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Challenges in Angel Investing

Challenges in Angel Investing

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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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    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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    Five Fundraising Myths Facing Entrepreneurs

    2 min read Raising funding is difficult for many entrepreneurs, and there are fundraising myths out there making it even harder. In this article, we plan to bust those myths one by one so that you can start raising funding with confidence. Myth #1: Fundraising is about getting the check Many entrepreneurs believe that fundraising is all about making their startup money. On the contrary, fundraising is about building a relationship with the investor. Investors start as mere contacts in your network. A relationship begins to develop through mailers and updates on your startup’s core results related to the team, sales, product, and fundraise, and your potential investor is promoted from prospective donor to a partner in your journey.  Myth #2: My product will carry the day The reality is that your product is not what carries the day- your business is. No matter how great your product is, it isn’t going to win over any significant share of the market without a strong business structure behind it. Investors will base their decision in part on your past and current financials, how much funding you are seeking out and how you plan to use it, your exit strategy to calculate an expected rate of return, and proof of market validation. Myth #3: It should only take a few weeks to raise $1M In reality, it’ll take you a calendar year for every $1M you want to raise at the seed stage. This accounts for the time it takes to prepare the company, the investor documents, and the pitch as well contacting, pitching, and following up with investors. In addition to this, investors will need to have time to complete their due diligence process. Remember, you are likely not the only entrepreneur your investor is working with, and you will need to be patient and work with their schedule. Myth #4: The investor didn’t follow up after my pitch session, so he must not be interested Don’t expect an immediate decision from your prospective investor. Investors spend the first three to five interactions trying to figure out what you are doing. To help push things to the next level, try prompting your prospective investor with the following questions: Would you invest? What number do you have in mind? Can you commit to that number? If not, what holds you back from committing? What date before the close can you commit to signing the docs and wiring the funds? You can also communicate that the following raise will be at a much higher valuation. If the investor is going to commit, they will do so for a better valuation now. Try tacking on incentives such as redemption rights, warrants, etc. Myth #5: I only need to source five investors to raise $250K You’ll need more than five investors to raise $250k. In fact, you’ll need about fifty. Don’t let this number scare you. There are many sources of capital- loans from family and friends, bank loans, revenue share loans, and equity investments in the form of convertible notes and equity ownership. Search your network for potential investors, including your contacts list and your LinkedIn connections. You can even search the web for local angel networks. 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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    Five Startup Cognitive Effects You Should Be Taking Advantage of

    2 min read Five Startup Cognitive Effects You Should Be Taking Advantage of A stellar product, a capable team, and a solid sales and marketing plan are crucial to winning over investors. However, there are a few things you can do beyond this to help ensure your potential investor sees you in the best light possible. Employ these five cognitive effects to your investor pitch and see the difference. Zeigarnik Effect Zeigarnik effect is defined by Wikipedia as uncompleted or interrupted tasks that are remembered better than completed ones. Investors will remember the pitch that leaves them hanging more quickly than the ones that have closure. The cliffhanger in a serialized show is recognized because the action is left unfinished, and it leaves the viewer with an uncompleted story creating mental tension. To use the Zeigarnik effect, consider the following: In your pitch, close with a cliffhanger ending by discussing an upcoming event such as closing a big sale or hiring a great team member. Use the pending outcome as an excuse to return to the investor later for a follow-up. In general, investors are often curious about startups and how they turn out later. Use this in setting up a follow-up call by offering to give them ‘the rest of the story’. Picture Superiority Effect The picture superiority effect is a phenomenon defined by Wikipedia whereby the notion that concepts learned by viewing pictures are more easily and frequently recalled than concepts learned by viewing their written word form counterparts. Investors identify and remember more from images than words. Startups should use pictures rather than words wherever possible in the pitch presentation. Use graphics that are relevant to the content and clarify the message. When this is not possible, then the startup should use distinctive words. These are words that are descriptive and create an image in the listener’s mind. Startups should capture what they do and how they do it into mantras and taglines.  Mantras and taglines create mental images that help the investor remember what you do. Startups can also use video, animation, charts, and graphs as well. Framing Effect Wikipedia defines the framing effect bias as drawing different conclusions from the same information, depending on how that information is presented. How you frame the startup in a pitch can determine how an investor regards it. One can use framing to position a startup, so it’s more relevant to the investor. The investors are tech investors, then position the startup as a tech deal. If the investors look for recurring revenue, then position the startup based on its revenue model. If the investors are impact investors, then position the startup showing the impact it makes. By positioning the startup for the investor, you can increase your chance of aligning with it. Also, by framing the pitch to show the accomplishments of the startup rather than the work left to be done, one can position the startup as successful and on track rather than falling behind. Use framing to put your startup in the best position to connect with the investor.  Humor Effect Wikipedia defines humor effect as humorous items that are more easily remembered than non-humorous ones, which might be explained by the distinctiveness of humor, the increased cognitive processing time to understand the humor, or the emotional arousal caused by the humor. Startup pitches with humor are more memorable than those without. Founders should include humor into their pitch as investors will more likely remember it. Humor also puts a positive spin on the pitch as it removes negative feelings from the investor. It energizes and increases the interest level of the investor in the subject matter. It improves the investors’ perception of the founder as someone friendly and approachable. Humor increases learning ability by telling the investor what they want to hear and following up with what they need to know. Finally, it’s crucial the humor be positive and appropriate and not come at the expense of anyone. Testing Effect The Testing Effect is defined by Wikipedia as the fact that you more easily remember information you have read by rewriting it instead of rereading it. Investors remember that which they recall from memory better than just hearing the pitch again. This comes from research showing that taking a test that requires writing out a response improves retention better than just rereading the material, which moves the information into long-term memory. Founders can use the testing effect by asking investors questions about the pitch to exercise recall. For example, ask the listener: ‘Remember the problem we are solving?’. Give them time to recall it. If they don’t respond promptly, then answer. This avoids the awkward silence that can arise.  During the Q&A portion, engage the investor in a dialog that recalls vital points such as the problem you solve, the solution you offer, and the traction you have. This will help the investor remember your deal better. 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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    Building Your Business and Finding Funding

    2 min read Building Your Business and Finding Funding. Do you have a brilliant idea and feel as if you’re ready to hit the ground running? Are you ready to build your company, source the necessary funding, and start pulling in revenue? If you’re like the many entrepreneurs I have met, the answer to these questions is an astounding yes! But there is just one problem- you’re not sure where to start. Not to worry. I have laid out the key concepts behind building a successful company and securing an investor below. The first step you need to take is simply to keep reading. Building Your Business The key to building a successful business is to build three businesses, not one. When I was growing up, they had a saying in business.  There’s the product you market, the product you sell, and the product that makes money.  An example was McDonald’s which marketed the Big Mac.  When you bought a meal they would ask- “Want some fries with that?” And yet, they made almost all of their profit off the coke drinks.  At the time it was rumored to be around a 90% profit margin. In today’s business you need three products: The product you market – your brand, your mantra, your flagship product that everyone wants. A product that generates cash—this is basically a service business that pays the bills now. The product you build to sell as a business unit later–is typically a SaaS business model that provides recurring revenue. Why go through all the trouble of building three businesses instead of one? Because it can be hard to build a SaaS business when the only thing you are building/selling is the SaaS product. Consider adding more products around it to make the business easier to grow. Securing An Investor There are several basic rules of fundraising that all startups should keep in mind. Below are the top five in my opinion. Know your investors—it’s important to know what kind of investor you are looking for, and what those investors want to see in your deal.  Many startups fail to understand what the investors are looking for and end up without a follow-up meeting after the pitch.  Educate your investors–after you pitch the investor it’s important to educate the investor through updates about your deal.  It’s often the case the investor is unfamiliar with your application or space.   Build trust—demonstrate that you can be trusted by showing examples of how you’ve performed in the past. Respect your investors—show respect to the investor and don’t take their time and advice for granted.  When investors see their feedback and advice is not followed up, they tend to turn their attention elsewhere. Focus on current supporters—make sure you keep your current investor and investor prospects updated on your startup. If you don’t articulate progress in your deal, the investor will most likely not know. Now you have a starting place to build your business and secure funding. What are you waiting for? It’s time to hit the ground running. 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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