Investor Connect Podcast

Look for the right investor to lead your deal, not just the first investor

Today, we’ll talk about finding a lead investor for your deal.

I’m often approached by a startup who has several investors interested in their deal but no one wants to lead it.

This is not surprising given how much work goes into leading a deal which includes setting the valuation, selecting the key terms, and performing due diligence.

For those who don’t yet have a lead investor we start with a convertible note. A convertible note is a debt instrument that converts to equity later. This makes it easy for investors to join the deal without having a lead investor package it up for you.

At some point in the round an investor will express interest in investing but only for equity. If that investor will invest at least $100K then they are a lead investor candidate. You pursue that investor to lead your deal.

Those investing smaller amounts such as $25K will most likely not put sufficient time into negotiating the terms – especially the valuation so they are not good candidates to lead your deal.

You want to be in a position to take investments when they are offered. A convertible note works well for this purpose. Investors signed up for the convertible note demonstrate investor interest making your deal more attractive to the lead investor when they appear.

Thank you for joining us for the Startup Espresso where we help startups and investors connect for funding.

Let’s go startup something today!

Direct download: Startup_Espresso_--_Finding_a_lead_investor.mp3
Category: -- posted at: 4:12pm CDT

In this episode, Hall welcomes Kirk Otis of Merger Partners. Hall and Eric talk about how companies can move their marketing function from a startup stage to a growth stage company. Merger Partners, a mid to lower market Investment bank, focuses on connecting entrepreneurs, business leaders, and management teams with the PE Capital market in order to fund acquisitions and growth initiatives. Kirk has a background in corporate finance at Fortune 100 firms, then 20 years in CorpDev. To date, Kirk has completed 52 transactions, totaling 13.5B, and has done transactions internationally in 10 countries. His deals fill product gaps, acquire customers, gain a position in entirely new markets and open up new market regions.

Direct download: Kirk_Otis_of_Exit_Partners_1.mp3
Category:general -- posted at: 2:49pm CDT

Today, we’ll talk about how to value your startup.

Since startups don’t have significant revenue then how do you value your startup when fundraising?

Traditional tools such as discounted cash flow, book value, and other standard accounting techniques don’t work for early stage companies.

For startup valuations we use the rule of 4.

For each value you have built into the business for revenue, team, product, and IP, give your startup $1M in valuation.

So for revenue, if you have 5 enterprise customers with contracts signed then give your startup $1M of valuation. If you have something less than that, then reduce the valuation. Say you have only 1 customer who is paying, then give your startup $200K in valuation. If you have no revenue, then give your startup $0 valuation.

If you have the team in place and working well, then give your startup $1M in valuation. If you only have two in place then give your startup $500K..

If you have the product up and running and ready to ship to the customer then give your startup $1M in valuation. If you have it in beta version then give your startup $400K..

If you have the patents filed and awarded then give your startup a $1M valuation. If instead you have a handful of provisional patents filed, then give your startup say $200K.

You then add up each of the 4 components and that gives you your startup valuation. In this example, the valuation would be $1.3M.

In the end, startup valuation is not a formula but rather a negotiation. No matter, what valuation you put forth, the investor will challenge it.

By using the rule of 4 you can articulate the values in your business which will be much more compelling then the usual response of “well I just think it’s worth that.”

Thank you for joining us for the Startup Espresso where we help startups and investors connect for funding.

Let’s go startup something today!

Direct download: Startup_Espresso_--_How_do_you_value_your_startup.mp3
Category: -- posted at: 7:05pm CDT

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