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What is Your Competitive Advantage

What is Your Competitive Advantage

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    NDAs, Not on the First Conversation

    Everyone once in awhile I’ll come across an entrepreneur who wants to tell me about his deal but before giving me any details wants me to sign an NDA which is a Non-Disclosure Agreement that requires the signer not divulge the details of the subject matter to anyone for a certain period of time (usually 2 to 5 years). To an angel investor this is a red flag. When an entrepreneur won’t even show me his one-pager without my first signing his Non-Disclosure Agreement that tells me his deal is not protected and most likely is not protectable. I advise entrepreneurs to have a one-pager ready to share with investors who show interest after a brief discussion. The one-pager should state what the business does but doesn’t necessarily go into details about how the IP actually works. If the discussion goes far enough that it enters the due diligence phase and the investor wants to see the “secret sauce” then it’s reasonable for the entrepreneur to ask the investor to sign an NDA, but not at the beginning of the first conversation. While I understand the entrepreneur’s concern about protecting his idea and subsequently his business, it’s difficult to generate interest among the investors when you can’t even tell them the basic concept. The entrepreneur should be able to inform the investor about what the product or service does at a high level and what performance advantages it has over other methods. My rule for signing NDAs is that I should know exactly what is being protected – the technology, the business model, the concept, etc. Signing an NDA without knowing this could mean the investor is signing away his ability to invest in any deal that is related to the entrepreneur’s target market or application. To carry out the conversation, I invite the entrepreneur to tell me about the non-confidential matters. “Just tell me what you can without an NDA.” This potentially keeps the conversation going. Of course, the first subject to discuss after receiving the one-pager is how can one protect the idea – patents, copyrights, trademarks, trade secrets, etc. Best regards, Hall T.

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    Top 20 Investors in Drones

    Drones continue to attract investor interest from venture capital, corporate VCs, and other funding sources.   Here’s the list of the top drone investors by number of investments.  While VCs dominate the investing category by dollars, angels, and accelerators account for a large number of funded deals. Investor Name Investor Type Number of Investments Sequoia Capital Venture Capital 1,303 500 Startups Accelerator 1,279 Y Combinator Accelerator 1,197 New Enterprise Associates Venture Capital 1,187 Accel Partners Venture Capital 991 Techstars Accelerator 652 Lightspeed Venture Partners Venture Capital 516 Battery Ventures Venture Capital 503 Andreessen Horowitz Venture Capital 493 General Catalyst Partners Venture Capital 465 Startupbootcamp Accelerator 370 Union Square Ventures Venture Capital 217 Social Capital Venture Capital 190 Sherpa Capital Venture Capital 115 GE Ventures Venture Capital 112 Peter Thiel Angel 92 Xiaomi Venture Capital 18 Daimler Corporate Venture Capital 16 Cognizant Technology Solutions Venture Capital 3 DJI Venture Capital 2

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    Non-Starters in Angel Investing

    When the Conversation is Over Before it Begins I have an espresso each morning at the Trianon coffee shop in Westlake. It’s part of my daily routine. I often meet entrepreneurs and angels during that time to hear their story. In this blog you read about the up and coming companies and the story behind the people making it happen. What you don’t hear about are the non-starter discussions or as I call them, the conversation was over before it began. Here are some examples: “We’re raising money to build a software system to . . . “ Angels look for the entrepreneur to spend their own money to get the initial software up and running. It’s okay to raise money to develop it further but angels aren’t going to invest money to build the software in the first place. “We only need $8M to . . . “ The raise limit for the angel group is $2M. If it’s close to that then it’s a possibility but beyond $3M too far beyond that and it goes out of range. “Our premoney valuation of $20M is justified by . . . “ There’s almost no investment return in deals that start with a $20M valuation. I won’t say those deals will never get funded but it’s not far from there. “The market is $10B and we only need to get 3% of it to . . . “ Revenue projections based on achieving market share have little connection to reality. A bottom-up list of accounts in the sales pipeline is much more convincing. “We just hired our 14th employee and hope to complete our first customer sale later this . . . “ Startups with large headcounts bring the business plan into question. And finally, the ultimate conversation stopper: “We just ran out of money and . . . “ If you didn’t manage the last round of funding, what does that say about the next round? Best regards, Hall T.

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    Top 5 Big Data Investors of 2016

    The 5 Big Data investors of 2016 include Highway1, Microsoft, Alphabet, Mercedes Benz, and Benoit Marrel with a combined number of investments of 161.  Microsoft and Alphabet led 15 of the rounds. The top 5 held a portfolio of 146 companies with the difference being exits.   Investor Name Number of Investments Number of Lead Investments Number of Portfolio Companies Highway1 83 – 77 Microsoft 74 14 65 Alphabet 2 1 2 Mercedes Benz 1 – 1 Benoit Marrel  1 – 1 Total: 161 15 146  

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    Top 10 Texas Big Data Ventures from 2016

    Big Data continues to see strong growth.  In 2015 there 462 deals funded at $5.6B. Big Data companies in Texas raised $284M in 2016.   Of the top 10, Austin has 6 companies totaling $210M as follows: Company Name Total Funding Headquarters Location Civitas Learning $88,949,999 Austin, Texas, United States Continuum Analytics $45,000,000 Austin, Texas, United States Dachis Group $37,500,000 Austin, Texas, United States Worksoft $32,000,000 Addison, Texas, United States CognitiveScale $25,000,000 Austin, Texas, United States PROS Holdings $25,000,000 Houston, Texas, United States UpSnap $9,900,000 The Woodlands, Texas, United States ImageVision $7,519,000 Anna, Texas, United States UnaliWear $7,100,000 Austin, Texas, United States InforcePRO software $6,551,147 Austin, Texas, United States Total $284,520,146    

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    The Importance of Monitoring Startup Deals

    by Hall Martin Investors in startups need to monitor the candidate startup before investing so as to better understand the company and to see some consistent progress. As an angel investor, I hear pitches every day.  It’s been a while since I heard a software pitch that WASN’T going to market in two months.  In fact, everyone is “going to market in two months,” but the reality is that most take one to two years to really get traction in a market. When I find a potential investment that looks interesting, I put it on my watch list.  My father was a buy-and-hold value investor in publicly traded stocks.  He had a watch list of 10 stocks that he checked every month. He would look up their earnings, check for any management team changes, see what new products they were offering, and then he would look at the price.  After a period of time, sometimes a few months, sometimes a few years., he would decide to invest or not.  A no meant he took it off his watch list.  A yes meant he invested money and put it in his portfolio. Startups are pretty much the same.  You can track them on their sales growth, team changes,  product development, and  in this case their fundraise.  As you receive reports you can start to build out a list of key traction points– leads, sales, channels, etc.  As one investor said, “I don’t invest in dots. I invest in lines.”  It’s important to build out a picture of how the business is growing. By watching the deal over a period of time, you can better understand it and also hopefully see an upward trajectory at which point an investment makes sense.

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    Top Texas Seed Ventures from Q4 2016

    Top fundings for Q4 of 2016 were led by CognitiveScale, Medici Technologies, Phunware, Twyla, and Trendkite with the top ten fundings totaling $176M. Company Name Money Raised Announced On Date CognitiveScale $25,000,000 10/4/2016 Medici Technologies $24,000,000 11/28/2016 Phunware, Inc. $22,000,000 11/1/2016 Twyla Inc $19,000,000 10/13/2016 TrendKite $16,300,000 11/4/2016 DiCentral $15,000,000 10/4/2016 Ranzure Networks $13,000,000 10/11/2016 ES Xplore $12,000,000 12/7/2016 Tiff’s Treats $11,000,000 11/1/2016 Catapult Health $10,000,000 11/2/2016    

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    Top 10 Texas CPG Deals from 2016

    The Consumer Packaged Goods (CPG) Industry has experienced a lot of change in the past several years, with in-store sales stagnating, and e-commerce sales gaining impressive traction, but the future of CPG companies looks to be bright.  And with a thriving support community, and even a CPG-focused accelerator, SKU (formerly known as Incubation Station), Texas is poised to continue to push CPG growth through 2017. In the first half of 2016, CPG online sales grew 42% across key categories compared to the first half of 2015. Each year, online sales are contributing a higher percentage to total retail sales. What’s interesting though, is that consumers don’t seem to be spending less in-store, but are simply spending more money online. Below we have highlighted the top 10 deals in the Texas CPG & Retail industries from 2016. In this report, we find that 10 companies alone brought in about $90M in investment dollars to the Texas CPG industry last year.   Company 2016 Funding Twyla $19,265,442 Snap KItchen $12,506,000 ROKA Sports $12,050,604 Tiff’s Treats $11,000,000 Charming Charlie $10,380,005 Mizzen & Main $2,999,710 Snap Drape Brands $2,325,000 Tecovas $1,798,639 The Republic Grille $1,120,000

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