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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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    Startups: Do You Need an Advisor?

    March 10, 2022

    2 min read Many startups collaborate with an advisor at some point in the process of their development. Advisors can aid startups in many ways, yet always come at a cost. In this article, we discuss how to know if your startup is in need of an advisor, what roles an advisor can play, and how to select the right one for you and your team. Do You Need an Advisor? Advisors can be helpful to your startup. Here are some key points to consider when determining if you need one: If you haven’t run a startup before you’ll most likely need an advisor. You plan to raise funding, you’ll find advisors add gravitas to the team as well as potential contacts. If you have holes in your team, then advisors can help you close them. You are in a domain you have not worked in before, then an advisor can be helpful. If the business technology has changed dramatically, then an advisor can be useful to guide in the implementation of the latest tech. You find yourself asking anyone and everyone questions about your business decisions, then an advisor may be the answer. If you have a team that always agrees with you, then you may benefit from an advisor who will be more honest with you. If you need help for your own growth, then look for a mentor.  Remember that mentors are different from advisors. Mentors typically help the individual grow, while advisors help grow the business. Advisor Roles In addition to there being many types of advisors, advisors also take many roles in their work with startups. For example, some advisors’ role is simply to fill gaps in the early stage of the startup. Advisors can be signed on as formal advisors, or some may provide support as informal advisors. In this scenario, there are no set goals, meetings, or formal advisor agreements. This is the most common way startups work with advisors. Some advisors take the role of a mentor in providing guidance. These mentors tend to focus their efforts on the founder. Some advisors take the role of consultant in performing very specific tasks for the company while others take on general responsibilities. Others may take on the role of a board of directors. This can be helpful in early-stage companies that are not yet ready to form a board of their own. Advisors here can provide oversight to the company and help the founder keep the broader picture in mind. Regardless of the role, you choose to fill, as an advisor, you will aim to bring experience, contacts, and networking to the startups you work with. Advisors can help startups achieve higher growth, avoid problems along the way, and give the founder confidence. Here are some key points in choosing an advisor for your startup: Avoid the dabbler: These advisors want to dabble with startups but don’t have any substantial experience to share. Avoid “Yes” men.: These advisors confirm everything you say because they don’t want to go through the heavy lifting of explaining better ways of doing things. Stay clear of generalists: Generalists have general business experience but know very little about your specific industry or growth strategy. Look for advisors who know your industry and space very well.  Seek advisors who are well connected.  Look for advisors who challenge you and remind you of the goals you have set. You may want to recruit a group of advisors and have them meet both individually and as a group to discuss key issues. Remember the time commitment that comes with advisors and set aside time for it.   Read more on the TEN Capital Network eGuide: Startup Advising: Best Practices 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

    Sharing The Business: Selecting and Repaying Cofounders

    March 10, 2022

    2 min read Many times, investors choose to take equity in return for their investment, earning them the title of cofounder in the startup. This can be a lucrative route for many startups, especially those in need of additional guidance and/or a hands-on deck. Choosing the correct cofounder for your startup and negotiating a fair deal is key to success. Continue reading below to learn more about what makes a good cofounder and what equity negotiation consists of. What Makes a Good Cofounder? You need a complete team, meaning you need somebody building it and somebody selling it. If you’re building it, then you need to find a co-founder who can sell it. If you are selling it then your cofounder needs to be able to build it.  A good cofounder has valuable skills that match your needs. They need the skills to get your MVP out, get it built, and sell. This may be design skills, a solid network, marketing expertise, etc. based upon your unique situation and needs.  Lastly, take the dynamic of your team into consideration. A cofounder should meld well with your current dynamic. They are going to be a strong player on the team; choose someone you will enjoy and value having around.  The Equity Negotiation In return for their investment, cofounders will expect a percentage of equity in the business. This allows them to profit when the startup begins pulling in revenue. How much equity you should offer to a cofounder depends on your startup’s valuation. The higher the valuation, the less equity you are giving away. Pre-money valuation (what the business is worth before an investment is made) plus the investment amount gives you the post-money valuation amount. If your pre-money valuation is $4-million and you’re raising $1-million, the post-money valuation is $5-million. Equity is typically based on the post-money valuation, so as an entrepreneur you’re pushing the pre-money valuation up while the investor is pushing the pre-money value down. That’s the basis of your equity negotiation. You can help sway this negotiation in your favor by showing a positive market rate. You need to show the going rate and convince the investor they are going to get a good deal.   Read more on the TEN Capital Network education: Click Here 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

    Educate the Investor About Your Deal

    February 23, 2022

    2 min read They say it takes seven touches to close a sale – so it takes seven touches to close an investor. Some startups pitch to a group of investors and if they don’t see checkbooks coming out at the end, then in their mind it’s a failed meeting. I tell the startup, the investor doesn’t yet know if they are interested or not – they’re still trying to figure out what the deal is about. It takes four updates before the investor gets a sense of the deal and can start to form a decision. In the end, the investor makes a decision based on team and traction. The Introduction In the introduction, you can talk about the market size, growth rates of the industry, and the promise of a great outcome.  After that first mailer, the investor doesn’t care to hear any more about the market or growth rates. They only care about one thing – what are you doing to achieve the promise? Revenue Numbers I’m amazed at how many startups don’t know their revenue numbers. Come prepared to share those details with the investors in mailers and follow-up conference calls. One tactic I’ve seen used to good effect is to go to your investor prospects six months before launching the campaign. Tell them you will start your raise in six months and then ask if you can keep them informed of your progress. This gives you six months to educate the investor about your deal and demonstrate progress so when you are ready to launch your fundraise; you have a group of educated investors prepared to go. Read more in the TEN Capital eGuide: https://staging.startupfundingespresso.com/how-to-raise-funding-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

    The New Normal for Fundraising (It’s All Online)

    February 23, 2022

    2 min read Fundraising like everything else has moved 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 of course canvas all your family and friends. It was something the CEO had to do because investors wanted to meet with the CEO of the company. 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 I had many startups pitch to my investors in a dinner club setting. Ninety percent of the startups would go away, and we would never hear from them again. We had no idea what happened to them. Only about ten percent would come back and give us updates, reminders, and show some semblance of progress. Those are the startups we funded. Those CEOs built a relationship with the investor and provided enough information to the investor that one could see momentum and traction in play. The Present Today, there is a better way. 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. Tools to Raise Funding To raise 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 need to come prepared with your pitch deck, due diligence box, and other key documents for investors. Prepare the campaign– know what are you are going to 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.   Read more on the TEN Capital Network education: 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

    Understanding How Much Funding to Pursue

    February 17, 2022

    2 min read  When I ask entrepreneurs how much they are raising the automatic answer is $1M. It just seems like the thing to do. Moreover, when I ask what they are going to do with it, many seem unsure. Alternatively, they provide generalizations like:  “We need it for marketing, or hiring key personnel, or developing products.” The response from investors (myself included) is usually along the lines of, “No S!#t?” How Much Do You Need? Before pursuing investment, one needs to consider how much to raise and how it’s going to be used.  When you go to pitch to investors make sure you are prepared. It should be clear as to exactly how you’ve come up with these funding requirements. Be comfortable explaining these funding requirements and exactly how you plan to put that money to work. Of course, it’s still an educated guess. However, having these items researched and detailed in your business plan (and pitch presentation) will build a lot 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 (such as legal costs, marketing, sales, and more.)? This financial model is a MUST before setting the fundraising amount. Start Small I often recommend raising as little money as possible before you have customer sales because the valuation (how much the investor considers your company worth) is going to be quite low. 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 higher the risk, the greater the equity the investor is going to 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. You always raise a larger round of funding later, but 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. Raising only $250K will reduce the amount of time spent fundraising allowing you to work on your product, marketing, sales, and team building. Read more on the TEN Capital Network education: Click Here 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

    Best Practices for Entrepreneurs Seeking Funding

    February 17, 2022

    Next2 min read Have ready the executive summary, slide deck, and business plan with financials.  It helps to have the core three documents – executive summary (one-page only), slide deck, and business plan already developed and ready to go. As the entrepreneur meets prospective investors, he can use the relevant docs for each meeting.  Publish a periodical email newsletter for interested investors  In the fundraising process, I see some entrepreneurs sending out email updates to highlight the progress of the company. Some come as often as weekly to show growth in sales, product plans, and other milestones. This shows the company’s ability to execute.  Finding a Lead Angel Find a lead angel to develop a terms sheet and start the funding round By finding a lead angel and creating a terms sheet, the entrepreneur removes the most significant barrier to fundraising – the negotiation process. Numerous angel investors find the initial negotiation and due diligence process too time-consuming. By eliminating this hurdle, the entrepreneur opens up the deal to a more significant number of investors.  “Investor-friendly “ Make the deal terms “investor-friendly.” First, every deal must be negotiated. The harder the terms for the investor to accept the longer the time it will take to negotiate. By making the terms “investor-friendly” through reasonable pre-money valuations, preferences, and other terms, the faster the process goes.  Due Diligence Next, push all due diligence docs to password-protected therefore, interested angels can perform due diligence more easily. The due diligence phase can be sped up by having all the essential docs already available. I’ve seen some entrepreneurs put everything on a protected website and then give out the password to interested investors. This knocks down the hurdle of trying to send 600 MB worth of documents through the email system.  Continue the quarterly email newsletter after funding, so investors stay with you. It’s important to keep investors up to date even after the funds are raised since investors can help in other ways. Some investors bring a Rolodex of contacts while others bring experience and coaching. By keeping them informed of your progress and challenges, they may be able to help. This practice is also useful for when it comes time for follow-on fundraising.   Read more on the TEN Capital Network education: Click Here 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

    How to Use Mailers to Assess Engagement

    February 10, 2022

    2 min read You have a good list. Next, you need to introduce your deal to the investors and demonstrate why it’s a good deal. The operative word here is “DEMONSTRATE.”  Most startups tell the investor why it’s going to be a good deal – great product, great team, great market, great future, etc. The key is you have to SHOW them it’s a great deal by highlighting the traction with customers, the experience and ongoing work of the team, and the improvements on the product. Investors see dozens of deals every day.  You can stand out by remembering one thing: Everyone promises – only a few deliver. What is an Investor? Every startup has a great future. Every startup promises the moon.  So what does the investor do? The investor looks for evidence of meeting milestones, a sense of momentum behind the deal. Your outreach to the investor is a campaign – not a one-time contact. You must demonstrate that you have traction. The team must be doing great things. The product must be progressing. If you can’t do anything unless you have a $500K, then this is going to get tough. You have to show you can do things with little or no funding. Your campaign mailers need to tell your story. Over the next four mailers, you need to showcase your story and how it works. Investors are busy, and they don’t have time to read 5000-word emails. They’ll read a half-page, maybe a little more and that is it. It would be best if you told your story over a series of emails as we work our way into the busy lives of the investor. Break the story down into smaller pieces and schedule them out so the investor can see progress being made weekly.   Read more on the TEN Capital Network education: Click Here 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

    Recurring Funding for Recurring Revenue Businesses

    February 10, 2022

    2 min read The rise of the recurring revenue business as a standard business model has implications for financiers. Just as it changed how customers made payments, so it changes the way funding providers are changing the way they fund startups. Recurring Revenue Recurring revenue businesses don’t necessarily need sizeable discrete funding rounds. Today we see funding ongoing throughout the life of the business. As specific business growth needs to arise funding steps in to provide the resources. The funding comes in small amounts and when needed.  In this model the fundraise round is never closed – it’s always open. Investors should continuously be monitoring businesses to see who is reaching an inflection point and for opportune moments to invest in the businesses. I started my company under the name Texas Entrepreneur Networks about ten years ago after launching three angel networks in Austin. I built a network of entrepreneurs and investors now throughout the country using a recurring revenue model instead of a broker model. Building out the business doesn’t require large fundraise all at one time.  It takes some funding to bring on new developers here and provide for a marketing push there. Funding Methods I see a new method of funding for recurring revenue companies in which the companies continually raise small amounts of funding from investors rather than large rounds periodically. This new model works for our entrepreneurs who find it a great way to increase funding. Rather than spend a tremendous amount of time raising funding for six to twelve months, we’ve turned it into an ongoing program in which the raise is always open but doesn’t take too much of the CEO’s time. There are some key things you need to do to enable this model: At heart, it’s an investor relations program. We use email, website, and social media to introduce the deal to the investor and then keep the investor informed of the progress. A campaign is how you tell your story and convince investors you are worthy of investment. Investors are looking for a strong team and consistent traction. Your campaign should demonstrate both. It would be best if you were consistent and persistent about it. The motto is the “Fundraise is always open.”   Read more on the TEN Capital Network education: Click Here 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

    Should I Raise Funding?

    November 11, 2021

    2 min read Not all capital needs are best addressed through fundraising, and not all startups are ready to start a round of funding. Before beginning your raise, consider if fundraising is the best way to go for your startup. In this article, we will help you determine if you should raise funding by looking at your organization’s metrics, team, and product or service.  Should You Raise Funding for Your Startup Not all capital needs are best addressed through fundraising. Before beginning your raise, consider if fundraising is the best way to go for your startup. Ask why you need funding. See 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, consider venture funding. If the company is not high growth or has no vision of selling it, 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 that can provide this level of return. Other factors to consider for venture funding include the following: You have a large addressable market. You are building a scalable business. 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.  You have built enough 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, 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? Of course, 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. Can You Show Product and Market Validation? In talking with startup investors, the first two questions are Product Validation and Market Validation. Essentially, these measures show that the product works and that someone will buy it. Investors look for evidence of this before moving into further diligence, so it’s essential to show this in your pitch. Beta users are a great way to show the product works, as well as customer interest. In many cases, the product is a website supplying some value in data storage or analysis. In today’s world, the chance of getting the product up and running is relatively high- but will someone use it? And more importantly, will someone pay for it? Customers who pre-pay for your product check the market validation box. This demonstrates you are solving a real problem. If you don’t have anyone paying for it, you’ll need to resort to pipeline metrics showing the number of downloads, trials, and pilot programs. While these metrics are not as valuable as showing proof of a paying customer, they indicate that the customer will most likely buy. It’s helpful to show the funnel prospects in engaging your product. This includes lead generation, qualification, closing, trials, pilot tests, and signed customers. Investors look for a consistent signup percentage on the leads going through your program. While the absolute number of signups may not be high, the repeatability of your model can be compelling to the investor. How To Know If Your Startup is Venture Fundable The following points will help you to understand if you are venture fundable. But, first, consider if you have the following: Recurring Revenue – Do you have recurring revenue in your model?   Platform-Based Approach – Are you taking a platform-based approach to the product/service delivery, or do you sell one-off products?   Data-Centric – Are you capturing key data elements that improve your process and product?   Strong Team- Do you have a strong team? Does each member bring expertise about their field to your business?   Fast growth (>50% YoY) – Are you growing at least 50% YoY?   Large Target Market – Are you targeting a market over $1B? The more checkmarks you have on this list, the more fundable you are with VCs. 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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