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The Benefits of a Family Office

The Benefits of a Family Office

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    Startups: Do You Need an Advisor?

    January 18, 2024

    2 min read. Startups: Do You Need an Advisor? Many startups collaborate with an advisor at some point in the process of their development. Advisors can aid startups in many ways, yet it always comes 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. If 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. If 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. If 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 TEN Capital Education 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

    Startup Investing: What You Need to Know

    September 18, 2023

    2 min read Startup Investing: What You Need to Know Startup investing is an attractive venture for many in the world of investing. Before investing in a startup company, it is important to have a well-thought-out plan. In this article, we discuss what percentage of discretionary funds investors typically allocate for startup investing, the difference between early- and late-stage investing, and how to apply your investment thesis to a startup. Allocate Funds The first thing you need to do when preparing to begin investing in startups is to set aside funds for this purpose. In most cases, investors dedicate 5% to 15% of their discretionary funds to angel investing. There are several issues with asset allocation for angel investing compared to publicly traded stocks, bonds, and mutual funds. Startup investments are illiquid as there’s no market for reselling. Transferring stock is greatly limited due to SEC rules. To achieve this again, you must hold the stock for up to 7 to 10 years in most cases. Many startups fail completely and are tax write-offs. Determine upfront how much you want to invest based on 5% to 15% of your portfolio. Divide by ten to get the total number of startups you can invest in. Divide the investment amount by 2 to get the initial investment per startup leaving the second half for a follow-up round.  For example, let’s say I have a portfolio of $3.5M. 15% of $3.5M yields $525K to invest in startups. Dividing $525K by 10 gives me $52K per startup that I can invest. Dividing the $52,500 by 2 means I can invest $26K for each startup leaving another $26K for each follow-on investment. It’s important to be selective in the beginning. You should start with only 3 investments per year. After a few years and some gains, you can re-invest some of the profits into more startups. There are tax laws that make it attractive to roll your gains from one startup investment into another.  Choose Your Niche Venture capitalists have two choices in funding startups- they can invest in early-stage or late-stage companies. Each option has its own pros and cons Early-stage companies come with a high risk for startup failure, but an easier time to reach a successful investment exit. Late-stage startups have a lower risk of startup failure but a more challenging time to reach a successful investment exit. As the rule of 5 tells us, a good investment requires an exit of 5 times the post-money valuation.  Later-stage companies often come with $20M to $30M post-money valuations which means they would need to exit at $100M to $150M to be a successful investment. Early-stage startups simply need to launch and grow reasonably well. Later-stage startups need to become the leader in their category as acquisitions usually focus on the leader and not the various followers. Apply Your Investment Thesis Before investing in a startup apply your investment thesis to it to see if it makes sense. Write out the company’s strategy and how it fits into the overall market. Review their position relative to the competition. For the target company, look for a material event that recently occurred such as a jump in sales or hiring of a new CEO. Write out what is significant about the change and why. Include any challenges the company may face. Consider what factors may impact their performance such as the economy, a new competitor, etc. Writing it out helps you think through the investment thesis and gives you a document to reference later to check your thinking. Reviewing your write-up in light of the outcome may update your investment thesis. Read More TEN Capital Education 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

    The Cost of Angel Investing—Where are the Fees?

    July 5, 2022

    3 min read I recently read a discussion forum in which the author of the post had bought a financial instrument and later discovered that the investment advisor who sold it to him actually made a commission on the sale. The author was incensed that someone actually made a commission off selling him something and to top it off the investment advisor didn’t disclose his commission. As I read the post I began to wonder where has this guy been for the last 50 years. Of course, people make money selling things and financial instruments are no different. When I sit in pitches from investment advisors promoting their fund, or whatever their financial instrument may be the first question that nearly always comes up from the audience is how much are the fees and commissions. Of course, this number ranges from a fraction of a percent for mutual funds to double-digit percentages in private equity. What are the fees? After reading the post I began to wonder about the cost of angel investing. Where are the fees? In a member-managed group such as the Central Texas Angel Network, there is a membership fee to belong to the group but the members review the deals, perform the due diligence and ultimately decide what to invest in. The main cost comes in three areas and while those costs aren’t paid directly by the angel investor, the business pays the costs and ultimately the angel investor takes a reduced return based on those costs. An experienced angel should ask about the costs. Management Salaries  The first cost is the management salaries. Management salaries are kept low in the early days of a company to give the business every chance of succeeding. I was recently in a deal in which the members asked about the CEO’s salary. He replied it was $300K/year. You could feel the air leaking out of the room after he said that. While he was a strong manager there was no way the business was going to survive paying salaries like that. Consultant Costs The second cost is that of consultants whether they are on the board or as advisors. It’s fair to ask who is getting paid and how much for the work they are providing. There are good consultants out there but I’m often amazed by how vague their duties are. Often times I hear things such as “they are going to help us.” There’s no job description, no metrics, no deadlines and it’s all very nebulous. Angel Investor’s Time The third cost and what I consider the most important is the angel investor’s time. If the deal will require a day a month or worse a day each week, then the deal must be spectacular to make it worthwhile. The angel investor should figure out upfront what value he can add and if the business runs into trouble who is going to help them. The angel investor’s time becomes the key factor in calculating the cost of angel investing. Read more TEN Capital Blogs 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

    Tips for Working with a Corporate VC Fund

    June 1, 2022

    3 min read  Working with a corporate venture capitalist can be a great way for startups to gain traction. If you have begun working with a VC or are considering beginning an investment relationship with one, read the following tips below to ensure you get the most out of your business deal. In working with corporate VCs, follow these best practices: Corporate venture capital is an existing business utilizing venture funding to further the company’s strategic objectives. The firm takes an equity stake in startups either through an internal fund or off the corporate balance sheet. Unlike traditional venture capital, corporate VCs look to gain a competitive advantage for the company and not a financial return. These initial investments often lead to a buyout of the startup. The investment is a useful tool for diligencing a startup and influencing its direction. There are some corporate VCs investing for a return on investment rather than strategic initiatives, but this is rare. Most corporate VCs make investments with the goal of winning more business for their current product and services. It’s a useful method for exploring new markets without committing substantial resources from the corporation. Pros and Cons of Working with VCs Consider access to the R&D departments of the corporate VC and how much value that will add to your startup. Document your work and innovation in great detail as corporate VCs will want to understand the technology and the ecosystem in greater detail than traditional VCs. Proactively educate the corporate VC on your technology and what value it can bring. Adjust the amount of funding you take from the corporate VC so as to control the amount of influence they have over the startup. Understand the timeframe of the corporate VC engagement. In many cases, it’s much longer than the traditional VC. Know your exit strategy and what comes after the relationship with the corporate VC ends or reaches a steady state. Leverage the relationship with the corporate VC for partnerships. Utilize the brand of the corporate VC to help gain access to customers.  Expand your domain knowledge through the resources of the corporate VC such as attending conferences, collaborating on white papers, and working on research projects. Use the corporate VC funding to gain access to additional funding outside the corporate world. Mistakes Companies Make with VCs Avoid the following mistakes when setting up the VC arm of your company: Don’t treat the corporate VC arm as purely an acquisition pipeline. There are several other ways to gain value from a corporate VC structure than just recruiting target acquisitions. Don’t entirely avoid taking risks in selecting startups to pursue. The startup world has a higher level of risk involved than what most large companies find normal. Avoid refusing to accept the fact that there will be failures and avoid planning for it. Most companies want to succeed at everything. In the startup world, there is a high failure rate and there must be a program to manage those failures. Don’t neglect to give the startups enough time to develop and mature. Startups can take several years to develop a meaningful product. Most VC funds are set up for a ten-year cycle. Make sure your company is committed to at least that time frame for running a corporate VC program. Be careful not to treat the corporate VC arm as a business development unit. The VC arm should be working on next-generation technologies and not just the current generation. Don’t require a majority stake as it can be difficult to negotiate and support. Minority stakes are a better fit as it brings other investors into the process. Avoid lowballing the budget. True innovation is not cheap or easy. Read more in the TEN Capital eGuide: https://staging.startupfundingespresso.com/corporate-venturing-2/ 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 You Work with a Corporate VC?

    June 1, 2022

    3 min read Deciding whether your company should work with a corporate VC is a big decision and not one to be taken lightly. As with any business decision, you need to do your due diligence. Start by gaining an understanding of what exactly corporate venture capital is, the pros and cons of working with a VC, and industry best practices below. What is Corporate Venture Capital? Corporate venture capital is an existing business utilizing venture funding to further the company’s strategic objectives. The firm takes an equity stake in startups either through an internal fund or off the corporate balance sheet. Unlike traditional venture capital, corporate VCs look to gain a competitive advantage for the company and not a financial return. These initial investments often lead to a buyout of the startup. The investment is a useful tool for diligencing a startup and influencing its direction. There are some corporate VCs investing for a return on investment rather than strategic initiatives, but this is rare. Most corporate VCs make investments with the goal of winning more business for their current product and services. It’s a useful method for exploring new markets without committing substantial resources from the corporation. Pros and Cons of Working with VCs There are both pros and cons to working with Corporate VCs. Pros include: A long-term point of view gives the startup time to grow and develop. Access to partners, customers, and other resources. Domain knowledge can be far beyond what most traditional VCs bring. Funding of major projects is much longer than traditional VCs. Cons include: You must gain commitment all the way to the top of the organization. It can be difficult to build consensus or sell ideas across department lines in corporations. Compared to the startup world, corporations move slowly which can frustrate new ventures. Competition between corporations is widespread. Corporate attention can shift, leaving the startup underfunded. The startup’s innovation will ultimately be pulled into the corporate structure which dilutes the startup’s brand. Best Practices in Working with Corporate VCs In working with corporate VCs, follow these best practices: Consider access to the R&D departments of the corporate VC and how much value that will add to your startup. Document your work and innovation in great detail as corporate VCs will want to understand the technology and ecosystem more than traditional VCs. Proactively educate the corporate VC on your technology and what value it can bring. Adjust the amount of funding you take from the corporate VC so as to control the amount of influence they have over the startup. Understand the timeframe of the corporate VC engagement. In many cases, it’s much longer than the traditional VC. Know your exit strategy and what comes after the relationship with the corporate VC ends or reaches a steady state. Leverage the relationship with the corporate VC for partnerships. Utilize the brand of the corporate VC to help gain access to customers.  Expand your domain knowledge through the resources of the corporate VC such as attending conferences, collaborating on white papers, and working on research projects. Use the corporate VC funding to gain access to additional funding outside the corporate world. Read more in the TEN Capital eGuide: https://staging.startupfundingespresso.com/corporate-venturing-2/ 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 Corporate VC Funding?

    June 1, 2022

    3 min read Sure, we’ve all heard of venture capitalist funding. But what does it really mean? And how does it work? Today’s article gives you the inside scoop on everything you need to know about VC funding. What is Corporate Venture Capital? Corporate venture capital is an existing business utilizing venture funding to further the company’s strategic objectives. The firm takes an equity stake in startups either through an internal fund or off the corporate balance sheet. Unlike traditional venture capital, corporate VCs look to gain a competitive advantage for the company and not a financial return. The firm seeks to grow its business and uses investment in a startup to gain knowledge of an emerging market, identify key players in the industry, and potentially use the results to grow sales. These initial investments often lead to a buyout of the startup. The investment is a useful tool for diligencing a startup and influencing its direction. There are some corporate VCs investing for a return on investment rather than strategic initiatives, but this is rare. Most corporate VCs make investments with the goal of winning more business for their current product and services. It’s a useful method for exploring new markets without committing substantial resources from the corporation. Types of Corporate VC Funding Corporate VC funding continues to grow as companies look for innovation and startups look for funding opportunities. There are several types of corporate VC funds. Listed below are three common types: Traditional Investment Fund This fund looks and acts like a traditional VC fund. A fund is set up for the program, and investors source and diligence deals similarly to a traditional VC fund. Investments are made for financial reasons and can provide primarily management support. Strategic Investment Fund Investments are made from the balance sheet and for strategic purposes. Investors don’t look for a financial return but rather collaborations. The team is small but works full time on the fund. Investments are not only financial resources but also strategic ones such as partnerships and sales channel access. Opportunity Investment Fund Investments are made off the balance sheet and solely for specific projects. The team is not full-time and consists of members from various departments. Investors are typically product-focused and seek the investment to fill a product need. Investors provide limited strategic and financial support.  How a Corporate VC Works Corporate venture capital is an existing business utilizing venture funding to further the company’s strategic objectives. The firm takes an equity stake in startups either through an internal fund or off the corporate balance sheet. Unlike traditional venture capital, corporate VCs look to gain a competitive advantage for the company and not a financial return. The firm seeks to grow its business and uses investment in a startup to gain knowledge of an emerging market, identify key players in the industry, and potentially use the results to grow sales. These initial investments often lead to a buyout of the startup. The investment is a useful tool for diligencing a startup and influencing its direction. There are some corporate VCs investing for a return on investment rather than strategic initiatives, but this is rare. Most corporate VCs make investments with the goal of winning more business for their current product and services. It’s a useful method for exploring new markets without committing substantial resources from the corporation. Read more in the TEN Capital eGuide: https://staging.startupfundingespresso.com/corporate-venturing-2/ 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

    Running a Corporate VC

    June 1, 2022

    2 min read Running a Corporate VC: Best Practices If you have recently launched a corporate VC or are considering setting one up, consider the following advice and best practices. How to Achieve Success Running a VC Corporate VCs can leverage their position in the industry to sign up good startups with an investment. The corporate VC brings a network of partners, distribution channels, a brand, an existing product line, and more. An investment can leverage their research dollars and achieve more than if they build it themselves. The pharmaceutical industry recognized this advantage years ago and now primarily invests in funding successful biotech startups rather than doing all the research and development themselves. This model works well where R&D is expensive and there are many potential avenues to take. There is a cost associated with setting up a corporate VC arm, but this investment can be spread across many startups. If used extensively, it can become a core competence for the company. To be successful at this, start with a clearly defined set of goals. Gain commitment from the corporation. Align the compensation of the corporate team to that of the performance of the investment. Those companies whose growth has stalled for some time may be more open to committing to it. Those facing a new wave of technologies may find this a better way to engage. Tools for Running a Corporate VC Program There are several tools for the corporate VC to use in a venturing program. Here’s a list to consider: Hackathon: Invite those in the industry or area to participate in a coding challenge to solve a particular problem. Shared resources: Provide the community with a set of tools and data sets and invite open community collaboration. Challenge prize: Offer a cash prize for the winner of a competition. Corporate venture capital: Offer investments into startups that meet specific criteria. Commercial incubators: Set up a partnership with incubators to provide support in exchange for access to deal flow. Internal incubators: Set up an internal incubator and invite employees and partners to participate. Strategic partnership: Set up partner programs with accelerators, venture capitalists, and other groups to provide deal flow. M&A program: Set up a program for acquiring companies and onboarding into the corporation. Consider augmenting your corporate venture fund with these tools and activities. How to Make the Corporate VC Fund Model Work While traditional venture funds increase their fund size over time, corporate VCs should keep their fund size low. Traditional VCs seek higher compensation and can do so by increasing the size of the fund which increases their management fee. Corporate VCs are often compensated as company employees with some upside on successful outcomes that are not necessarily financial exits. Collaboration, partnerships, and pilots are the most often used metrics for funded companies in a corporate VC fund. Therefore, it is important to keep the costs low, especially at the start, and then grow them over time as you prove the program. It will be easier to provide a positive return on investment for a $25M fund rather than a $200M fund. This will reduce the dollar investment into each startup but there again, it’s best to start small and increase the investment per company over time. A large fund may also draw criticism from other departments in the corporation who want that budget for their purposes. A large fund can create a culture of “contracted labor” rather than a culture of collaboration. The final outcome is not a financial return, but successful collaborations and pilots. Read more in the TEN Capital eGuide: https://staging.startupfundingespresso.com/corporate-venturing-2/ 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

    Investing in MedTech and HealthCare

    May 30, 2022

    2 min read. The rapidly growing MedTech and HealthCare industries currently offer great investment opportunities. Before investing, take the time to prepare by learning more about the industry. Let’s discuss the current trends, how to diligence a MedTech organization, and common mistakes to be aware of. Trends in the Industry The MedTech space is growing rapidly as technology advances. Some trends we currently see in the industry include: There is a movement towards incorporating cutting-edge technology into healthcare, primarily artificial intelligence. This increases health equity, but also the reach of medical care. This is especially important in sectors such as the mental health sector where demand currently far outweighs supply. A lot of health companies are streamlining their payment systems and platforms. There is an increasing emphasis on security and how it relates to medical work in the biotech world and the flow of HIPPA requirements.  Diligencing MedTech What do investors need to analyze when considering investing in a MedTech organization? Old fashioned diligence, the same as with any startup, needs to come first. This includes: the team the vision the values the culture; is it entrepreneurial? management abilities as most MedTech teams are run solely by scientists lacking in this area In addition to the basics, you should pay attention to: intellectual property and patents regulatory pathways to bring products and services to market Common Mistakes in the MedTech Sector Below are some common red flags to be aware of when analyzing organizations in this space. These are red flags in any industry; however, they are especially common in MedTech due to the fact that teams typically consist of nonbusiness individuals who are scientists and IT personnel before they are managers and marketers. Mistakes to watch for include: unrealistic expectations exaggerating the numbers in their pitch deck presentations inability to accept feedback no line of sight through the regulatory pathway Read more on the TEN Capital blogs 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

    Starting a VC Fund: What You Need to Know to Succeed

    May 22, 2022

    2 min read. If you have a track record for successfully investing, you may consider starting your own fund. At the time of writing, there are over 4,000 micro-VC funds in the US alone. Most of these are funds within the $25M to $50M range. These funds are led by those who ran sidecar angel funds and invested their own money into startups. Some did well, or are experienced VCs who set out to run their own fund. What do you need to know to successfully start your own VC fund? You need to be able to find and screen startups successfully. Let’s take a closer look at how to do this. Analyzing Market Segments In running a fund it’s important to analyze market segments. First, evaluate the leading companies in the market. Are there any leaders that stand out, or are all the companies competing head-to-head with the same approach? Highlight the supply chain to show who has control of the market; is it the producer or the consumer that drives the price? Discuss the introduction of new technology and its impact on the current market equilibrium. Will it shift control from the producer to the consumer, or vice versa? Review the number of companies playing in the segment and discuss the resulting fragmentation. Highlight the total available market for the companies in the segment. Identify companies within the market that stands out for competitive advantages such as network effects, virality, recurring revenue models, etc. Conclude with a proposal to pursue investment in a company in the market segment. Determine Market Size One of the key selling points for a startup is its potential market size. There are several ways to find it for your potential startup investment. The easiest way you can find market size is to buy a market research report. These typically run anywhere from $5K to $20K.  You can also contact the trade association related to your industry. These associations are most often located in Washington D.C. They are located in Washington D.C. as they provide government advocacy in addition to industry support. The association’s website typically provides stats on the industry, including market size and sector breakdowns. These sources require more digging but are often more reliable than market research reports. Analyzing Startups Here’s how to analyze a potential company for investment: First, identify a recent event for the target company, such as entering a new market. Discuss how the company can disrupt the newly-entered market with its expertise and business model. Talk about the positives you see in the company’s financials and market position. Express caution based on any concerns about the business including product/market fit, management team, or cost structures. Discuss macroeconomic issues, both positive and negative. Conclude with a recommendation to pursue an investment based on the positives outweighing the negatives, or to avoid an investment based on the negatives outweighing the positives. Read more on the TEN Capital eGuide: How to Raise a VC Fund 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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