Startup Funding

Menu
Subscribe
Search
The Benefits of a Family Office

The Benefits of a Family Office

•
Fundraising, Investing

Related Guides

    Trending

    The most popular articles on Startup Funding in the past day.

    Doing Your Due Diligence

    November 20, 2021

    2 min read There are several approaches to due diligence. The most common is the “Thorough Approach” in which you review each aspect of the business and focus on the top items. The main areas to cover in due diligence are the market and the team. In this article, we will cover how to diligence the market, how to diligence the team, and what key documents you should have in your due diligence box in following the thorough approach. How To Diligence the Market When implementing due diligence in a startup, the size of the market is a key question. The larger the market, the greater the growth potential of the startup. There’s rarely a need to pay for research as so much exists on the web. In searching the web, you’ll find research reports giving market sizes, trends, analysis, and more. The key here is to analyze the market at three levels. The first is Total Available Market which is anyone the company could ever sell to. The second is the Serviceable Market which is the target market the company wants to serve. The third is the Beachhead Market, which is the first niche the company will pursue. Ideally, this is a small but well-defined group of companies that fit the startup’s current product. The startup should have some interactions with the companies in the Beachhead market already. How To Diligence the Team In doing diligence as a startup, the team is the most critical factor in the process. For implementing diligence in the team, first, review the resumes of those who are on the team or plan to join when funding becomes available. Next, look for domain knowledge. Who has it, and how current is it? After that, look for complementary skills. Is there someone who has sales skills and will spend their time selling the product? Is there someone who is going to build the product and will manage either an internal development team or an external one? Outsourcing the product development with no one actively managing it is a recipe for disaster. Next, look at how long the team has worked together if at all. Ideally, the team has some experience working with each other. The more the better. Finally, look at completeness. Many successful teams follow the Designer, the Hacker, and the Hustler formula. The Designer knows the customer problem and plans the product development, including how it will be monetized and promoted. The Hacker is the developer who builds the product, and the Hustler is the one who sells it. Due Diligence Box Key Documents You’ll need to gather your basic company documents for investors to review. In preparing a due diligence box also called a data room, the following are basic documents to include: Income statement Balance Sheet Three- to five-year financial forecast Cap Table including shares outstanding Entity filings (LLC, C-Corp, and Articles of Incorporation) Intellectual Property filings including patents, trademarks, etc. C-level team resumes There may be other documents you may need to add based on your situation. 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.

    What is a Business Model (and Why is it Important)

    November 18, 2021

    2 min read In starting a new venture, most start by trying to write the business plan before the Business Model because everyone tells you how much you need one. So you sit down to write the business plan and you start through your checklist: “Management team…well so far, there’s only me, so I’ll just add two more positions to be determined later.” “Problem to be Solved…well, that’s an interesting question. I’m solving so many problems, I’ll just say, we’re going to save the customer time, and make it easier for him to do his job. That should cover it.“ If the above description sounds familiar, it should. Most entrepreneurs start by trying to write the business plan but there’s not enough information to carry it through at the early stage. There are too many decisions still to be made. There’s too much information not yet accumulated. Business Plans vs. Business Models Instead of working on the business plan from day one, work on the business model. Focus on how you are going to generate revenue and what will be your core costs. If you figure this out, then you have the key elements of a business plan. You can fill in the other pieces based on the business model. For example, the management team positions will become clear once you know the business model. The problem you are solving is much clearer and so it goes with the other elements of the plan. The Nine Models for Making Money The business model in short answers the question: how do you make money? Here are the nine business models as outlined in Managing the Digital Enterprise: Brokerage Model: bringing buyers/sellers together. Advertising Model: promoting products/services to an audience Infomediary Model: gathering information about an audience and monetizing it Merchant Model: selling goods/service either wholesale or retail Manufacturer (Direct) Model: selling goods/services directly to the user without an intermediary Affiliate Model: providing purchase opportunities wherever people may be Community Model: selling ancillary products/services in a community Subscription Model: charging for ongoing usage of a product/service Utility Model: charging based on how much of a product/service is used. In today’s web-based world, it’s common to use two or more of these models in the same business. Before fundraising, it’s important to identify the business model. The business doesn’t have to generate a great deal of revenue but it needs to have a clearly defined business model that is scalable. 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.

    Fundraising 101

    November 4, 2021

    2 min read Are you considering starting a round of funding for your startup? If this is your first time running a raise, you likely have a lot of questions. In this Fundraising 101 guide, we will share when you should consider starting a round of funding, what type of funding to consider going after, how to prepare, and how long it will take. Read below to better understand the basics of fundraising for your startup. When to Raise Funding Most founders go out for a fundraise prematurely because they need money, not because they are ready for fundraising. Consider the following to understand when it is best to raise funding: Do you have a compelling idea that you can articulate? Do you have a validated customer, market, and product lined up? Are your investor documents prepared? Your pitch deck will change over time, but it always needs to show the core product, team, and fundraise. Can you demonstrate the product, even at an early stage? Can you show customer interest through engagement as well as revenue? Have you spoken with some investors to identify what risks they see in the deal? Do you know how you can mitigate those risks? Only after completing the above preparations should you consider launching your fundraise. You can then successfully engage investors with your deal, and remember to never show up to an investor meeting empty-handed. Always have some customer engagement to discuss. Types of Funding Before choosing a type of funding, consider the following: Investigate every kind of funding and think about where it may fit into your overall funding plan. It’s most likely that you will use two or three types of funding over the life of your business. To understand the type of funding you should look for, ask: “How will you pay the investor back?” For example, if you plan to pay back when you sell the business, equity funding should be considered. On the other hand, if you plan to pay back out of the company’s cash flow, then debt funding is a better choice. If you have a consumer-facing product, consider crowdfunding which offers both debt and equity options. Break your funding down into parts, and consider using more than one type of funding for your business. How to Prepare for a Raise Before launching your fundraise campaign, prepare your business, complete your investor documents, and build your investor network. Preparing your business is the first step in preparing for a raise. The preparation consists of checking in with your team, the board, and both potential and current investors to gain alignment- your fundraise launch should not come as a surprise to them.  Next, complete your investor documents, including a pitch deck, financial proforma, and diligence room. Your financial proforma should lay out how much you should raise and what you will do with it. If you’re unsure how to set this up, write down your current revenue and the revenue you predict to have in the next 24-36 months. From this, you can extract how much funding you will need to raise and how many people you’ll need to hire. Finally, your pitch deck should tell the story of how your business makes money and why it will succeed. Finally, build your investor network. Make a list of investors to contact, including existing investors. Setup a few initial meetings and tell the prospective investor you plan to launch a fundraise in three months. This removes the pressure from the investor and often elicits feedback on how much to raise, how to structure the deal, and more. What Are Fundraising Differences by Stage In raising funding over the life of the startup, you’ll find there are differences in the fundraise at each stage. The goal at the Seed stage is to show you can sell the product. At this stage, the investors will look primarily at the team since there’s little product or revenue. However, you will still need to show a working prototype and initial customer validation. Finally, you must convince the investor that customers will pay for the product and use it. At the Series A stage, the goal is to show you can grow the business. At this stage, you need to establish a repeatable and predictable process for acquiring the customer, delivering the service, and retaining them. Show a sales funnel with prospects tracking through the process of turning into customers.  At the Series B stage, the goal is to show you can scale the business. You need to show you have growth drivers built into the business that scales the company in this stage. This includes systems that can drive scale growth, such as a partner network, sales force capability, and expanding into new markets with the same platform. At each stage, the pitch deck will need to reflect the goal for the fundraise and show what the business is doing to achieve it. Fundraising Timeline As a rule of thumb, for every $1M of funding you want to raise as an early-stage startup, you should expect one calendar year to grow it. This includes time to prepare the company, the investor documents, the pitch, and contacting, pitching, and following up with investors.  It’s best to have your pitch deck and financial projections prepared before the fundraise, as well as a primary data room with the essential documents investors expect. This shows you have the fundraise well organized. Investors have their diligence process and are remarkably busy, so you have to work through their schedule. Fundraising should be a full-time job for the CEO, with support from the team for document preparation. The first few investors are the most difficult as no investor wants to go first. Therefore, this stage takes the most time. Once you reach 50% of your fundraise goal, you can estimate the remainder of the raise will take about 30% less time than the first half of the raise. The process may run faster if you have

    Fundraising 101

    November 4, 2021

    2 min read Are you considering starting a round of funding for your startup? If this is your first time running a raise, you likely have a lot of questions. In this Fundraising 101 guide, we will share when you should consider starting a round of funding, what type of funding to consider going after, how to prepare, and how long it will take. Read below to better understand the basics of fundraising for your startup. When to Raise Funding Most founders go out for a fundraise prematurely because they need money, not because they are ready for fundraising. Consider the following to understand when it is best to raise funding: Do you have a compelling idea that you can articulate? Do you have a validated customer, market, and product lined up? Are your investor documents prepared? Your pitch deck will change over time, but it always needs to show the core product, team, and fundraise. Can you demonstrate the product, even at an early stage? Can you show customer interest through engagement as well as revenue? Have you spoken with some investors to identify what risks they see in the deal? Do you know how you can mitigate those risks? Only after completing the above preparations should you consider launching your fundraise. You can then successfully engage investors with your deal, and remember to never show up to an investor meeting empty-handed. Always have some customer engagement to discuss. Types of Funding Before choosing a type of funding, consider the following: Investigate every kind of funding and think about where it may fit into your overall funding plan. It’s most likely that you will use two or three types of funding over the life of your business. To understand the type of funding you should look for, ask: “How will you pay the investor back?” For example, if you plan to pay back when you sell the business, equity funding should be considered. On the other hand, if you plan to pay back out of the company’s cash flow, then debt funding is a better choice. If you have a consumer-facing product, consider crowdfunding which offers both debt and equity options. Break your funding down into parts, and consider using more than one type of funding for your business. How to Prepare for a Raise Before launching your fundraise campaign, prepare your business, complete your investor documents, and build your investor network. Preparing your business is the first step in preparing for a raise. The preparation consists of checking in with your team, the board, and both potential and current investors to gain alignment- your fundraise launch should not come as a surprise to them.  Next, complete your investor documents, including a pitch deck, financial proforma, and diligence room. Your financial proforma should lay out how much you should raise and what you will do with it. If you’re unsure how to set this up, write down your current revenue and the revenue you predict to have in the next 24-36 months. From this, you can extract how much funding you will need to raise and how many people you’ll need to hire. Finally, your pitch deck should tell the story of how your business makes money and why it will succeed. Finally, build your investor network. Make a list of investors to contact, including existing investors. Setup a few initial meetings and tell the prospective investor you plan to launch a fundraise in three months. This removes the pressure from the investor and often elicits feedback on how much to raise, how to structure the deal, and more. What Are Fundraising Differences by Stage In raising funding over the life of the startup, you’ll find there are differences in the fundraise at each stage. The goal at the Seed stage is to show you can sell the product. At this stage, the investors will look primarily at the team since there’s little product or revenue. However, you will still need to show a working prototype and initial customer validation. Finally, you must convince the investor that customers will pay for the product and use it. At the Series A stage, the goal is to show you can grow the business. At this stage, you need to establish a repeatable and predictable process for acquiring the customer, delivering the service, and retaining them. Show a sales funnel with prospects tracking through the process of turning into customers.  At the Series B stage, the goal is to show you can scale the business. You need to show you have growth drivers built into the business that scales the company in this stage. This includes systems that can drive scale growth, such as a partner network, sales force capability, and expanding into new markets with the same platform. At each stage, the pitch deck will need to reflect the goal for the fundraise and show what the business is doing to achieve it. Fundraising Timeline As a rule of thumb, for every $1M of funding you want to raise as an early-stage startup, you should expect one calendar year to grow it. This includes time to prepare the company, the investor documents, the pitch, and contacting, pitching, and following up with investors.  It’s best to have your pitch deck and financial projections prepared before the fundraise, as well as a primary data room with the essential documents investors expect. This shows you have the fundraise well organized. Investors have their diligence process and are remarkably busy, so you have to work through their schedule. Fundraising should be a full-time job for the CEO, with support from the team for document preparation. The first few investors are the most difficult as no investor wants to go first. Therefore, this stage takes the most time. Once you reach 50% of your fundraise goal, you can estimate the remainder of the raise will take about 30% less time than the first half of the raise. The process may run faster if you have

    How Much Funding Should You Pursue?

    November 4, 2021

    2 min read How Much Funding Should You Pursue? This question is the place to start, but you’d be surprised how many startups either, don’t have an answer, or the answer is not well researched.  When I ask entrepreneurs how much they are raising, the automatic answer is $1M. It just seems like the thing to do. And when I ask what they are going to do with it, many seem unsure. Or they provide generalizations like, “We need it for marketing, hiring key personnel, or developing products” (and so on). The response from investors (myself included) is usually along the lines of, “No S!#t?” What’s The Plan? Before pursuing investments, one needs to consider how much to raise and how it will be used. Then, when you go to pitch investors, it should be clear from your financials exactly how you have come up with these specific funding requirements and how you plan to use the money.  Of course, it’s still an educated guess, but having these items researched and detailed in your business plan (and pitch presentation) will build more credibility with the potential investor. Figuring out how much you need to raise starts with: How much do you need for equipment, inventory, contract services (legal costs, marketing, sales, and more.)? This financial model is a MUST before setting the fundraising amount. The Magic Number I often recommend raising as little money as possible before you have customers and or sales because the valuation (how much the investor considers your company worth) will be pretty low. In addition, any money you raise in the beginning will cost a more significant portion of the equity in your company than follow-on investments down the road. In other words, the greater the risk, the greater the equity the investor will require. It’s also better to raise a lower amount (say $250K) to get the product up and running and sold to a few customers. Of course, you always present a larger round of funding later. Still, at that point, it should be a much better valuation for the entrepreneur–with the product and customer risks mitigated, you don’t have to give away as much equity. Also, for every $1M you are trying to raise, you’ll spend one year raising it and NOT doing much of anything else on your business. So raising only $250K will reduce the amount of time spent fundraising, allowing you to work on your product, marketing, sales, and team building. 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

    Site Map

    Scroll to Top