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Data Monetization: A Guide for Startups

Data Monetization: A Guide for Startups

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Fundraising, Investing

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    How to Raise Funding- The New Normal for Fundraising- It’s Now Online

    2min read A New Model for Startup Funding.  Fundraising Fundraising, like everything else, is moving online, almost all of it. Traditionally, those who wanted to raise funding would meet everyone in their local area. You would pitch to the local angel network or investment group, meet with the local venture capitalist, and canvas all your family and friends. The CEO had to do it because investors wanted to meet with the company’s CEO. It was time-consuming. You had to get introductions to investors you didn’t know, and you had to keep the investors up to date with your progress. It was not uncommon to hear about 50+ pitch sessions before receiving the first investment. The investor side was equally difficult. I ran an angel network in the 2000s and had many startups pitch to my investors in a dinner club setting. Ninety percent of the startups would disappear, and we would never hear from them again. We had no idea what happened to them. Only about ten percent would come back, give us updates and reminders, and show some semblance of progress. Those are the startups we funded. Those CEOs built a relationship with the investor and gave enough information to the investor that one could see momentum and traction in play. Today, there is a better way. Different Tools You can use online tools to help raise funding for your business. The key to fundraising is to build an investor prospect list and update them on your progress.  It takes seven touches to close a sale – so it takes seven touches to close an investor. To raise the funding you need to: Access a large number of investors.  You need to think worldwide-not, just citywide. Use analytics to find the right investor. Understand the different investor types – angels, VCs, family offices, etc. Engage and maintain contact with investors.  You have to demonstrate progress, not just state forecasts and make promises. Prepare investor documents—you must come prepared with your pitch deck, due diligence box, and other key documents for investors. Prepare the campaign – know what you will tell the investor about your deal. The rule of pitching is- if you don’t articulate it – it doesn’t exist.  If you have revenue but don’t mention it, you get no credit for it with the investors. This is an investor relations process using online tools.  In this blog series, we’ll outline the steps you need to go through and the process you need to deploy to achieve your fundraise.  Read more on the TEN Capital eGuide: How to Raise Funding 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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    Negotiating the Terms Sheet

    2min read Negotiating the Terms Sheet  During the ACA Summit, Robert Robinson of the Hawaii Angels offered the following advice. There are three elements to understand in any negotiation: Commitment – what have the parties agreed to? Verification – how will we know that everyone fulfills their commitment? Enforcement – what happens if a party does not fulfill its commitment? Areas to negotiate include: –Expectations–Process–Terms Sheet–Communications–Portfolio governance–Follow-on financing–Exit During the presentation, he brought up a key point of negotiation when he stated,“Principles unite, numbers divide.” As soon as someone starts using numbers, conflicts start to arise. At some point in the negotiation, numbers must be used, but building a common base first goes a long way in helping navigate through the possible numbers later. The negotiation process itself is important. In this blog post, a first-time CEO gives his experience in negotiating with a VC and applies it to angels. Knowing the terms and what they mean is critical to the negotiation process. I’ve sat across the negotiation table with entrepreneurs who, from time to time, lean over to their attorney and ask, “What does that term mean?” To that end, we’ve taken steps to provide more training to entrepreneurs in the form of special events like the Central Texas Entrepreneur Funding Symposium and Mock Terms Sheet practices sponsored by Andrews Kurth. For a tutorial review of Terms Sheet terms, check out this site.   Read more on TEN Capital Network 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 Fundraising Basics

    2min read Most startups need additional capital to help launch or grow their business. One way to obtain this additional capital is to raise funds via investors. In this article, we cover the basics of startup fundraising including if you should raise funding, when you should raise funding, how much funding you should raise, and how to milestone your raise.  Should Your Startup Raise Funding? Before raising funding, consider if you should raise funding for your startup. Ask why you need funding and consider if you have a specific need for funding that is tied to growing the business.  If you have a business that is on a high growth trajectory, then consider venture funding. If the business is not high growth or you have no vision of selling it, then consider other forms of funding such as SBA loans or revenue-based funding.  Investors expect a return in the ballpark of five times their investment in five years. Angel and venture capital funding goes to those startups. Other factors to consider for venture funding include the following: You have a large addressable market. You are building a business that is scalable. You are using a recurring revenue monetization model. You are building a platform-based business rather than a single product. You plan to sell the business rather than keep it for a lifestyle business.  Finally, you have built enough of the business to prove product and market validation; the product works and people will pay for it.  When to Raise Funding Most founders go out for a fundraise prematurely because they need money and not because they are ready for fundraising. Consider the following to understand when to raise funding: Have a compelling idea that you can clearly articulate. Have a validated customer, market, and product lined up. Have the investor documents been prepared? While you will always be changing the deck, it needs to show the core product, team, and fundraise. Be able to demonstrate the product even at an early stage. Show customer interest through engagement as well as revenue. Talk to some investors to identify what risks they see in the deal then show how you mitigate those risks. When you have these things done, then consider launching your fundraise. Engage investors with your deal and remember to never show up to an investor meeting empty-handed. Always have some customer engagement to discuss. How Much Funding to Raise When raising funding consider how much you should raise. Start with the overall amount of funding required to take the business to cash flow positive. This is often a fairly large number for platform-based businesses in a high-growth sector. Take the overall amount of funding and break it down into milestone raises. At the early stage of the business, the valuation is low. As you build the team, the product, and the revenue, your valuation will go up. For the first round of funding raised as little as you need to reach the next milestone. If you raise too much funding in the first round you will be giving away too much equity. Save the larger rounds of funding for later when you have a much higher valuation. Pre-seed rounds are often at $250K, Seed rounds at $500K to $750K, and Series A rounds at $1M to $5M. Each round will cost you 20% of the equity. Milestone the Raise Founders often want to compress their fundraise into one round for the sake of efficiency. While this may sound like a good idea, it’s actually an expensive one for the founder. Raising too much money in the early stages will cost the founder equity dilution. The valuation of the startup is low at the beginning and will rise with more products built and revenue generated. Raise a small amount upfront to get the business going such as $250K. If you try to raise less than $250K, most angels and venture capitalists will not consider this enough to build something meaningful. Take your overall fundraise and break it into smaller milestones such as $500K for a seed round. It’s often the case that you will need to raise another $500K a year later which some call a seed plus round.  It’s still seed funding and comes at the same terms as before. But it’s easier to raise because you broke a $1M raise into two milestones. This strategy lets you raise funding and then work on the business. For the next round, you’ll need some time to build the product and close customers. A rule of thumb is it takes one year to raise $1M. A $500K raise will come in closer to half a year. When you raise funding it should be a full-time job. The key here is it doesn’t have to be a full-time job for the entire year.   Read more on the TEN Capital eGuide:  How to Prepare for a Fundraise 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 Optimize Your Startup Ecosystem

    2min read You’ve started your own startup ecosystem. You’ve recruited startups from your area, hosted successful networking events, and overcame several obstacles thrown your way in the process. Congratulations! You may be thinking, what’s next? How do I make this better? In this article, we discuss ways you can ensure you are optimizing the outputs of your startup ecosystem. Getting the Most from Your Startup Ecosystem For those who want to engage with the startup ecosystem, here are some key points to consider: Know why you want to engage with the community and what you want to take away from your experience. The best way to meet people is to join groups and engage with their activities. Many groups have volunteer and other positions available. Reach out to group leaders and offer support. If asked for advice or mentorship, provide it as well. These roles provide opportunities to learn the space and identify resources that can be helpful later. It’s important to stay engaged in order to progress with the community. After you have some experience with the startup ecosystem, you may want to set up your own group. Look at other startup ecosystems for ideas that would apply to your area. Look for gaps to fill rather than copying what others are already doing.  Lastly, before launching your startup ecosystem, check with other groups for feedback. Assessing Your Startup Ecosystem In building your startup ecosystem, take time to assess its effectiveness. Here are some key markers to achieve and how to get there: Do entrepreneurs connect and learn from each other? If not, set up events to increase the interactions and foster interactions. Do the entrepreneur groups share resources? If not, foster collaboration among the groups and help set up resource sharing such as job boards, funding sources, and other tools. Do experienced entrepreneurs provide coaching and mentorship? If not, engage the serial entrepreneurs to capture their experiences and share them with others. Does the community have leaders with entrepreneur experience? If not, help recruit experienced entrepreneurs into the leadership roles. Do the investment groups provide financial support to a range of companies or only a select few? If only a select number receive funding, help set up pitch competitions to bring funding to a broader number of startups. Do the coworking spaces support the startups beyond providing a place to work? If not, then integrate support organizations with the coworking spaces by having their offices at the coworking space to provide more support.  Signs of Strength In building out your startup ecosystem, look for these signs to know if you are on the right track: Does the ecosystem have strong clusters of founders and developers that meet up regularly? Does the local community foster the startup ecosystem? Is failure acceptable or not an option? Local universities providing education and other resources to budding founders? Are there a number of startup programs available in the form of accelerators and incubators? There are events around the startup community including weekly, monthly, and annual events? Are founders and developers moving to the area to participate? Various forms of media coverage of the startup ecosystem are available such as news sites, topical blogs, and listicles? Are there venture capital and angel investors active in the area? Are there service providers available for legal, accounting, and financial services? Look for these signs that you have a growing entrepreneur ecosystem. Read more on the TEN Capital eGuide: Building Your Startup Ecosystem 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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    Beyond Due Diligence

    2min read Completing your due diligence with care before investing in a startup is an indisputable rule in the world of investing. However, to ensure that your deal is going to work out as close to your expectations as possible, you need to go beyond due diligence. In today’s article, we will discuss how to do exactly that using three core strategies: finding the full answer, spotting red flags, and scanning for what isn’t being said in the startup’s pitch. Reaching the Full Answer The first strategy is to find the full answer. In talking with startups, I find the investor must always probe for the final answer. A single question rarely reveals the full answer. I spoke with a startup recently who said, “We’re raising a million dollars and we have raised half of it already.” On the surface, it sounded like they had $500K invested in the business. So, I asked, “You have $500K in the bank already from your raise?” They responded, “Well, not exactly. We have several investors telling us they are interested in investing.” After four more questions, it came out that they had $100K in the bank and around $300K in soft-circled commitments. It’s good progress, but not exactly the half a million we heard at the beginning. Never take the first statement as the final answer. It takes at least 5 questions to get down to the real answer, and as an investor, you want to know the real answer. Spotting Red Flags The second strategy is actively scanning for red flags. These indicate something is wrong. Some red flags to beware of include: The founders are not investing any of their own money into the business.  The cap table is crowded with many small investors, meaning the earlier funding was a challenge. The team is incomplete. Either the solo founder wears too many hats, or everyone is a tech developer, meaning no one is outselling the product. The team lacks awareness of the industry, especially the regulatory side. There are no KPIs or operational metrics to review. Plans are generic and lack specific customer names or revenue amounts. They have loads of debt, and previous investors have no further interest in funding or supporting the business. The business appears to be set up to be the CEO’s lifestyle business. They offer hockey-stick projections with no apparent supporting evidence. There’s no board of advisors or directors. The team you see is what you will get. The financials use year 1, and year-2 naming, rather than actual years. What Isn’t Being Said In due diligence, what isn’t being said or shared is as important as what is. When a startup pitches its idea, you should be skeptical of founders that don’t mention potential risks or discuss their experience in the industry or their traction. Here are other key items the investor should look for in a startup’s pitch: what needs to be done and what risks exist in the deal market size and growth rates reflect the market the team is pursuing financial projections show the startup’s understanding of their business information about the founding team including industry experience, commitment to the startup, and no criminal records If a startup leaves any of this information out, it may be an indicator that something is wrong. Use the five-question rule from above to find the true answer. Read more on the TEN Capital eGuide: Due Diligence and Leading the Deal Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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    Focus Your Startup Ecosystem

    2min read As with any organization, it helps to have a focus area for your startup ecosystem. This gives you a foundation to build from and keeps the direction of your various efforts aligned. Focus on Community In building your startup ecosystem, focus on the strengths of the community. One way to do this is to interview the local economic development group to find out what startups already exist. You can also talk with investors to find out their interest in startups to fund. Lastly, review the local businesses in the community to see what skills their employees have. Based on those interviews, determine the strengths of the community, the current types of businesses, the skill availability, and the past successes. Focus your startup ecosystem on these strengths. Involve Local Personnel Successful serial entrepreneurs should be at the foundation of your activities. Invite those entrepreneurs to share their experiences with others. Interview them to find out what additional opportunities in their industry are open for innovation. Foster that strategy with the investors and other companies for growing the ecosystem. Think Long-Term, Not Current Affairs There are many hot topic areas in the startup world. Many entrepreneurs are apt to jump on these topics as their focus. The problem with this course of action is that those topics change yearly. Don’t chase the latest hot topic, but instead focus on the founders, investors, and successful startups in your area to build your ecosystem. Therefore, this will be more sustainable and therefore fruitful in the long run. Read more on the TEN Capital eGuide: Building Your Startup Ecosystem 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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    Think Like an Investor: An Inside Perspective

    2min read The best way to successfully land an investor for your startup is to begin thinking like one. Knowing what the investor wants and how they make decisions will aid you in preparing your pitch and pleading with your case. In this article, we provide you with just that- an inside perspective into the mind of an investor to learn what they want out of a deal and how they make the final decision. What Do Investors Really Want? Most investors look for startups in which they can find a return on their investment. In the diligence and funding process, what the investor really wants is to not lose all their money. They want to reduce risk to zero.   As a startup raising funding, you can help the investor find confidence by showing the risk mitigation you have put in place. For each concern, show how you’ve mitigated the risk. For example, the investor may ask: “How do we know the team will execute?” Respond with: “We’ve demonstrated execution so far with these results.” “How do we know we can sell the product?” Respond with: “We’ve sold this much so far, and will continue using the same process.” Remember where the investor is coming from and show how the risk has been reduced, even if it’s not reduced to zero. How Do Investors Make Decisions? Entrepreneurs look at the opportunity in the deal. Investors look at the risk. There are two factors that help the investor decide to invest or not. The first is the worst-case scenario approach. They ask: “What is the worst that can happen?” Oftentimes, the answer is: “You’ll lose all your money.” Sometimes the answer is: “You could be in the deal for the next 10 years with very little return.” If the investor can live with the worst-case scenario, then they move forward. The second factor in the decision-making process is the reputation factor.  If the deal turns out to be a dud or even goes sideways, their reputation takes a ding. Investors care about reputation because it impacts how other investors treat them. In presenting your deal to an investor, consider how the investor will view the deal and its impact on them. How Do Venture Capitalists Make Decisions? Venture Capital investors make investment decisions as a group. After the initial pitch to a VC investor, the startup meets the rest of the investment team and pitches the entire group. The team decides together to pursue diligence. With the diligence results, the team again comes together to make a go/no-go decision. The advocate for the startup makes the case for moving forward with the investment.   It’s best to arm your advocate with enough information to make your case.  The startup should also remember that the advocate is taking a reputation risk as well as a financial risk on the startup and that’s never an easy thing to do.  Read more on the TEN Capital eGuide: Closing the Investor 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 Build a Startup Ecosystem

    2min read Considering launching a startup ecosystem? Consider this your crash course. In this article, we share everything you need to know to develop your own startup ecosystem. We cover the basics of getting started, how to achieve growth, and challenges you may face along the way. How to Launch a Startup Ecosystem For those who want to launch a startup ecosystem, follow these steps: Start with a group interested in startups and meet regularly. Encourage startups to share their projects and invite others to support them through coaching and making introductions. Set up a blog and publish a newsletter each week on startup activities in the area. Interview startups and investors. Build a resource list for all startups to use. Recruit lawyers, accountants, and other professionals to join the meetings. This provides support to early-stage companies. Set up events such as pitch sessions and happy hours to expand the network and recruit more people into the community. Put the group on website lists for startup communities to generate awareness. Set up a coworking space to give startups a place to work. Recruit startup programs to your area, such as the 3-Day Startup, to provide additional programming. Start small and grow your startup community through regular meetings and consistent newsletter mailings. Growing Your Startup Ecosystem In building out your startup ecosystem, follow these steps: Choose five successful serial entrepreneurs.  Identify their sector and type of business. Interview them on how to multiply those businesses.  Target their sector for growing new businesses.  Figure out what additional resources are needed. Set up leadership resources to carry the program over a sustained period of time, such as two five-year programs. Recruit other startups to join through meetups, events, and communications. Bring in programs and speakers from outside the area to foster the community. Cater to the non-technical skills as well as the technical ones. Identify sponsorship support from the local service providers and engage them in the programming. Showcase the core serial entrepreneurs throughout the program. Take care of the administrative and tactical support. Grow your startup community on those strengths and resources. Put the entrepreneurs at the foundation of your program. Challenges You’ll Face There are challenges in building a startup community. It doesn’t happen by accident; it takes a focused effort over a period of time. Here are some challenges and potential pitfalls to watch for and overcome: Choosing another community’s strategy instead of your own. It’s common for startup communities to look to Silicon Valley and adapt their strategy. Silicon Valley has a unique set of skills, resources, and conditions. Instead of adopting the Silicon Valley strategy, it’s best to review your community’s unique skills and resources and then choose your own strategy. While your startup ecosystem should be inclusive to all who want to join, startup builders should focus on the ones with the highest potential for scale-up success. Focus on the needs of the high-performing startups with your resources.  Apathy or lack of leadership can slow the formation of a startup ecosystem. Rally the stakeholders around the startup community cause. Identify the limitations and recruit the area leadership to help remove those barriers. Recruit founders who have achieved success to give back and help foster the effort. Reach out to the local university to gain their support as well. Build collaborative relationships among the various parties involved. It takes several years and a great deal of community building to create a startup ecosystem.   Read more on the TEN Capital eGuide: Building Your Startup Ecosystem 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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    Benefits of a Startup Ecosystem

    2min read  Startup ecosystems are growing in popularity and for good reason. If you are in the entrepreneurial space, you have likely heard of this term. You may find yourself wondering what a startup ecosystem is and if you should be involved with one. In this article, we share everything you need to know to make that decision. What Is a Startup Ecosystem? A startup ecosystem is a network of startups, investors, and others who come together to foster startup formation and growth. The network fosters innovation through shared resources such as capital, talent, and mentorship.  At the core of the network are startups led by founders who launch high-growth businesses. Accelerators and incubators provide education around the initial launch of the business. Investors, including angels, venture capitalists, online crowdfunding sites, and grant providers, provide capital. Universities provide the talent for launching and supporting startups. Freelancers provide additional talent in the form of labor. Providers offer support for legal, financial, marketing, and other services. And lastly, mentors provide coaching and guidance on how to grow the business. Events, newsletters, and blogs foster the community through communication. Local corporations may also participate through sponsorship and other support. Look for these elements in building your startup ecosystem. Components of a Startup Ecosystem A startup ecosystem is fueled by talent, funding, and customers. In building your startup community, tap successful serial entrepreneurs to lead. Use their star power to capture attention and draw investors and startups to your area. Focus your efforts on the strengths of the local community and build startups in those domains. Develop clusters of startup activity to create density. It’s the interactions between the startups, investors, and providers that count. Foster collaboration with other startup ecosystems to share resources. Generate publicity for your ecosystem through events and articles. Metric your results by capturing the number of startups formed, funded, and exited. Building a robust startup ecosystem can take up to a decade, but the results will last many more years.  Organizations of a Startup Ecosystem There are several types of organizations that may be involved in a startup ecosystem. These may include: Here’s a list of organizations to look for: universities that provide the founder talent angel groups and other investor networks for funding the startups venture capital funds providing funding incubators and accelerators for coaching the startups service organizations to provide legal, accounting, and financial services coworking spaces to provide spaces for startups government groups providing funding such as grants and loans startup and business plan competitions providing funding for startups event programs that bring the community together news and media companies covering the startup community Startup ecosystems should seek to recruit or build several of these organizations.   Read more on the TEN Capital eGuide: Building Your Startup Ecosystem 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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