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The Benefits of a Family Office

The Benefits of a Family Office

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    Exits: How and When to Do It

    January 10, 2022

    2 min read As a startup investor, it is imperative that you are considering the exit strategy before beginning the investment as this is what determines your return on investment. When, how, and to whom the startup will sell are essential topics to cover at the beginning of your relationship with the startup organization. Let’s take a look at each of these topics. Timeline For an Exit Most exits come from another company buying the startup. It takes six months to a year to complete a buyout. Delays often come from the startup not being prepared or ready for the M&A process. Additionally, setting valuation and final terms can take substantial time for research and negotiations. To shorten the time, consider the following: Identify and contact the likely buyers and build a relationship before starting the process.  Position the startup leadership as a thought leader with published articles and keynote speeches to provide credibility. Build a data room of key documents that will be used in a transaction process. This is basically a gathering process, but does take some time.  Beware of competitors in the diligence process as they will have access to your detailed financials and other information. Understand the interest level from the buyer and what other activities may delay their work on your deal. Set realistic expectations for how fast things will go. Early Exits In setting the exit, most investors look to maximize the exit value. It’s important to remember that the metric investors use, Internal Rate of Return (IRR), has a time component to it. The faster the exit, the higher the IRR. As an investor, consider pursuing the highest IRR and not just the biggest dollar exit as bigger exits take longer. While the news highlights the biggest exits, the vast majority of exits are under $20M. Selling a business for under $20M is not that hard, however growing a business and selling it over $100M is very hard. Most acquirers don’t need the business to be large, they just need to know the business model is defined and is profitable. Staying in the deal longer opens up the investor for dilution and other events that reduce the return on investment. A startup should be proving their business model and turning it into a repeatable, predictable process. With funding and time, it will scale. As an angel investor, you should look for early exits and structure your investments accordingly. Finding Alignment Investors should gain alignment with the startup about the exit before making the investment. This includes the size and timing of the exit. There needs to be some clear thinking and research about who will buy the company and how much they will pay. The investors and the startup need to work together to achieve the exit. One of the biggest impacts on the exit for early-stage investors is follow-on funding. It’s important to gain alignment on the subsequent financing rounds required and the impact it will have on the early investors. It’s often the case the startup is overly optimistic and comes back later asking for additional funding.  Also, be sure to discuss the path the startup will take to achieve the exit; will the company grow organically, or will it push aggressively for growth? It’s important to maintain communication about the exit strategy and discuss whether the company is on track for it or not.  Finding The Buyer In selling a business there are two types of buyers: strategic buyers and financial buyers. Strategic buyers look for companies that can enhance their current business. Financial buyers look for companies that generate cash. Their motivations and concerns are different. The strategic buyer will look to see how closely the acquisition is to the buyer’s business and how much work it will take to integrate it, while the financial buyer will look at the financials to determine the cash flow and how long it may sustain. A company seeking a buyer will need to develop a relationship with CEO and VP-level contacts in the industry. This can be done through introductions, conferences, and other events. The company may also find an avenue through the corporate development team in some cases. Bankers are also potential conduits to potential acquirers. The board of directors of the acquiring company may provide an additional entry into the company. Finding the buyer takes time and building a rapport takes even more time.    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

    Guide To Startup Ecosystems

    November 6, 2021

    2 min read If you are a serial entrepreneur or are otherwise serious about startups, building a startup ecosystem may be an attractive option to you. Startup ecosystems provide built-in connections and ongoing support, making the growth of a startup from the grassroots stage to a mature business far easier to manage. In this article, we discuss the best way to begin building your startup ecosystem. 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. At the core of the network are startups led by founders who launch high-growth businesses. This network encourages innovation through shared resources such as capital, talent, and mentorship. Each member in the network has something to offer: Accelerators and incubators: provide education around the initial launch Investors: provide potential capital Universities: provide 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 Mentors: provide coaching and guidance on how to grow the business How To Build a Startup Ecosystem In building out your startup ecosystem, consider these points: First, investigate every kind of funding and consider 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, equity funding should be considered if you plan to pay back when you sell the business. 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. Start with a group of entrepreneurs interested in startups and meet regularly. Encourage startups to share their projects and invite others to support 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 and support 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. Remember that your role in building a startup community is to create connections and networks for players in the space. Therefore, facilitating communication and connection is key. 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

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