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Startups: Do You Need an Advisor?

Startups: Do You Need an Advisor?

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Fundraising

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    How to Keep Your Investors Happy

    2 min read  How do you keep your investors happy? Keep them informed. I remember my first angel investment back in the 1990s. This was before I knew you were supposed to set up an agreement with the entrepreneur on how, how often, and what they would communicate to the investors. After several months of hearing nothing, I finally called the President of the company and asked for a written update, including financials. A week later he sent me a short two-paragraph email along with a spreadsheet attached showing the financials. And so came the red flags. There are several items to point out here: The two paragraphs by no means filled in the details of the business. To this date, there are holes in their explanation of what went on in the business. The financials of any company should not be in an Excel spreadsheet. They should be in Quick Books. Excel has no audit trails, no security or validation. Anyone can change the formulas. In fact, several of the columns of financial data didn’t add up in the bottom row. I only received this after I demanded it and I never received another one. After that experience, the entrepreneur wanted to discuss over the phone and found excuses to not send out the financials again. These are all red flags indicating that things are not going well. Later the company went bust. It is crucial for the entrepreneur should send regular, informational updates to the investors. Be transparent about the results and share both bad news as well as good news. Stick to facts about the current state of the business and not just forecasts and plans. Provide short status updates about major initiatives, milestones missed or hit, and major customers or partnership opportunities. Share the status of product development including test results, beta tests, and setbacks or breakthroughs. Cover the key financial metrics, including actual versus forecasted revenues, cash on hand, current burn rate, and monthly and year-to-date revenues. If additional fundraising rounds are underway, provide the status of fundraising goals. Share details about new employees, finding a great co-founder, or securing an experienced advisor. Detail key customers landed, important opportunities, and major marketing initiatives. Keeping your investors informed also maintains the relationship, leaving the opportunity open to ask for follow-on funding later. Read more: https://staging.startupfundingespresso.com/education/ 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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    Your Fundraising Growth Story Pt. 2

    1 min read  Your Fundraising Growth Story Pt. 2: What’s Your Story? When founding your startup, it is important to have a growth story. While investors may invest in teams and technology, they’ll still need to see your operating cost model, how you are finding customers and how much they pay for your products and services. If you’re bringing in a lot of money, the investor will assume that you do have a story to tell. These investors will look at your business model to see how much you can grow as well as what challenges you’ll face and at what point. If your company is low revenue or pre-revenue, you can show in economic units the proven and repeat business you have. If you haven’t already, take out $5K and prove the unit economic model. Let’s say you can get a lead paying $1 for a social media ad. You then send follow-up emails which give you one lead out of fifty. Your lead then spends an average of two hundred and fifty dollars for your products or services. You can then take these numbers to come up with a basic financial model. It tells how much it costs to get a customer and the value of the loan. Knowing your numbers and being able to tell investors how you’re growing is a key to fundraising. Read more: https://staging.startupfundingespresso.com/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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    Your Fundraising Growth Story Pt. 1

    2 min read  Your Fundraising Growth Story Pt. 1: To raise funding, you must have one. Many entrepreneurs approach me for funding for their startup. The biggest misconception most have is that they must first raise funding, and then they can launch and grow their business. In reality, the ones who raise funding already have a growth story and can communicate it effectively to the investors. Investors funding startups seek market validation and product validation. The product works, and people will pay for it. Some investors fund deals based solely on the team, the space, or the technology, but these are rare examples. Most are seeking what I call the “Growth Story.” They look for an operational revenue model in the business with increasing numbers on sales, team, product, and fundraise. If you have substantial revenues, say $1M, then the investor assumes you have a growth story going at some level and will start looking for the growth story’s limits- how far will it go without funding and how much further it could go with funding. Later stage investors will look at the growth story to see how well you can scale it. If you don’t have substantial revenue, you must validate the business model and use metrics to show how it works on the following levels: Activity: basic activity of the business, which includes leads, downloads, trials, etc. Unit economic metrics: the unit economic model, shows the cost of customer acquisition and revenue. Growth metrics: the user base and usage of the product is growing. Most startups can show activity metrics, but alone it won’t engage the investor. Typically the activity metrics show several users and customer engagement, but since it’s not related to what drives the business, it doesn’t mean much. But I’m pre-revenue! If your company is pre-revenue, you can show how the business model is “profitable” just on the unit economics level.  At the core, you can generate leads, qualify, and close them for revenue that exceeds the cost of acquiring the customer. Over time, you can improve these numbers. In the early days of a business, the revenue is not large. Most investors know that and don’t expect large revenue. What they look for is repeatable and predictable revenue. Showing unit economics at the core of what you are doing will generate interest. The growth metrics show the number of users increasing and the use of the product increasing over time. Daily active or monthly active users should be going up and to the right. If the business has seasons or cycles, one can use six-month moving averages to show the growth rate’s slope. Scott Adams once wrote, “Losers have goals. Winners have systems.” A startup pitch deck filled with forecasts alone is just a set of goals. A startup pitch deck showing how the business model is currently working is a system. It’s best to show up with a pitch deck showing how your system is working today. Read more: https://staging.startupfundingespresso.com/education/ 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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    Fundraising Metrics That Matter

    2 min read  Investors look for the specific metrics in your business, so it’s important to know the fundraising metrics that matter. There are three areas that you should focus on: Activity Metrics show the basic activity of the business Unit Economic Metrics show the unit economic model, including the cost of customer acquisition and revenue. Growth Metrics show the growth in the user base and usage of the product. So what to include? Activity metrics can include things like the number of users, downloads, or subscribers. While they fall short of business results such as closed sales, activity metrics can show your customer engagement level. If your company is pre-revenue, you can show your business model’s potential profitability using unit economic metrics. Ultimately, you want to show the cost and process to generate leads, qualify them, and close them for revenue. In the early days of a business, the revenue is small. Luckily, most investors know that and don’t expect large revenue. Instead, they want to see an accurate forecast of repeatable and predictable revenue. Showing unit economics demonstrates that you have a core business model working, and with time and funding, can improve. Growth metrics can demonstrate several things, such as an increase in the number of users, or an increase in the frequency in which customers are using the product. Active users should be going up and to the right. If your business has seasons or cycles, you can use a six-month moving average to show your growth rate. Knowing your metrics is vital when looking for funding, so be prepared, and potential investors will take note. If you can only show activity metrics, then do so. Better yet, validate your business model with unit economic metrics. Ultimately, the fundraising metrics that matter show growth in users and usage. Whatever you do, don’t show up empty-handed. Read more: https://staging.startupfundingespresso.com/education/ 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 Tell A Story

    2 min read How to tell a story. What makes a story? At its core, a story consists of a beginning, middle, and end. If it’s a good story, that beginning, middle, and end will take you on a journey. If it’s a great story, it’s likely one you will never forget. So, what does the art of storytelling have to do with your startup? The ability to tell a story gives you the means to make your company memorable. When pitching your business plan, use the story format for a more significant impact and as a way to connect with investors. Start with the problem you faced in the industry (the beginning). Show how you couldn’t find a solution (the middle). Show how you created your solution (the middle). Highlight the challenges you overcame (the end). Show the current business status and your upcoming plans (the end). After you address the issue of not finding a solution, be sure to show how others are now coming to you for that solution. Along the way, you can talk about how you built the team and chose a go-to-market strategy. Remember, it’s about taking the investor on a journey, so make it as memorable as possible. Each element of the story should highlight one aspect of the business plan. When contemplating how to tell a story to your investors, remember to keep your audience engaged throughout the pitch. Make sure your presentation has direction and that there’s a beginning and an ending. This makes the journey worth it. Read more: https://staging.startupfundingespresso.com/education/ 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

    2 min read 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 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. Sign up today to speak to a TEN team member and see if TEN Capital’s Funding as a Service program is right for your fundraise: https://staging.startupfundingespresso.com/company-signup-form/ 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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    COVID-Resistant Businesses

    1 min read What are the COVID-resistant businesses? As businesses continue to close and others face uncertainty many startups find themselves wondering how they will stay afloat. One of the biggest steps a company can take to ensure they are among the COVID-resistant businesses is to reassess their financial projections. For many startups, this should be the first step in ensuring the company stays alive. It’s essential to look at expenses from the bottom up to see what waste you can get rid of and how you can do things more efficiently. While many startups are already running lean, it is important to look at ways to run even leaner. Startups also need tight control on their timelines and roadmaps during these times. When people are remote, it’s a less transparent work environment. Less transparency means that companies need to make people accountable. Employees need to have a clear understanding of the company’s goals to be responsible. It is now more important than ever to keep the lines of communication open. We no longer have the luxury of seeing someone in an office setting where it is easier to measure how employees are doing personally and professionally. It’s essential to be as transparent and open as possible to make it through these uncertain times. Read more: https://staging.startupfundingespresso.com/education/ 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 Importance of Non-Financial Factors in Setting Valuation

    1 min read There are financial factors in setting valuation for a startup, and then there are non-financial factors. Often, startups prefer to focus more of their attention on the financial side of things, and that’s okay. However, it’s just as essential to understand that other areas deserve attention. The non-financial factors can be just as important as the financial factors. Some non-financial factors include: Current market conditions As the market heats up, specific sectors turn hot. If a market turns hot, then it will command a higher valuation than the numbers indicate. Pay attention to the needs because they can determine your valuation. Predictability Companies with recurring revenue streams and long term contracts command a higher valuation because their revenue is much more predictable. If possible, try to aim for predictability to receive a higher valuation. Customer concentration Startups with a broader list of customers will survive longer. If a customer accounts for over half of the business, you should reflect that in the valuation. Take a look at your business and figure out how you can appeal to the broadest base. Pre-profitability For early-stage companies, those with profitability should command a higher valuation. If at all possible, aim for profitability. Pre-revenue For early-stage businesses without revenue, intellectual property and customer forecasts are essential. If you are in a pre-revenue stage, try to focus heavily on IP and customer forecasts for the best valuation. Read more: https://staging.startupfundingespresso.com/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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    A Note on Convertible Notes

    1 min read When launching a raise, you should always be in a position to take funding, and you are likely to meet investors who want to join the deal. However, many investors will not be interested in taking on a lead investor role because of the work and time involved in doing so. Many investors want to take on a more passive position in the deal. For this reason, a convertible note works well during this stage of the raise because it is a debt instrument that converts to equity later, so there is no valuation to negotiate. Here are a few useful things to know about Convertible Notes: Startups can accept investors into the deal with relative ease, given most notes have simple terms, rights, and conditions. You can use the note over several smaller fundraises to gather investor funds. When setting up a convertible note, consider what will happen upon conversion to the cap table. Startups use convertible notes primarily for seed rounds and bridge rounds. They are lower in cost because the documents are simpler than equity terms sheets. Convertible notes avoid setting a price, so they are easier to negotiate. A convertible note keeps the cap table simple as they start in debt form and convert to equity later. The downside to convertible notes is that they have few protective provisions found in equity terms sheets, such as board seats. Valuation is not fixed, which means a later priced round will set it, and there’s little control the investor has over it. Read more: https://staging.startupfundingespresso.com/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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