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

The fund manager provides a quarterly report to the Limited Partners. 

The reports typically contain the following sections:

1. Fund Manager Commentary -- the fund manager provides an overview of the current news and trends related to the fund. 
2. Performance -- this includes the financial performance metrics such as total committed capital, capital called to date, total LP contributions and summary information about the portfolio.
3. Total Value to Paid-in Capital -- the total market value of all the companies in the portfolio plus total LP distributions, divided by the total amount of money paid into the fund.
4. Internal Rate of Return -- a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.
5. Distributions to Paid-in Capital --  a ratio of the total market value remaining in a fund compared to total paid-in capital.
6. Portfolio Company Updates -- name and description of the company, percent owned, date of initial investment, exit date, total capital invested, current cost, realized proceeds and carrying value.
7. Financial Statements such as Income Statement, Balance Sheet, Cash Flow Statement.

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

There are 3 key legal documents for your fund. They are

1. Subscription Agreement -- describes how the limited partners purchase interest in a fund, or rather, subscribe to it. It contains representations and warranties.
2. Private Placement Memorandum -- provides a high-level overview of what an investor needs to know about your fund. This includes the investment thesis, the risks, and other key terms.
3. Limited Partner Agreement -- contains information about the mechanics of your fund and how it operates including distributions, capital calls and management fees.

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

There are three key metrics for tracking the performance of a Fund.

The first is Net Internal Rate of Return (called Net IRR) -- this measures the performance of fund distributions and the change in value of the invested companies over time, after management fees. 

The second is Total Value to Paid in Capital (called TVPI) --this measures the total value of a fund’s holdings plus distributions, as compared to total paid in capital. This takes into account investments that have increased in value but have not been paid out. 

Finally, there is Distributions to Paid in Capital (called DPI) -- this measures total distributions paid to investors compared to total paid in capital. This compares the investors paid in capital to their distributions as measured on a cash-on-cash basis. 

DPI is the metric investors care about the most.


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


In raising a fund you’ll need an executive summary which should include the following:

Fund Objectives, (Legal) Structure, Fund Specifics, Investment Strategy, Investment Criteria, Investment Process Overview, Management Team and Disclaimers.

Fund Objective -- purpose of the fund and how it will be deployed.

Legal Structure -- is it a fund, a syndicate, a pledge fund or some other structure?

Fund Specifics -- most funds are based on a ten-year window.  

Distribution Strategy -- most funds provide a recycle provision that let’s GPs reinvest profits back into the fund.  Other funds require a hurdle rate before GPs can share in the profits. This means the investors get their principal investment back before the GP takes any carry.

Limited Partner Units -- private funds are limited to a maximum of ninety-nine accredited investors in the fund.

Fee Structure -- most funds use the two percent management fee and a twenty percent carry.

Compensation Structure -- this determines when and how the GPs receive their compensation.

Initial Deposit -- funds vary in how much of the funds are required from investors up front. 

Investment Strategy -- outlines the investment thesis.

Management Team -- the resumes of the general partners. 

Finally, there are disclaimers to include. 


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

For those raising a fund, you must develop an investment thesis for your fund or investing strategy.

An investment thesis is a hypothesis that describes how a particular market is suitable for producing a positive return.

Most funds are formed around a specific vertical in which the general partners have expertise and access to dealflow. 

More than one vertical will require the partners to have expertise across several sectors and the associated dealflow access. 

You must be able to articulate your thesis and demonstrate your expertise to investors.

Use numbers to describe market sizes and growth rates.  

Identify trends and their impact on markets and businesses.

Show how your investment thesis takes advantage of these trends and how you envision the future will result in a positive return for the investors.

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

One of the key selling points for a startup is their potential market size.

There are several ways to find it for your startup.

You could buy a market research report. These typically run anywhere from $5K to $20K. This is an expensive way to do it and there are other ways to find the market size.

Oftentimes you can find the summary of the market research report on the web which usually gives the market size at a high level.

You can also contact the trade association related to your industry.  

These associations are most often located in Washington D.C., as they provide government advocacy in addition to industry support.

The website of the association typically provides stats on the industry including market size and sector breakdowns. 

These sources are often more reliable than market research reports.


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

In due diligence, what isn’t being said or shared is as important as what is.

When a startup pitches their idea, you should be skeptical of founders that don’t mention potential risks or discuss their experience in the industry, or their traction.

Here are other key items the investor should look for:

Focus on what needs to be done and what risks exist in the deal.

Understand if the startup is offering a pain killer or a vitamin.

Verify the market size and growth rates actually reflect the market the team is pursuing.

Check the financial projections not so much for predictability of numbers, but rather for the startups’ understanding of their business.

Diligence on the founding team including industry experience, commitment to the startup and no criminal records.


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

In due diligence you may encounter red flags indicating something is wrong.

Here are some that I’ve found:

The founders are not investing any of their own money into the business.  

The cap table is crowded with many small investors. That means the earlier funding was a challenge.

The team is incomplete. Either the solo founder wears too many hats or everyone is a tech developer, which means no one is out selling it.

Lack of awareness of the industry, especially the regulatory side.

There are no KPIs or operational metrics to review. 

Plans are generic and lack specific customer names or revenue amounts.

Loads of debt and previous investors have no further interest in funding or supporting the business.

The business appears to be setup to be the CEO’s lifestyle business. 

Hockey-stick projections with no apparent supporting evidence.

There’s no board of advisors or directors. The team you see is what you will get.

The financials use year 1, year 2 naming, rather than actual years.

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


The prospective investor wants to see traction in your fundraise just as they want to see traction in your core business. 

In raising funding, investors will first express interest and then make a commitment before actually investing.

In a fundraise, you want to capture all three levels in your pitch.

Add up how many investors have expressed interest - which is often called soft-circled interest - and the amount, and present that number as investor interest.

Take all the committed amounts of investment and add that number to your presentation as well. 

Finally, take the amount of funding that has come into your bank account and show that number.

Over the course of the campaign those numbers will change.

It’s  important to show the prospective investor the interest from other investors throughout the campaign.


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.
-----
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