Importance of Diversity in Your Portfolio According to a Harvard Business Review study on increasing diversity in venture capital partnerships, the more similar the backgrounds shared by the investment partners, the lower the investment performance. Diversity, put, leads to better-performing teams. Diversity of perspective breeds a startup that has a better understanding of the pain points that they’re trying to solve. The more a startup ensures that its team includes both women and minorities, the more likely it is to uncover the solution to the problem it set out to solve, and the more likely it is to yield a high performance. However, the fact remains that minority and women-owned businesses still struggle with funding when compared to their white, male, counterparts. While the investment space is working to shift this imbalance, the work is far from over and many still face an uphill battle toward equality. Minorities and women continue to face both structural barriers and biases when it comes to career paths. These individuals are expected to fit within a specific mold and stay within that mold. For example, less than 30% of the CEOs in the US are women. Statistically, however, there are more women in the US than men at roughly 97 men to 100 women. As Ola Gambari, COO of Hungry Fan explains: “It’s the idea of this preconceived notion that we have a lane, and we’re supposed to stay in it and, as a minority, if I’m not running a business focused on minority problems, I shouldn’t be running that business, neglecting the fact that I share all of the other pain points of other human beings in this society.” Instead, investors should be evaluating the business on its merits, not just the fact that it has minority founders. Again, it breaks down to recognizing that different perspectives matter and yield better results. As more investors embrace this knowledge, the more equality we’ll begin to see. 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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What is Your Competitive Advantage

Fundraising /

2 min read What is Your Competitive Advantage Many entrepreneurs are unaware of what gives their product a competitive advantage, confusing anecdotal stories for concrete evidence. Recurring Revenue Competitive advantage increases revenue by 30% over the competition. This creates a loop where the extra money coming in becomes a competitive advantage to improve the startup’s product or offered services. In today’s world, you would think every business has recurring revenue. Yet, most companies that are raising funding did not structure their business for recurring revenue. Recurring revenue helps your business in several ways: Opens up your business to new customers who could not afford your product previously because the one-time payment was too high; breaking the payment into smaller steps means that more customers will be able to afford it. Provides an ongoing revenue stream to plan your business better as you know how much you will have coming in. Helps you maintain engagement with the customer and gives you the chance to find new opportunities to serve the customer. Platform-Based Solution Consider adopting a platform-based approach to your business. A platform-based solution is a competitive advantage over a single product company as platforms reuse the research, design, architecture, and product packaging. Customer support is also turned into a recurring factor. Network Effects Most businesses increase in value as the customer base grows and validates the product/service. When users encourage others to join the platform, it is called Network Effects. As the number of users increases, so does the value of the platform. If a business can harness that customer base and turn it into a community that more aggressively attracts other users, this will become a competitive advantage. Virality Virality is a key competitive advantage in which users invite other users to join your platform. This approach, in turn, reduces your cost of customer acquisition. Though this is similar to Network Effects, Virality is different. Network Effects shows the platform increasing in value based on users interacting directly, while Virality seeks to engage via social platforms online. If you build virality into your product, you will have a trackable pool of prospects to monetize and a lower cost of customer acquisition. 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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What is Your Competitive Advantage

Fundraising /

2 min read What is Your Competitive Advantage Many entrepreneurs are unaware of what gives their product a competitive advantage, confusing anecdotal stories for concrete evidence. Recurring Revenue Competitive advantage increases revenue by 30% over the competition. This creates a loop where the extra money coming in becomes a competitive advantage to improve the startup’s product or offered services. In today’s world, you would think every business has recurring revenue. Yet, most companies that are raising funding did not structure their business for recurring revenue. Recurring revenue helps your business in several ways: Opens up your business to new customers who could not afford your product previously because the one-time payment was too high; breaking the payment into smaller steps means that more customers will be able to afford it. Provides an ongoing revenue stream to plan your business better as you know how much you will have coming in. Helps you maintain engagement with the customer and gives you the chance to find new opportunities to serve the customer. Platform-Based Solution Consider adopting a platform-based approach to your business. A platform-based solution is a competitive advantage over a single product company as platforms reuse the research, design, architecture, and product packaging. Customer support is also turned into a recurring factor. Network Effects Most businesses increase in value as the customer base grows and validates the product/service. When users encourage others to join the platform, it is called Network Effects. As the number of users increases, so does the value of the platform. If a business can harness that customer base and turn it into a community that more aggressively attracts other users, this will become a competitive advantage. Virality Virality is a key competitive advantage in which users invite other users to join your platform. This approach, in turn, reduces your cost of customer acquisition. Though this is similar to Network Effects, Virality is different. Network Effects shows the platform increasing in value based on users interacting directly, while Virality seeks to engage via social platforms online. If you build virality into your product, you will have a trackable pool of prospects to monetize and a lower cost of customer acquisition. 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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To Invest or Not to Invest

Investing /

2 min read To Invest or Not to Invest In the startup world, everyone has a grand idea, but how do you know when to invest? The startup needs more than just goals in the slide deck; they need systems in place to accomplish the goal and show the growth story in progress. As an investor, how do you know which startups can talk the talk and walk the walk? There are characteristics to look out for in a startup that raise either green or red flags. When to Invest After you have applied the traditional investment thesis to the startup’s plans, check for the following positive traits: There should be a strong team with integrity, industry knowledge, and business experience. They should have product validation and market validation, meaning that the product works and people will pay for it. The startup should already have the prospects for high growth and be demonstrating this at some level now. The business needs to be scalable and something that other companies will want to buy into eventually. The potential return needs to be significant to allow you as the investor to reach a 44% IRR or better. Finally, you need to help the startup in some way, such as finding other investors, providing domain knowledge, or making other meaningful connections for the startup. When Not to Invest There are traits you can look for that will tell you not to invest in the startup. Here is a checklist of showstoppers: There’s no business plan, as well as no plan for an exit. There’s no vision for the company. There’s no growth in the target market. The business doesn’t provide enough of a return on investment. The team has too many holes to stand up. The projected growth rate is too high and is unrealistic. There’s no differentiation over the competition. You should also beware of the “Pretend-preneur,” the entrepreneur who likes the idea of running a startup but is not committed to the work required to make it a success. Here are some tell-tale signs to watch out for: They are overly worried about job titles and credit for the work. They don’t seem too focused on the customer and what it will take to make them happy with the product. They view this as a “detail to figure out later.” They focus on the superficialities of the business and not the core functions of building the product and selling it. They look for ways around the hard work rather than working their way through it. Problems are the fault of everyone else, and there’s nothing that they can do about it. They don’t know who their customers are, and this doesn’t bother them. They think funding will solve all problems and life will be easier after the raise. They don’t know their numbers, but someone else in their organization does, and that’s good enough. Making The Final Decision The decision to invest or pass is entirely up to you. No one knows what the future may hold. But we can make the most informed, rational, and logical choice possible in this scenario. Taking the positive and negative characteristics lists above into consideration, you can use the process of elimination to remove deals from your potential investment list, allowing you to focus on the ones that can bring success to you and your team. Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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What Investors Look For

Fundraising /

2 min read What Investors Look For So you’re about to raise funding for your startup and wonder what investors look for. Startups can be pretty shy about discussing their current revenue in the business’s early stages. Being pre-revenue or just beginning to show traction is typical in the beginning, and investors know this. Even if you are pre-revenue, you can show traction with your startup. You define your traction as customer activity, and you don’t need to have revenue to show there’s traction with customers. To exhibit that you have traction while pre-revenue, focus on customer engagement at all phases, even before you have a product. One of the most important things to understand as an early-stage startup is this: The investor doesn’t care about the size of the revenue. What investors look for is the predictability of that revenue. If you do have a sales funnel, it’s helpful to share that with the investors. Having visibility on that progress is vital because the investor can then see the traction you have in your sales prospecting process. Use the funnel in multiple investor updates to show how prospects are moving through it. When speaking with investors, mention your process with phrases such as: “For every ten leads, we generate one customer worth $5000 in revenue.” Showing leads is precisely what investors are looking for. It shows that you have a system with repeatable and predictable outcomes. Additionally, when communicating with investors, always include the customers in your discussions. Never engage in an investor meeting without new information about your customers and always mention any updates you have on revenue. TEN Capital helps startups, growth companies, and investors, raise funding through its extensive network of accredited investors. Our Funding as a Service program includes investor introductions, an email campaign with updates, pitch events, webinars, podcast interviews, and assistance with investment closing documents including pitch decks and data rooms. In short: we provide the leg-work, saving you time and money. 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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Startup Investing: What You Need to Know

Investing /

2 min read Startup Investing: What You Need to Know Startup investing is an attractive venture for many in the world of investing. Before investing in a startup company, it is important to have a well-thought-out plan. In this article, we discuss what percentage of discretionary funds investors typically allocate for startup investing, the difference between early- and late-stage investing, and how to apply your investment thesis to a startup. Allocate Funds The first thing you need to do when preparing to begin investing in startups is to set aside funds for this purpose. In most cases, investors dedicate 5% to 15% of their discretionary funds to angel investing. There are several issues with asset allocation for angel investing compared to publicly traded stocks, bonds, and mutual funds. Startup investments are illiquid as there’s no market for reselling. Transferring stock is greatly limited due to SEC rules. To achieve this again, you must hold the stock for up to 7 to 10 years in most cases. Many startups fail completely and are tax write-offs. Determine upfront how much you want to invest based on 5% to 15% of your portfolio. Divide by ten to get the total number of startups you can invest in. Divide the investment amount by 2 to get the initial investment per startup leaving the second half for a follow-up round.  For example, let’s say I have a portfolio of $3.5M. 15% of $3.5M yields $525K to invest in startups. Dividing $525K by 10 gives me $52K per startup that I can invest. Dividing the $52,500 by 2 means I can invest $26K for each startup leaving another $26K for each follow-on investment. It’s important to be selective in the beginning. You should start with only 3 investments per year. After a few years and some gains, you can re-invest some of the profits into more startups. There are tax laws that make it attractive to roll your gains from one startup investment into another.  Choose Your Niche Venture capitalists have two choices in funding startups- they can invest in early-stage or late-stage companies. Each option has its own pros and cons Early-stage companies come with a high risk for startup failure, but an easier time to reach a successful investment exit. Late-stage startups have a lower risk of startup failure but a more challenging time to reach a successful investment exit. As the rule of 5 tells us, a good investment requires an exit of 5 times the post-money valuation.  Later-stage companies often come with $20M to $30M post-money valuations which means they would need to exit at $100M to $150M to be a successful investment. Early-stage startups simply need to launch and grow reasonably well. Later-stage startups need to become the leader in their category as acquisitions usually focus on the leader and not the various followers. Apply Your Investment Thesis Before investing in a startup apply your investment thesis to it to see if it makes sense. Write out the company’s strategy and how it fits into the overall market. Review their position relative to the competition. For the target company, look for a material event that recently occurred such as a jump in sales or hiring of a new CEO. Write out what is significant about the change and why. Include any challenges the company may face. Consider what factors may impact their performance such as the economy, a new competitor, etc. Writing it out helps you think through the investment thesis and gives you a document to reference later to check your thinking. Reviewing your write-up in light of the outcome may update your investment thesis. 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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Bootstrapping Your Business

Fundraising /

1 min read Bootstrapping Your Business At its core, bootstrapping is about starting your business from the ground up without the help of outside sources. This process works by using personal funding in addition to the revenue of your initial customers to launch your business. There’s no doubt about it: bootstrapping can be tough. Limited income can sometimes inhibit growth. It also places all of the possible financial risks on the founder, which can be stressful. On the plus side, bootstrapping a business allows the entrepreneur to maintain total control over the company during its beginning phases. Perhaps the most significant benefit to bootstrapping a business is its appeal to investors. One of the most attractive elements of bootstrapping is that it is an excellent way for investors to see how serious you are about your business. It shows them just how much work you are willing to put in and your level of commitment. Additionally, bootstrapping your startup is a great way to stay disciplined with your cash flow. When you spend your own money, you’ll find that you spend much less of it. If you have the means to do so, think about bootstrapping your startup. It can lead to many more investment opportunities later on. 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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The Many Startup Investor Types and Who is Right for Your Deal?

Investing /

2 min read The Many Startup Investor Types and Who is Right for Your Deal? There are many kinds of startup investors today. Venture Capital, MicroVC Funds, Corporate Venture funds, Family Offices,  Angels, High Net Worth Individuals (HNI), and crowdfunders to name some of the current types of investors. Venture Capital- Most startups think of venture capital when they start their fundraise. The reality is that venture capital is only for a small number of startups. VCs draw their funds from outside sources called LPs or Limited Partners. The VC charges a management fee and a carry (share of the profits) from the funds raised. There are VCs who still raise the funds in what is called committed capital- the funds are committed by the LPs. Newer VC funds are often called “Pledge funds” in which the LPs pay the management fee for access to the deal flow but they review each deal before funding and have a say in the funding process. For some VCs you may notice the turnaround time on questions and deal flow takes longer. For pledge funds, the VCs must gain the approval of the LPs to move forward- hence the turnaround time is longer. VCs fund only the top 10% of all qualified startups. They look for high-growth, large target markets with scalable business models. MicroVCs are venture capital funds with less than $100M in funding. Typically, MicroVCs start with $25M to $50M funds and then deploy the funds to 10-12 companies. They often have very specific investment criteria since the management fee on the fund doesn’t add up to much and one needs to keep the costs low on such a fund. Corporate VCs are often called strategic investors in that they invest for strategic reasons rather than financial ones. They seek new technologies, talent, and other tools to help grow their business. They often invest as follow-on investors and typically do not lead the fundraise for startups. Some firms had a strategic fund in the past, but today just about every company has a fund for startup investment. Family offices are investors based around a family partnership that allocates some of their funds to startup investing. Some family offices go it alone and are called single-family offices while others band together into groups and are called multi-family offices that share the deal flow and due diligence. For every venture capital fund in the US, there are five family offices. They are less prominent since they invest privately and provide very little publicity around their work. Angels are individuals that meet the SEC-accredited investor requirement. That means they have $1M in net worth not counting the house they live in. Angels invest their own money. Some band together into groups to share the deal flow and the due diligence. Sometimes the group is formed around the “dinner club” model and a formal application process is used to recruit the deals. Others form syndicates in which a deal that is led is shopped to others in the group. The dinner club model can be a heavy time sync since most of the meetings are in person and only occur at specific times of the year. The Syndicate model is lighter and focuses on deals that have a lead. Angels look for the same thing as VCs but often invest outside those parameters since it’s their own funds.  They often invest in something that matters to them personally such as impact funds. High Net Worth Individuals are similar to angels but typically have more investing experience. They most often invest their own funds in areas they understand well. Some HNIs band together in informal syndicates to share the deal flow and due diligence. Crowdfunders are either accredited or unaccredited investors seeking to make a return by investing with many other investors in startup deals. Because their investment size ranges from $100 to $5000 in most cases, the startup needs a large number of them to complete a round. Crowdfunders more than any other investor make their investment decision on factors other than financial return. They often invest to support family and friends, or businesses they care about in some manner.  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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Technical Due Diligence

Fundraising /

2 min read Technical Due Diligence Technical Due Diligence (TDD) is a detailed evaluation of a company’s technical side, including existing software and hardware products and those in development. Potential investors must gather detailed information about a prospective company to highlight any potential risks associated with their investment. While the Technical Due Diligence process may seem intimidating to some small business owners initially, it is, in fact, a routine step. If efficiently planned and executed, a TDD should be able to answer investor questions in easy-to-understand terms. Whether you are a potential investor, or a startup new to the process, the following article provides an insightful take on making the process work. When embarking on the TDD process, investors typically want to know about 4 major areas: Strategy: Do the company and its product(s) fit within the investor’s overall growth objectives? Does the company’s own strategy match up with the investors’ strategy? Quality: Are there quality issues with the company’s product that will require fixing? If product development or fixes are needed, what are the expected costs? Growth:  Is the company or its product poised for growth? What roadblocks would hinder growth in terms of labor, manufacturing, infrastructure, and development? Can the product be scaled? Stability:  Are the company founders and their employees in it for the long haul? Are their processes organized and well-documented? Are there contingency plans and redundancies in case of an unforeseen event? 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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