Investor Connect Podcast

Luis asks: Why am I being rejected for funding because I am a startup?

Investors always ask that I have at least one year in business or more and that my company has revenue.

Usually, when you start a business you start from scratch. That is when you need the support to launch and develop new technologies.

In my case, there were three reasons that they closed the door on me. I have no revenue. The technology that I developed is superior to the current ones and big corporations do not want to accept the challenge of the new generation of science and technology.

If my company is generating revenue then I do not need any support to launch my products and services. Don’t you agree?

Well, Luis, it sounds like you have a new invention but cannot find funding for starting up a business around it. The investor wants to see proof.

You must demonstrate product validation and market validation. The product works and someone will pay for it.

So my recommendation is to find a paying customer who needs your innovation and build a custom version of your proposed product.

It won’t be the final product you envision. You have to start small and grow the product over time.

In this way, customers are funding your product development.

This is an ideal way to fund your business as you learn about the needs of the customer as well as build a standard product for sale to others.

Keep in mind, many customers are not going to get excited about 10% incremental improvement on cost and effectiveness over the competition. It takes a 10X improvement in reduced cost and improved functionality for them to switch.

Make sure your product plan includes a path to a 10X improvement.

Once you have revenue you may still need funding to grow the business. But at that point, you will have more choices.

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

Let’s go startup something today!

 

Direct download: Startup_Funding_Espresso_-_QA_Session_-Luis_.mp3
Category: -- posted at: 2:10pm CDT

In fundraising as in all business, one should always show a grateful attitude.

This applies to both startups and investors.

Begin your call or meeting with a thank you.

Such as:

Thank you for taking time

Thank you for meeting with me

It sets the proper tone for the discussion. Gratitude shows a thankfulness to the other and recognizes their time.

It shows their effort is worth something and won’t be taken for granted.

As always, I know your time is important so 

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

Let’s go startup something today!

 

Direct download: Startup_Funding_Espresso_--_Gratitude.mp3
Category: -- posted at: 9:22pm CDT

In this episode, Hall welcomes Anurag Ahuja of TakeOut7. Anurag is a serial entrepreneur, founder, and CEO with over 20 years in the SaaS platform, internet marketing, retail, eCommerce, and data & analytics.

TakeOut7 is an AI-based platform that handles ordering and traditional/digital marketing for independent restaurants. By using TakeOut7’s solutions, restaurants get their online orders directly to their kitchen printers avoiding the painstaking process of manual order entry. TakeOut7’s automated, personalized promotions help restaurants increase their overall revenue by greater than 10% in less than 1 year - all this at no cost to the restaurant via a minimal pass-through business model to the consumer.

Anurag talks about what brought him to the tech space, to begin with, and how he came to the restaurant technology sector. He advises investors to look for companies that can leverage AI and data to help automate tasks for independent customers. Anurag discusses the evolution of the restaurant tech space, and how consolidations and mergers will affect the sector landscape. He also highlights some of the challenges in the space, from the budgetary constraints of independent restaurants, to customers unfamiliar with or unprepared for digital commerce and online ordering. Finally, Anurag talks about TakeOut7's business model and how they are leveraging data and AI to address needs in the space.

Direct download: Anurag_Ahuja_of_TakeOut7.mp3
Category: -- posted at: 4:19pm CDT

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Startups make many of the mistakes.  Here are two common ones to avoid:

Thinking you must have the perfect product before you talk with anyone - including customers.  
Many startups go into development mode until they have their first product, and then launch it to the world. Often with a thud.
Instead, involve customers at every step of the process. In fact, customers should come before the product and not after. 

Hiring the wrong people
Many startups hire people they know rather than people with skill. Some hire with the notion that the candidate “needs a job” rather than ”they have the skill.”
Other hiring mistakes include
a. Hiring B people instead of A people. 
b. Hiring someone to fill a specific position without fit to culture of the company.
c. Hiring someone for work that is not yet defined or funded.

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

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_Common_Startup_Mistakes.mp3
Category: -- posted at: 11:25pm CDT

In this episode, Hall welcomes Samara Gordon of Hyperplane Venture Capital. Hyperplane Venture Capital is an investment firm focused on exceptional founders building machine intelligence and data companies. They partner with exceptional founders who are leveraging machine intelligence, sensor technology, and cloud computing to solve the world’s hardest problems uncovering the underlying structure for each problem and creating solutions at the nexus of perception, communication, intelligence, and insight.

Before joining Hyperplane, Samara worked in Strategy Consulting in New York and Product Management for a venture-backed fin-tech startup in Boston. Samara was Founder and CEO of The Faster Times, a predictive analytics startup that built betting markets for global CPGs.

In this episode Hall and Samara speak about what she finds most exciting at the moment in fin-tech as well as her advice to both investors and startups in the space. For investors she advises that if you are going to invest regularly, try to commit to a strategy around a check and round size and sort of the target ownership that you're going after. For startups, Samara says it's never too early to think about the business fundamentals and the go-to-market strategy and sales, even in the early days.

Direct download: Samara_Gordon_of_Hyperplane_Venture_Capital.mp3
Category: -- posted at: 4:08pm CDT

I’ve talked with numerous startups who has a founder that no longer works with the company and has taken their equity with them.

One solution to this problem is called Founder Vesting

 

Many startups choose to structure the founder shares as restricted stock.

This reserves some shares which must be “earned back” by the founder over time.  The longer the vesting schedule the more shares the founder earns.  The corporation holds the restricted shares until vested.

Vesting founder’s shares incentivizes them to stay with the company and remain engaged with the business. 

If the founder leaves early, then the unvested shares could be used to compensate their replacement.

 

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

Let’s go startup something today!

 

Direct download: Startup_Funding_Espresso_--_Founder_Vesting.mp3
Category: -- posted at: 10:36pm CDT

In this episode, Hall welcomes back Henry Yoshida Founder and CEO of Rocket Dollar Inc. Rocket Dollar was founded in 2018 with the belief that retirement is changing. They believe that people should not be limited in their investment options as they work towards the retirement they envision for themselves. Rocket Dollar makes it safe, simple, and fast for people to take control of their retirement savings.

Henry is a successful entrepreneur and an experienced angel investor. He was the founder of the venture capital-backed robo-advisor retirement plan platform Honest Dollar (acquired by Goldman Sachs), and MY Group LLC (acquired by CAPTRUST), a $2.5 billion assets under management investment firm. He was a Merrill Lynch Vice President, and proudly serves as a Central Texas Angel Network Partner, Techstars + Capital Factory mentor, and NextGen Venture Partner.


In this episode, we catch up with Henry and what he has been up to since our previous episode. Since we last spoke, Henry has been progressing his business and spending most of his time on the entrepreneur operator side of things. He shares some of his investing experience with both the best and worst experiences he has encountered and shares what he ultimately thinks is key- balance. In a startup, you have to come to work and you have to execute every day, but there's always a limited lifeline for every startup by definition until it's no longer a startup.

 

Direct download: Henry_Yoshida_of_Rocket_Dollar_-_FOLLOW_UP.mp3
Category: -- posted at: 3:37pm CDT

The terms sheet sets out terms such as Pari passu, Last Money in Rules, Exclusivity and confidentiality, and Conditions of Financing

Pari passu is a Latin phrase meaning equal footing and without preference. This clause basically states that if the startup issues any new classes of stock then it shall have equal rights with prior classes. This applies to liquidation preferences, voting rights, and so on.

The term prohibits the founders from creating a new class of stock that puts existing investors second in line.

Last Money In Rules term says whoever puts in the most recent funding calls all the shots.

The exclusivity term seeks to prevent the founders from engaging other investors for some period of time. A 30-day duration is typical.

Tied closely to the idea of exclusivity is the confidentiality clause. The investors do not want the founders to reveal any deal terms or other information to competing investors.

Conditions of Financing terms require founders to formalize items such as employment and non-compete agreements with the startup and legal assignment of all inventions and other intellectual property to the startup entity.

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

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_Pari_Passu.mp3
Category: -- posted at: 10:36pm CDT

In this episode, Hall welcomes Nick Iovacchini of KettleSpace, a New York City-based drop-in coworking that partners with local businesses. A former college baseball player, Nick has been an entrepreneur since leaving college. He used his experience in the restaurant space to co-found KettleSpace as a way to provide affordable coworking spaces as well as support local restaurants.

Nick discusses the advantages of a partnership between coworking and food service. He also highlights some of the challenges in the space and provides advice for investors looking into the coworking sector. Finally, Nick talks about the future of KettleSpace, and why he believes it will translate to markets beyond NYC.

Direct download: Nick_Iovacchini_of_KettleSpace_Inc.mp3
Category: -- posted at: 1:39pm CDT

The terms sheet sets out Drag along rights and Protective Provisions

Drag along rights give the investor the right to force the shareholders (founders and others) to sell the startup. Drag along rights are common in VC deals.

The primary reason for a drag along rights clause is that the lead investors want out and require others to join.

Protective provisions state that if the founders want to take any action that might affect preferred shareholders’ investments, the founders have to inform the preferred shareholders and get their collective approval first.

Here’s a list of common protective provisions:
• Merge, sell, or liquidate the company, or any transaction that results in a change of control of the company.
• Change the capitalization structure of the company
• Issue stock senior to or equal to the stock held by the preferred share investor( s).
• Change the certificate of incorporation or bylaws.
• Change the composition or size of the board of directors.
• Pay or declare dividends.
• Take on a debt obligation such as a loan.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.
Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_Drag_Along_Rights__Protective_Provisions.mp3
Category: -- posted at: 12:13am CDT

In this episode, Hall is joined by Manuk Hergnyan co-founder and managing partner of Granatus Ventures. Granatus Ventures is the first Venture Capital firm in Armenia to provide funding, expertise, and networks to promising technology-driven startups based in or having core value-add activities in Armenia. Granatus Ventures is backed by an experienced team of investment professionals with a passion for building great companies. Granatus was established in 2013 and has offices in Yerevan, London, and Singapore. Manuk is the founder and managing partner at EV Consulting, a leading management advisory and corporate finance firm, with offices in Yerevan and Moscow.

In this episode, Manuk shares his thoughts on what he is most excited about in the industry as well as advice to new investors and startups. He says that being in the venture-capital industry, it provides you with new opportunities every day. The startup ecosystem in Armenia is in very dynamic evolution. There are new and exciting opportunities in deep tech and companies that apply scientific knowledge and discoveries for commercial opportunities. Some of the applications help address the most fundamental problems that humanity and societies are facing. There is a lot of power of technology to solve those issues.

Direct download: Manuk_Hergnyan_of_Granatus_Ventures.mp3
Category: -- posted at: 4:07pm CDT

The terms sheet sets out the Information Rights for the investors.
 
The Information Rights section defines what information and reports are required and the reporting schedule, and sometimes which investors are entitled to receive the information.

The standard set of financial reports that investors require include profit and loss (P& L) statements, balance sheets, and cash flow statements. For early stage companies these are typically unaudited financials. For a startup that is up and running, founders should recast the business plan as an operating plan that clearly outlines the key milestones the team intends to achieve.

Typical milestones for a growing startup include sales goals, new product introductions, new customer segment plans, and team expansion. In most cases, reports are provided quarterly.  
 
It’s a benefit to founders to limit the number of investors who will receive reports and financials. Many startups have sensitive or proprietary information, so it makes sense to keep the distribution list small.
 
Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_Information_Rights.mp3
Category: -- posted at: 9:46pm CDT

In this episode, Hall is joined by Brian Morin of the Soteria Battery Innovation Group. Soteria Battery Innovation Group is dedicated to enabling portable electric power without the risk of fires, no matter the circumstances. Their material architecture eliminates the spark on the inside of a battery that can cause fires. Soteria’s goal is to ensure that materials are available to every battery manufacturer with local production from a broad supply base so that every device - whether a hearing aid or an electric bus - can have a battery that is virtually impossible to self-ignite. 

Brian has over 200 international patents and applications on subjects ranging from advanced molecular metals to high-performance fibers to plastic additives. He has several billion dollars in sales of products based on his inventions, which are used in brands such as Nike, Head, Freescale Semiconductor, Intel, IBM, Rubbermaid, and others. He sees his strength as leading the commercialization of innovative technology.

In this episode, Brian shares his unique take on the state of investing in his sector. According to Brian, the market opportunity is immense. The industry is growing very quickly, averaging a 20-22% annual growth rate. He also speaks about challenges, both regulatory and technical that startups may have to overcome. While regulatory does play a role, you first have to deal with a very conservative market. The industry is very conservative about changing anything because of the risk of safety and the immense cost of safety. Finally, Brian talks about how Soteria fits into this landscape and what they are currently working on.

Direct download: Brian_Morin_of_Soteria_Battery_Innovation_Group.mp3
Category: -- posted at: 4:06pm CDT

The terms sheet sets out the board composition.

For an early stage company, the board is comprised of three (3) individuals with one (1) representative being the CEO of the Company, one (1) representative being the Lead Investors or his designee (the Series A Director), and one (1) representative being an individual mutually agreed upon by the Lead Investor and the CEO of the Company.

For a growth stage company, the board typically consists of 5 persons, 2 chosen by the company, 2 chosen by the investors and a fifth person from the industry who provides domain knowledge.

For some investors, there’s also a board observer member named by the preferred share investor who attends the board meetings. The board observer can ask limited questions but does not have a vote in any board decisions.

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

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_Board_Rights.mp3
Category: -- posted at: 9:02pm CDT

In this episode, Hall welcomes back Paul O'Brien of MediaTech Ventures. MedicaTech Ventures is an Austin-grown venture development group and holdings company that connects capital and people in the media and technology industries. An online technology and startup veteran, Paul is known as SEO’Brien for his extensive past in the search industry. Paul works in Venture Capital Economic Development, serving investment in entrepreneurs. He has a passion for media innovation and investment and seeded MediaTech Ventures, a media industry venture development group.

In this episode, Paul catches us up on what MediaTech has been doing since our last interview. MediaTech's perspective in media innovation is that these ecosystems and economies need to develop and mature to serve investor interests the best. The best way to do that is to serve and teach entrepreneurs. Paul explains how MediaTech develops an understanding of all the resources available for investors and startups.

You’ll also learn more about the upcoming SXSW event, Funded House. Funded House is an integrated series of meetups, lounges, speaker panels and parties with a focus on helping funded startup leaders navigate the difficult task of growing their business. Paul shares why it came about and what makes it special.

Direct download: Paul_OBrien_of_Media_Tech_Ventures-_FOLLOW_UP.mp3
Category: -- posted at: 4:45pm CDT

The terms sheet contains several investor rights relating to Governance and Control. 

Here are three of them:

 Right of First Refusal 

 The Right of First Refusal clause says that if a founder sells his or her shares, then the preferred share investor gets the right to buy those founder shares first. Doing so results in increasing the investor’s equity ownership in the company.

Participation Rights

This clause says that if the startup company sells shares to raise more funding, the current investors have the right to buy the shares first. 

Registration Rights

If the startup registers its stock on the public markets, then the startup must also register the investor stock shares and pay the legal fees for it.

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

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_Governance_and_Control_Terms.mp3
Category: -- posted at: 8:51pm CDT

In this episode, Hall welcomes Mikael Krogh, Managing Partner and Founder of Investigate VC. Mikael has experience as both an entrepreneur and investor across four continents, Europe, Asia, Australia, and North America. Investigate is a Singapore-based VC investing in startups with the Network Orchestration business model – companies facilitating information sharing and transactions within their network and sharing the value created with that network.

In this episode, Mikael shares his thoughts on how the industry is changing and evolving. He says we’re at a point where technologies enable disruption of virtually every industry. More than ever before in history, there's an opportunity to launch something with the potential to disrupt the industry you're starting up in. He goes on to say that, if you have an idea that involves AI and big-data analysis, you can have the infrastructure up and running in a matter of two minutes to support that idea. If you had the same idea five years ago, you'd need to build up the physical infrastructure before you could build the product, and this change is an incredible enabler.

Direct download: Mikael_Krogh_of_Investigate_VC.mp3
Category: -- posted at: 2:24pm CDT

You may come across the term warrants in a terms sheet. Warrants are a type of security that gives investors the option to buy more stock over a designated time frame, at a specific price.
 
Three parameters define the details of a typical warrant clause: the term, the coverage, and the price.
 
The term sets the window of time the investor has the option to exercise the warrant.
 
The coverage sets the number of shares the investor is entitled to buy.
 
The price sets the price at which an investor can purchase the shares. This is typically the same as the current price.
 
Warrants are used to ‘sweeten’ the deal by enabling an investor to buy more shares later.
 
Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

Direct download: Startup_Funding_Espresso_--_Warrants.mp3
Category: -- posted at: 9:29pm CDT

In this episode, Hall is joined by Jason Todd of Thinker Ventures, business development and consulting firm specializing in startups and small to mid-size growth companies. An entrepreneur with a background in sales/marketing, programming, and eCommerce, Jason uses his expertise to grow and develop small companies and startups.

Jason gravitates to companies that have a good idea where they are at and can articulate where they want to be. Jason advises investors to get a good grasp of the space they're investing in before committing. For entrepreneurs, he emphasizes the importance of objective market validation and a flexible approach to development. Jason talks about the startup scene in the Midwest region and the particular challenges and advantages that come with it. Jason also discusses his investment thesis and highlights some companies he's had success with. Jason stresses the importance of a compelling growth story and responsiveness to feedback. Finally, Jason talks about one of the sectors he finds particularly promising - Artificial Intelligence - and provides some advice for investors looking into that space.

Direct download: Jason_Todd_of_Thinker_Ventures_1.mp3
Category: -- posted at: 3:58pm CDT

Pay to play is often used in terms sheets. 
 
A pay to play clause is intended to create an incentive for existing preferred share investors to invest on a pro rata basis in future financing rounds. The clause spells out that, if the existing investors choose not to participate in future rounds, they will lose some or all of their preferential rights.
 
For example, if a preferred investor in a down round chooses to invest then he maintains his anti-dilution rights. If he chooses not to invest, then he loses those rights.
 
Other disincentives for not participating include
- Losing some preferred rights.
- Losing all preferred rights and protections, such as forcing the investor into common stock.

If you fail to pay, then you can’t play.
 
Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_Pay_to_Play.mp3
Category: -- posted at: 11:14pm CDT

In this episode, Hall welcomes Daniel Hallawi of KapVista, a global platform showcasing emerging companies across 15+ countries to over 15,000 high net worth, professional, and international investors. Through an investor-focused website and tailored matchmaking, private companies can present their company to potential investors, advisors and board members. As a natural by-product, KapVista also provides a marketplace to find potential co-founders, team members, advisors, board members and individuals who can help grow the start-up ecosystem.

After leaving a successful career in the corporate world, Daniel became fascinated with the startup world. Daniel created KapVista as his response to the massive disconnect between founders and investors. He found that there was nowhere to go for founders to connect to the resources they needed to grow.

Daniel talks about what he looks for in a founder. He encourages startups to be laser-focused on investors from day one–and realize that the little things such as punctuality and follow-through matter. Daniel highlights the evolution of the VC and Private Equity space, as well as the increased competition both for investors and startups. Finally, Hall and Daniel discuss some of the hot sectors, both in the U.S. and Asia.

Direct download: Daniel_Hallawi_of_KapVista.mp3
Category: -- posted at: 3:47pm CDT

Terms sheets use anti-dilution clauses to protect the investors. Anti-dilution comes into play during down rounds in which the founders raise funding at a lower valuation than a previous round. There are three scenarios:

No Anti-Dilution Protection - Investors and founders share in dilution from any follow on rounds funding.

Full Ratchet Anti-Dilution - With full ratchet, the investor’s share price is adjusted all the way down to the level needed so that two things happen:
a. The new investor gets their percentage.
b. The current preferred share investor with full ratchet anti-dilution protection maintains their ownership percentage in the startup,
A full-ratchet scenario dilutes founders ownership dramatically, so this method is unfavorable to founders.

Weighted Average Anti-Dilution - The Weighted Average method takes into account the total number of shares outstanding. The more shares owned by an investor, the less dilution they receive. This method is favorable to founders. Founders get diluted, but not as much as in a full ratchet scenario. Preferred share investors get diluted a little bit, as opposed to not at all in a full ratchet scenario.

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

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_Anti-Dilution.mp3
Category: -- posted at: 10:19pm CDT

In this episode, Hall welcomes Matt Johnson of Johnson Venture Partners, a micro VC fund investing in high-growth startups in the Southeast. Matt's curiosity about the founding stories of successful companies led to a passion for early-stage investing. While JVP is sector agnostic, Matt points to his particular interest in machine learning, cognitive computing technology, and early-stage innovation in general. Matt also emphasizes the opportunities in using network effects to build teams of investors to source deal flow.

For startups, Matt advises that founders get to know the investor and understand their goals, regardless of the type of funding you're after. Matt also talks about some of the platforms and tools available to assist investors to unlock crucial data. Matt discusses his fund's thesis and highlights some of the companies he's worked with. Finally, Matt talks about the importance of discipline and focus, whether you are an investor or an entrepreneur.

Direct download: Matt_Johnson_of_Johnson_Venture_Partners.mp3
Category: -- posted at: 3:50pm CDT

Liquidation preference is a right commonly found in terms sheet.

It provides the investor the right to receive their investment back and then the remaining profits are distributed pro rata to other stakeholders.

It’s often expressed in multiples such as 1X, 2X, or 3X.

This means the investors with those rights will receive 1X their investment before distributing the remaining exit funds based on their equity-based division.

Liquidation preferences come in three forms.

Participating preferred - they get their liquidation preference and share in the equity pro rata with the other investors.

Non-participating preferred - the get their liquidation preference but do not share in the equity pro rata with the other investors.

Participating preferred with a cap - the get their liquidation preference and share in the equity pro rata with the other investors up to a Cap.

Investors often use this to compensate for what they consider to be a high pre-money valuation.
Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_Liquidation_Preference.mp3
Category: -- posted at: 10:22pm CDT

In this episode, Hall welcomes Rob Wray, CEO of BlueStar SeniorTech. BlueStar provides aging-in-place technologies to seniors, particularly those in families with veterans. Multi-faceted businessman/admiral: fluent in technology, people, processes, energy, defense, and general P&L business

Rob is a Mechanical Engineer from the Naval Academy, Admiral Wray. He spent seven years of active duty as a nuclear engineer on surface ships, carriers, and submarines. Transferring to the reserves, he enjoyed a varied 20-year career in business, in manufacturing, hospitality, technology, consulting, and construction. After mobilization to Baghdad, he was promoted to Admiral and placed back on active duty for the past six years. Rob recently retired as a two-star. He has a Masters from Georgetown University, is a licensed professional engineer, holds a patent, has written two books, and is a frequent professional speaker on leadership and management. He has 14 present or former service members in his family, 4 of which are aged 80 or older.

Direct download: Rob_Wray_of_BlueStar_SeniorTech.mp3
Category: -- posted at: 4:00pm CDT

Here are some Financial Parameters to look for in a terms sheet:

Type of Security: Convertible Preferred Stock, Series A Convertible Preferred Stock, or Series Seed Preferred Stock.

Investment Amount: How much is being raised.

Pre-Money Valuation: What the business is worth before the investment. The pre-money valuation can also appear in the “Price Per Share” section. 

Price Per Share: The price per share is calculated by dividing the agreed on pre-money valuation by the total number of shares outstanding in the startup. The share price calculation is where the term “fully diluted” shares outstanding comes into play.The term “Fully diluted” means  the options pool and other forms of stock such as warrants must be included in the share total.

Conversion: Refers to the rate preferred shares can be converted to common.

Dividends: They are either Cumulative Dividends or Non-Cumulative Dividends.  Which determines if dividends are paid out along the way or at conversion.
 
Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_Key_Terms_in_the_Terms_Sheet.mp3
Category: -- posted at: 10:25pm CDT

In this episode, Hall welcomes Brett Commaille of Hlayisani Capital. Hlayisani’s investment philosophy is focussed on the acquisition of either significant minority or majority ownership stakes in market leading organizations that are high-growth and high-impact revenue generating private equity businesses.

With over 20 years of investment and management experience and 12 years Venture Capital, Brett currently serves Investment Principal and Director of Hlayisani Capital and Hlayisani Fund Managers. Brett is an Angel Investor, Venture Capitalist, Entrepreneur and Business Development Specialist who has built a career in investing into and growing small and medium sized businesses both in South Africa and internationally. Brett is the founder and Lead Partner of AngelHub Ventures. Brett gained diverse corporate experience with Deloitte, PWC (South Africa and Middle East), and Standard Bank’s Corporate and Investment Bank. He set up a venture capital fund for Remgro Ltd called Invenfin, where he served as CEO. Brett founded AngelHub Ventures, one of the most active venture fund investors in South Africa. 

 

 

Direct download: Brett_Commaille_of_Hlayisani_Capital.mp3
Category: -- posted at: 2:29pm CDT

Terms sheet lean to the founder or to the investor. One that leans to the founder is called a founders friendly terms sheet.

It has some of the following characteristics:

The term sheet provides that the Preferred Shares will receive the same number of votes as the number of Common Shares it could be converted into. 

The liquidation preference is limited to the original purchase price of the shares, plus any declared and unpaid dividends.

The option pool for future hires is not included in the pre-money valuation.

The term sheet is silent regarding individual founder or employee performance reviews.

The term sheet is silent on the issue of non-competition, which makes it possible for founders to find work after they leave the company.

For at least the first two (2) years of operations, the company will not agree to pay the legal expenses of any investor as a condition of investment.

The term sheet is silent on dispute resolution, which leaves the door open for the company and its investors to go to court rather than arbitration.

These are some key points to look for you in a proposed term sheet that indicates which party it favors.

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

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_Founder_Friendly_Terms_Sheet.mp3
Category: -- posted at: 8:33pm CDT

In this episode, Hall welcomes Jon Trauben of Altitude Investment Management. Altitude Investment Management, LLC is a U.S.-based global venture capital fund manager investing in the legal cannabis industry. The manager's strategy is to invest in a range of early-stage to growth companies that support this rapidly-growing industry, both in the United States and globally.

Jon is an active participant in the cannabis industry as an investor, association member, mentor, and board member. He brings a wealth of experience and management expertise with a 25-year record as a seasoned commercial real estate, capital markets, and finance executive. Jon has held senior positions on Wall Street while at Barclays, Credit Suisse, Cantor Fitzgerald, and Hunt Companies where he was a business leader, lender, trader, and investor. While at Barclays and Credit Suisse he was a Managing Director and senior member of the real estate finance group and was a participant in all major business management, strategic growth, and capital allocations.


In this episode, Jon shares what he finds exciting in the cannabis industry as a whole today. According to Jon, there is a massive built-in customer base that is estimated in the US to be $50 billion dollars of demand. The customer base exists and the creation of this industry is all about creating a legal channel for safe, tested quality products.

Direct download: Jon_Trauben_of_Altitude_Investment_Management.mp3
Category: -- posted at: 3:48pm CDT

In raising funding, valuation is a key number the CEO and investor must come to agree with.
As a startup you must determine your target valuation. There are several methods. One method is the VC Quick Valuation Method
This method starts with the exit of the startup.

You assume the exit value your startup is being acquired for.

You then work backwards to calculate what your startup must be worth now based on that target exit value.

Here’s the VC method by steps:
1. Estimate your exit value.
Use simple exit value estimation using industry trends or estimate using Price/ Earnings multiples.
2. Calculate the post-money valuation
3. Calculate the pre-money valuation.
4. Finally, calculate the equity percentage owned by the investors.

Remember, option pools can have a big impact on valuation

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

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_-_VC_Quick_Valuation_method.mp3
Category: -- posted at: 9:07pm CDT

In this episode, Hall is joined by Paul Rosen, Executive Chairman for Global Go, a consulting firm specializing in the U.S. and international cannabis/hemp market. Paul began as an attorney in Canada, before turning to a career as an entrepreneur in a number of sectors. In 2010, Paul entered the cannabis industry in Canada, which ultimately led to an investment career.

In this episode, Paul talks about the cannabis industry, highlighting both the pharmaceutical and CPG sector applications. He talks about the risks and idiosyncrasies of the emerging cannabis industry. In addition, Paul discusses the state of startup investing in general, and as it relates to emerging, high-profile industries. Paul details his early-stage investing thesis, highlighting the importance of team, a growth market, and a strong go-to-market strategy. Finally, Paul discusses the regulatory side of the cannabis industry and focuses on some of the most promising opportunities and applications in that industry.

Direct download: Paul_Rosen_of_GlobalGo.mp3
Category: -- posted at: 2:38pm CDT

In raising funding, valuation is a key number the CEO and investor must come to agree with. As a startup you must determine your target valuation. There are several methods.

One method is the Risk Mitigation Valuation Method. The Risk Mitigation method assigns dollar values to the startup’s accomplishments in each of four categories: Technology, Market, Execution, and Capital.

Technology Risk Mitigation -- 125
• Prototype developed: $75,000 
• 3rd party validation: $25,000 
• IP filed: $25,000 

Market Risk Mitigation -- 175
• Market research: $25,000 
• Early adopter program in place: $100,000
• Channel partners established: $50,000 

Execution Risk Mitigation -- 500
• Experienced founders: $200,000 
• Prior exit: $250,000 
• Detailed execution roadmap in place: $50,000 

Capital Risk Mitigation -- 150
• Early funding: $50,000 
• Only two angel rounds needed: $100,000

If you add up all the values you get a pre-money valuation, $950,000 in this example.

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

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_Risk_Mitigation_Valuation_Method.mp3
Category: -- posted at: 9:37pm CDT

In this episode, Hall welcomes Eva Yazhari, Co-Founder and CEO of Beyond Capital Fund. Eva shares Beyond Capital Funds thesis. They are a social impact fund that invests in for-profit social enterprises throughout India and East Africa. They invest in businesses within the health care, waste/water/sanitation, and alternative energy/clean technology sectors. Beyond Capital focuses on improving the quality of life and standards of living for consumers at the bottom of the pyramid. Though they seek market-rate financial returns, Beyond Capital is structured as a nonprofit, which allows them to emphasize fidelity to their social mission alongside their financial mandate.

Eva has 14 years of experience working in venture investment and asset management. She was previously a Vice President at EnTrust Capital Inc., an asset management firm where she managed the Shareholder Activist fund manager investment portfolio. As a member of the investment team at EnTrust, she specialized in fund due diligence and underlying fund portfolio analysis.

Direct download: Eva_Yazhari_of_Beyond_Capital_Fund_1.mp3
Category: -- posted at: 2:53pm CDT

In raising funding, valuation is a key number the CEO and investor must come to agree with. 

As a startup you must determine your target valuation.  There are several methods. One method is called Step up Valuation

It uses ten factors. Each factor adds $250K to the valuation

To calculate your total pre-money valuation add $ 250,000 for each:

- Total market size over $500M

- Business model scales well

- Founders have significant experience

- More than 1 founder committed full-time

- MVP developed, customer development underway

- Business model validated by paying customers

- Significant industry partnerships signed

- Execution roadmap developed and being achieved

- IP issued or technology protected

- Competitive environment favorable

You may give partial credit for items that have some progress made.

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

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_Step_up_Valuation_method_1.mp3
Category: -- posted at: 8:48pm CDT

In this episode, Hall welcomes Vik Sasi of Dreamers VC. Dreamers VC, founded by Will Smith and Keisuke Honda is a venture capital fund bridging established Japanese corporate investors with early-stage, US-based companies. The company was conceived from their shared passion to improve the world. They invest in innovative companies, alongside top-tier lead investors, to improve lives through the application of emerging technology. When appropriate Dreamers VC supports expansion by connecting companies to their global network of capital and strategic partners. Generally, they make the first investment into a Seed, A, or B round, and maintain follow on capital for the growth stages of our investments.

Vik was previously on the investment team at AmFam Ventures. He began his career as an Analyst for the Clinton Foundation’s Health Access Initiative and as a Strategic Advisor to the Haitian Ministry of Health, with additional stints in investment banking at Morgan Stanley and venture capital at Healthbox.

In this episode, Hall and Vik speak about the Dreamer fund and what they specifically look for. According to Vik, Dreamers is a purely opportunistic fund. Nearly 100% of the deal flow is inbound. It all boils down to the team, organic growth and potential for uncapped upside. Vik also touches on what he sees as challenges startups face and offers his advice. It’s really simple, just stay in your lane, run your race, try not to get caught up in trying to keep up with the Joneses.

Direct download: Vik_Sasi_of_Dreamers_VC.mp3
Category: -- posted at: 5:02pm CDT

In raising funding, valuation is a key number the CEO and investor must come to agree on. As a startup you must determine your target valuation. There are several methods. The first method is called Market Comp.

In short, you look at other companies of a similar sector, stage and revenue and determine how you compare. The steps for creating a market comp valuation are as follows:

1. Create a short profile of your startup based on revenue, sector, and subsector. 

2. Find similar startups with known valuations to use as comps which is short for comparables.

3. Compare your startup profile to the comp’s profile and determine how far ahead or behind you are.

4. Adjust the valuation for their differences.

In the Market Comp valuation, use several comparisons. Don’t just rely on one. Market Comp works well when there is a heavy concentration of companies so it’s fairly easy to compare.

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

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_Market_Comp_valuation.mp3
Category: -- posted at: 8:56pm CDT

In this episode, Hall welcomes Amrit Robbins of Axiom Exergy. Axiom Exergy's cloud-based platform provides active power management services for buildings with large thermal loads. Today, 60-70% of a typical building's electricity bill is driven by w it consumes power, and 28% of all electricity consumed by US commercial and industrial buildings is used for thermal services ($56 billion/year and growing in the US alone).

Amrit began his career wanting to accelerate the clean-energy future. As an entrepreneur and engineer, he realized that the most promising solutions would be economy-driven rather than policy-driven. Amrit talks in-depth about power management and refrigeration industry, and how it is traditionally a high-volume, low-margin space. He discusses how Axiom has approached this space by essentially putting unused data to good use, using AI techniques. Amrit also talks about some of the challenges Axiom overcame in building into this space. Finally, Amrit highlights how refrigeration technology could be part of the key to mitigating the climate crisis.

Direct download: Amrit_Robbins_of_Axiom.mp3
Category:general -- posted at: 2:26pm CDT

The startup pitch is a key step in raising funding. You must be able to talk about your company in a compelling, coherent, and comprehensive manner in a short amount of time. 
 
Your pitch should contain the following:
The Attention Getter: Lead with the most compelling reason why you have a great business. 
State the Problem you are solving: It must be big enough to warrant customers to pay for it.
Show the Solution: Discuss the core product and how it is packaged and monetized. Try saying what it does in 6 words or less.
Size the Market: Do this at the Macro level and the Micro level in dollars and growth rate.
Identify the Competitive Advantage: What gives your business a 30% increase in revenue over your competition?
Discuss the Business Model: Is it recurring, a transaction fee, or other?
Show the Team: Demonstrate you have a complete team and they have experience.
Show the Growth Story: Sales, team, product, and fundraise are in motion.
Show the Investment Opportunity: How much you are raising, and what is raised so far in interest, committed or invested?

Make sure you hit these points in your next pitch.

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

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_How_to_write_a_compelling_pitch_deck.mp3
Category: -- posted at: 9:24pm CDT

In this episode, Hall welcomes Vinay Singh of Fireside Ventures. Fireside Ventures is an early-stage investment platform focused on consumer brands. From prototyping and consumer testing to a longer initial gestation period, and a greater need for mentorship, they understand the highly specific needs of a consumer startup.

Vinay spent his early career at Hindustan Unilever as a marketing manager for multi-core brands. With his extensive expertise working in digital marketing with McKinsey & Co., and Bankbazaar.com, Vinay has a unique perspective on the intersection between consumer brands and technology. He has also spent time as an entrepreneur, as the founder and CEO of Stepni.com, which was later acquired by Quikr.

Direct download: Vinay_Singh_of_FIreside_Ventures.mp3
Category: -- posted at: 3:51pm CDT

Some wonder what causes the failure rate for startups to be so high. Is it because they are doing new, unproven things? Was it because the market changed or the customer preferences shift? Or was it because they didn’t have funding or access to key accounts.

The cause of startup failure comes back to one ultimate source: the team. Just about every failed startup comes down to the team not being able or motivated to execute.

It’s often the case, they underestimated the work and what must be done to succeed. The team you choose must be able to handle this.

Pivots, restarts, and unforeseen events are part of every startup’s journey. The team must be prepared to regroup for this.

As the company grows, the team must be able to cut costs, attack new markets, and turn on revenue streams.

The team must be able to work without funding for a period of time.

Failed startups point to a lack of funding, encroaching competition, regulations, and the list goes on. But the right team can take those in stride and continue to grow the company.

CEOs, ask yourself: Is my team able to adapt to the changing conditions?

Investors, ask yourself: Is the deal you’re considering to invest in have the skills to work through all the ups and downs? Look hard at their ability to do all of the above and not just what’s on the current plan.

Plans change, strategies shift, and markets move, but the team is the constant in which you invest.

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

Let’s go startup something today!

Direct download: Startup_Funding_Espresso_--_Why_do_so_many_startups_fail.mp3
Category: -- posted at: 9:50pm CDT

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