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Investing in Sectors

Investing /

Many startup investors begin with a portfolio theory approach in which one makes a few investments across a broad range of sectors. I often hear, “My strategy is to invest in good deals.” This is easier said than done. A broad-based investing approach requires the investor to come up to speed in every sector. That’s a lot of homework for an investment in one or two deals. Some investors focus on a few key domains and become experts in those areas. By diving deep, one can understand the trends, challenges, and factors that drive company success. There’s a risk that if you have too many companies in a sector, you are at risk for major disruptions. If the sector is broad enough, you can move to new areas within the space as it matures. How to find deals in a Sector You can search Crunchbase for sector-specific reports to find deals in a sector. Pitchbook produces funded reports by sector by subscribing to their daily newsletter. To meet with startups, conferences are a great place to find personal introductions. Also, venture capital is now evolving into service models in which they fund the companies and help with operations such as sales, CFO, etc.  It’s not hard to find a list of VC firms focused on a sector. Understanding the Challenges in the Sector By focusing on a sector, one can learn the challenges in that sector and look for companies that are solving those challenges in new and unique ways. By talking with startups about how their product/service works, the investor learns the key issues in that industry sector. Identifying the Risks to Overcome Every sector comes with its risks, such as regulations.  Also, disruption from new technologies is an ever-present risk in the industry. Spending time with startups and investors in the space makes it clear where the risks come from and what one can do to mitigate them. Tracking the Trends in a Sector With the increase in newsletters, podcasts, meetups, and more, one can track the trends in a sector. Some aggregator tools, such as Feedly, let you build lists of sites and find updates as new information arises. By reviewing conference agendas for sector-specific shows, one can learn the topics that are top of mind for those in the sector. Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies

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How to Invest in Startups- Learn From Other Investors

Investing /

As an investor, I helped launch three angel networks in Texas. In the process, I setup training programs, attended conferences, and talked with many other investors. Hearing and speaking to other investors was a wonderful learning tool. One of the best resources I found was a podcast by Frank Peters. Frank was an angel investor out of the Tech Coast angels in southern California. The Frank Peters Show Frank interviewed every angel, VC, and startup in the southern California community. He later ran interviews across the US and all over the world. He ultimately recorded over 450 episodes which he posted on the web. As I drove my car I listened to many of the podcasts and heard from angel investors on how they invested, their investment thesis, and lessons they learned from the process. I recommend listening to podcasts that focus on startup funding. Podcasts are an excellent tool to learn from experts in the field. Some of my favorites are: Jason Calacanis: Angel Podcast, Patrick O’Shaughnessy: Invest like the Best and there is also my own personal podcast, Investor Connect.   Read More: How to Invest in Startups: ​Invest at an Available or Opportune Time Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies

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How to Invest at an Opportune Time

Investing /

1 min read How does one know How to Invest at an Opportune Time? As an investor, you want to monitor the progress of the business. We’re looking for how fast they are iterating on the business and how well they do with customers. After you are convinced this is a business you want to invest in, you look for an opportune time to invest. Some companies are moving from one-time raises to ongoing raises in which the company takes the funding at any time, while others run discrete fundraise campaigns, and when the goal is met, the fundraise is closed. For recurring revenue businesses, you have the choice of raising a little at a time ongoing, and you don’t necessarily need a large cash infusion to keep the lights on in the office. As an investor, you can approach the company and make your interest clear. It’s often the case that the company can accept you at the last round of terms because the note is still open. The message here is “just ask.” Read more on the TEN Capital eGuide: How to Invest in a Startup Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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How to Monitor a Startup for Progress Before Investing

Investing /

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

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How to use Analytical Tools for Startup Investing

Investing /

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

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8 Takeaways from the Emerge ICO Summit

Fundraising, Investing, Other /

TEN Capital recently held its annual tech event in Austin called the Emerge ICO Summit. This year the theme of the conference focused on blockchain applications and how to raise funding for your blockchain startup. To view the agenda, speakers and topics, you can visit the Emerge ICO Summit page. This was a wonderful event and here are our eight takeaways. #1- Blockchain is the next big thing– the move to Blockchain applications is inevitable but the timing is unpredictable. A decentralized internet is a foundational solution to many problems with the current network. A year ago blockchain was the domain of lead users, early adopters, and technologists. While the technology is still nascent, today the interest and participants have broadened greatly with new entrants from established companies, institutions and governments.  The interest is broad-based covering all major industries including supply chain, fin-tech, real estate, and healthcare and others. Since blockchain is coming, the only question is the rate of adoption. Infrastructure continues to build out but it takes time to develop. The first blockchain solutions are coming onto the market and are now on-boarding users. Very few blockchain applications have paying users. The Dot com era spent five or more years building out the basic platforms before any real productivity value could be seen. Blockchain appears to be following a similar time timeline. #2-  It’s STILL early days for Blockchain Applications Most of the applications of blockchain are still at the infrastructure layer and will take years to build out. There are many independent cryptocurrencies, technology solutions, and platforms. Digital assets are hard to evaluate and can be easily manipulated by the market. There’s a disconnect between the fundamental regulatory requirements between the cryptocurrency world and the bigger financial ecosystems. There’s no common model to value digital assets. There are no 3rd parties to analyze, rate and value assets. Jouko Ahvenainen of Grow VC highlighted the challenge of the early days for blockchain companies in his talk- The Status and Future of Tokenization, Blockchain and Finance Disruption. Jouko also gives further details in an Investor Connect podcast interview.  #3- Blockchain systems are expensive to build so they should be applied to projects that are trust expensive. Blockchain is a highly inefficient database and expensive to build. It must be applied to applications that require high trust value. Supply chain, financial and government applications are three key areas for early adoption. Centralized functions such as domain registry and governmental services will be disrupted first. See more from the conference at 21:00 in this video: Defining Properties of The Consensus based Business Environment Other areas of early focus include Identity and Privacy. Identity is a key enabler of many applications such as fin-tech, travel, and security applications. You can hear more about the travel industry by Pedro Anderson at 15:00 minutes into the Blockchain applications panel. Privacy continues to grow as a concern for users and is moving to the top of the list of benefits of blockchain. Anupam Govil describes this at 18:00 in the Blockchain applications panel video. #4- Blockchain is a business model change as well as a technological change. Blockchain is not only a technology change but also a new business model. The use of tokens and decentralized computing will open up new methods of business. Tokens enable many new forms of ownership and incentive that goes beyond what fiat currency can accomplish. One example is the BMX token from BitMED which lets users transact using their own healthcare data. Rishi Madhok, CEO of BitMED describes the use case in this video. #5- Everything that can be digitized will be digitized. Blockchain is the next logical step in the evolution of the internet. Everything that can be digitized will be digitized as to monitor, maintain, and own an asset will require that it be represented in digital form. This means all real estate, property, financial assets, and more will need to be digitized so it can be tracked by digital systems. #6- A minimal viable product is replaced by a minimum viable network. The concept of an MVP (Minimum Viable Product) is being replaced with the concept of a MVN (Minimum Viable Network).  Blockchain applications require digital eco-systems to be effective. To launch a blockchain system requires wallets, exchanges, payment tools in addition to the core functionality of the system. To make it useful for the user there must be a minimum set of tools. Justin Newton of Netki talked about this at 41:58 in the Blockchain applications panel video. #7- Some application areas attributed to disruption by blockchain are simply digitizing their systems. Not every technical solution will be implemented with blockchain technology. Some application areas draw value from technology by simply moving their system into a digital format.  Supply chain is one example. It’s more about digitizing the system rather than applying pure blockchain technology. In the travel industry, the benefit of technology is in having a common platform that the industry can share information about flights, hotel, and transportation. There are some specific applications in these areas in which blockchain provides additional value but for the value add comes primarily from having everything online in one digital network. #8- Regulatory financial institutions need more compliance installed in the Blockchain space before they can engage the technology fully. The SEC deems tokens to be securities since they are speculative in nature. Blockchain users want to mint and use tokens for their utility without the regulatory restrictions that come with securities. The solution to solving the utility token/security dilemma is to regulate the exchanges on which they are traded. None of the crypto exchanges are regulated yet. They show the window dressing of a regulated exchange with bid/ask spreads and limit offers but they are not truly regulated the same way that NASDAQ or other traditional exchanges are. Once the exchanges come under regulatory purview, the space will take off. Robert Crea talks about this at 20:37 in his Regulatory Environment for ICOs and Cryptocurrencies session. Regulated financial institutions cannot adopt blockchain technology for custody, securities

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How to Raise Funding

Fundraising /

1 min read How to raise funding: a little at a time. Traditionally fundraising takes a tremendous amount of time on the part of the startup CEO. Some CEOs drop everything to run the fundraise. I advise against spending too much time fundraising but rather set up a system to help with the fundraise. With the right use of online tools (analytics, CRM, Drip campaigns, etc.), the CEO doesn’t have to let fundraising become a huge distraction. Building a list of investor prospects and keeping them informed of your progress, the CEO can reach out to ask for an investment at the right time. Instead of raising two year’s worth of funding, the CEO can raise a few months, which is a great deal easier. This type of funding works best for early-stage and those with recurring revenue business models. TEN Capital helps startups raise funding through online tools. TEN Capital helps startups raise funding through online tools (sourcing investors, prepping documents, and running campaigns). These techniques were popularized by crowdfunding but can be applied to accredited investor raises as well. As investors see more and more deal flow, they need help finding, qualifying, and following up the deals. At TEN Capital, we let the investor select the deals they want to see and then send updates only on those deals. We work with the startups to build updates to share with interested investors. All of this happens online. At some point, interested investors set up a call to talk with the CEO, and later they decide to invest or pass. Most of this process, if not all, takes place online. Read more about the TEN Capital Fundraise as a Service Program: https://staging.startupfundingespresso.com/company-landing/ 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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A New Model for Startup Funding- Recurring Funding for Recurring Revenue Businesses

Fundraising /

The rise of the recurring revenue business as a standard business model has implications for financiers. Just as it changed how customers made payment so it changes the way funding providers are changing the way they fund startups. Recurring revenue businesses don’t necessarily need large discrete funding rounds. Today we see funding ongoing throughout the life of the business. As specific business growth needs arise funding steps in to provide the resources. The funding comes in small amounts and when needed.  In this model the fundraise round is never closed – it’s always open. Investors should always be monitoring businesses to see who is reaching an inflection point and for opportune moments to invest in the businesses. I started my company under the name Texas Entrepreneur Networks about ten years ago after launching three angel networks in Austin. I built a network of entrepreneurs and investors now throughout the country using a recurring revenue model instead of a broker model. Building out the business doesn’t require large fund raise all at one time.  It takes some funding to bring on new developers here and provide for a marketing push there. I see a new method of funding for recurring revenue companies in which the companies continually raise small amounts of funding from investors rather than large rounds periodically. This new model works for our entrepreneurs who find it a great way to raise funding. Rather than spend a tremendous amount of time raising funding for six to twelve months, we’ve turned it into an ongoing program in which the raise is always open but doesn’t take too much of the CEO’s time. There are some key things you need to do to enable this model: At heart, it’s an investor relations program. We use email, website, and social media to introduce the deal to the investor and then keep the investor informed of the progress. A campaign is how you tell your story and convince investors you are worthy of investment. Investors are looking for a strong team and consistent traction. Your campaign should demonstrate both. You need to be consistent and persistent about it. The motto is the “Fundraise is always open.” Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies.

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Closing the Investment

Fundraising /

2 min read How to Raise Funding Step 7: Closing the Investment After initial interest, the investor often proceeds through due diligence and will ask for documents on your business, including legal entity filings, articles of incorporation, patent filings, tax returns, before closing the investment. In any due diligence exercise, ninety-five percent of the documents will come from the startup any way therefore, it makes sense to start building what is called a due diligence box or data room, from the very start. There are many checklists on the web that you can download and use as a guide to building out your list. For early-stage startups, there will be a number of documents that simply don’t exist. For example, if you don’t have a formal board of directors, there are no board of director reports to include in the data room. One final word about due diligence: it’s for serious investors only. A serious investor has had several discussions with you before asking for the due diligence, and there’s at least a soft-circled investment figure on the table. If the investor is not that far along, then it’s premature to hand over data room access. Continue discussing their interests and concerns before proceeding. Read more on the TEN Capital eGuide: https://staging.startupfundingespresso.com/how-to-raise-funding-eguide/ 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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