Discussion Topics

There’s an old saying: If you tell me, it’s an essay. If you show me, it’s a story. In raising funding you have to show, not just tell. Forecasting alone doesn’t close the round. You must demonstrate progress towards it. Never show up to an investor meeting or call without something new in hand to […]

I’m often asked how long it will take to raise a round of funding.  It will take you one calendar year for every million dollars you are raising, that’s if you are working on it full-time. If you are part-time, then it will take longer. You’ll need approximately two months to prepare for the raise. […]

Raising a fund is hard. Aside from sales, this is one of the hardest things to do in a startup. Here are a few points to remember in your fundraise: – Build relationships first and find investors second. – Divide your raise into tranches and give yourself a reasonable timeline for each tranche. – Investors […]

If you are pitching to a close friend or family member, you can use an informal approach to ask them for money. Explain what your startup does in just a sentence or two, and tell the story of how you came up with the idea. Keep it brief. Describe how your product or service works. […]

I often see CFOs and board members give the investor pitch instead of the CEO. In an emergency this is okay, but by and large, the CEO should be giving the pitch. The investors want to size up the CEO and know who is running the business. I find the CEO stand-ins can deliver the […]

In pitching an investor, the key presenter is the CEO.   While board members, CFOs, and others can make the pitch, that’s the second-best choice. The investor wants to meet the CEO and size them up for their communication skills, passion for the project, and expertise in the domain. An in-person meeting is a must for […]

Most of the work in a standard board meeting are perfunctory duties such as approving minutes and reviewing financials and metrics. The board also weighs in on key decisions around fundraising, strategy, and other topics. Board members will discuss whatever you put on the agenda.   Make sure the agenda items are of strategic importance and […]

Board members are a key part of a growing startup. Building out the board is an important step in setting up the company for success. Here are some characteristics of an ideal board member: – They come prepared to the meetings having read the material and done their research. – They have an open dialog […]

The board is a key part of the team that makes the startup successful. When you are in the early stage, using family and friends funding creates an informal advisory board. Try and meet with them monthly in a coffee shop and keep it to three members. After you launch your product and start raising […]

You may want to add independent board members to your board. The independent board member may add value to your company by bringing domain knowledge and operating expertise. Look for someone who has run a company of your size and industry in the not-too-distant past. The independent often brings a new perspective to the company […]

So, what is a board observer? In general, the board observer is just that, an observer. Someone who listens to the discussion but doesn’t actively participate unless called on to join in. Some investors negotiate a ‘board observer’ position as part of their investment so they can monitor the progress of the company. Most board […]

Board meetings are important for gaining input and advice on how to run the business. To get the most out of your board meeting, start with an objective for the meeting including agenda and preparation documents such as financials.  It’s helpful to get feedback from the participants before the meeting so you can adjust the […]

Board members can help the company in many ways. Here’s a list of potential support:  – They can help recruit employees for the company as many board members have extensive networks – They can help with the fundraise as they know investors – They can help with strategy since most will come from the company’s […]

Startups with product-market fit that are generating revenue should consider installing a board. The board of directors provides oversight for the company. Early-stage boards should have an audit and compensation committee. The audit committee sets the policy regarding the finances including control, expenses, and reviews. The compensation committee sets pay for the company’s employees and […]

In growing your startup, one of the best assets you can have is a strong and engaged board of directors. The board should have members who collectively cover a range of skills, network, and experience. They should be connected to your startup and its industry in some way. A good board is on the same […]

The startup board is typically led by the CEO. Some boards fall into formal roles to tackle specific tasks such as compensation or exit planning. Many boards see members fall into informal roles. The most common roles are the domain expert, the advocate, and the critic. The domain expert looks at everything from the industry […]

In running a board, there will be conflicts and bad behavior. Here are some to watch out for: – The board member who disrupts the group and takes the discussion off-track from the agenda. – The member who must have it their own way every time. – The member who doesn’t know the topic well […]

There are several types of board members.  Each provides a contribution to the board dynamic. Here are the types you may see in your board room: – The Cheerleader. Always optimistic and sees the upside to every proposal or situation. – The Pessimist. Always pessimistic and sees the backside to every proposal and situation. – […]

Board directors can help the company in many ways beyond governance. Here are some key areas: – Provide strategy and direction for the company at a high level – Make introductions to customers and partners – Provide helpful tips on how to run the business – Help recruit other board members – Put in place […]

The board leader can make the board meetings more effective. Here are some points to consider:  – Set up meetings that don’t conflict with holidays or heavy travel schedules – Send out the board package in time for review – Focus the agenda on the top issues – Demand the attention of the board members […]

For board meetings, it’s important to prepare properly. Set the meeting schedule well in advance, such as a year. Prepare documents far enough in advance so the members have time to read the materials and prepare for the meeting. Use a standard format for the board package so the members can find things more easily. […]

One of the key roles of a board member is coaching the CEO. Here are some key points to consider: – Focus on the team, the financials, and the strategy of the company – Avoid the minutiae of day-to-day operations – For the team, work on building the company’s culture – The CEO may need […]

The board can help the company with building the team. Here are some key points to consider in helping with recruiting: – Identify candidates to fill the C-level positions that are available – Set up a recruiting and hiring process as startups often have ad hoc procedures in place – Help foster the company’s culture […]

In setting up the board for a startup, it’s important to set the compensation policy for the directors. While some candidates will join the board for no monetary compensation, most people will require some compensation. Here are some key points to consider when setting the policy: – Tie the director’s compensation to an evaluation of […]

Board members have a fiduciary duty which means they must exercise good business judgment, put the company’s interest first, and act in good faith. Board members work in the following areas: – They set policy for the company – Evaluate the CEO – Check the financial resources for sufficiency – Approve annual budgets – Provide […]

Directors & Officers Insurance (D&O Insurance) protects the board members whose work brings potential liability for the director. Most policies offer $1M to $2M of coverage. Here are some key points to consider in choosing a D&O Insurance policy: – The policy should indemnify the directors. – It should advance expenses at the point of […]

In raising funding, the startup will meet with many investors to answer their questions. So, how should the startup answer the investor’s questions? First, listen to the question and answer it directly and to the point. If the question requires a number, then give that number. For example, if the investor asks how much revenue […]

A common mistake made by startups is launching a company in an industry in which the founders know little or nothing about. I find this happens often in the healthcare and financial industries. The size and growth of those markets make it attractive to pursue but without a deep knowledge of how those industries work, […]

In pitching investors, you must be able to demonstrate your competitive advantage. It’s not enough to say your product is better or your team will execute faster. You must identify your core competitive advantage and show how it gives you at least a 30% cost reduction or a 30% revenue increase over the traditional methods.   […]

Startups are usually shy about discussing their current revenue when they are early in the process as the revenue is not large. I tell the startup the investor doesn’t care about the size of revenue, but rather revenue predictability.  Investors look for systems in startups regardless of the size. Do you have a process for […]

If you are pre-revenue, you can show traction with your startup. We’ll define traction as activity with customers, albeit without revenue. Show customer engagement at all phases, even before you have a product. You should have customers coaching you on what product to build. First, when communicating with investors, always include customers in your discussions. […]

In setting the valuation for a startup, there are financial calculations, and then there are non-financial factors. I call the non-financial factors the “soft side of valuations”. These include the following: Current market conditions — as the market heats, up certain sectors turn ‘hot’ and therefore command a higher valuation than the numbers indicate. Predictability […]

In the deal process, there are always issues that give the investor cause to rethink pursuing the investment.  Here is a short list of dealbreakers that indicate it’s time to break off the deal process. – There are major surprises, such as finding out the company has significant debt they did not disclose previously. – […]

There are over 125 terms in the NVCA glossary for terms sheets. So which key terms should the investor focus on? Here are six key terms to consider for your startup investment: – Valuation or the price you pay for the equity is the most important term that impacts the return to the investor. – […]

There are pros and cons to using a convertible note. Startups use them primarily for seed rounds and bridge rounds. They are lower in cost, as the documents are simpler than equity terms sheets. They avoid setting a price, so they are easier to negotiate. It keeps the cap table simple as they start in […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. There are many terms used in terms sheets but there are only a few that have a significant impact. Here are the key ones: – Liquidation Preference — a liquidation preference gives the shareholder their […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. There are many terms in a standard terms sheet for investing in a startup.  Six terms have a direct impact on the return the investor receives. They are as follows: – Pre-money valuation is the […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In negotiating the terms of a startup investment, the investor should develop a standard terms sheet and modify it for each deal. In going into due diligence, send the terms sheet to the startup for […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. The terms sheet glossary contains over 125 terms that can be used. For every risk in the startup, there is a term to place in the terms sheet to mitigate that risk. If you feel […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. For a startup to raise funding it must have a legal structure. The two choices are LLCs, which is a Limited Liability Company, or a C-corp. Most startups launch with an LLC and convert to […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In launching your fundraise, you should always be in a position to take funding. There are many investors who want to join the deal but won’t take on a lead investor role in setting the […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. After diligence, investors who want to move forward will sign the investment documents. For a convertible note raise, the investor and CEO will sign the note. It’s a rolling close, so the funds go into […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. Startup fundraising requires investment documents. Of course, you should seek counsel with your startup-friendly attorney before committing to an equity fundraise, but here are several sources of terms sheets on the web. Ycombinator provides a […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. Terms sheets can be founder-friendly or investor-friendly. The terms sheet provides terms in favor of the founder over the investor or vice versa.  Here’s how you can tell which one you have. In a founder-friendly […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In negotiating a terms sheet, there are several key elements to keep in mind. Valuation is the biggest hurdle as it sets equity ownership.  Key terms that often come into play include the following: Liquidation […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. When I ask startups how much they are raising for investment, they often quote their total raise for the life of the startup. We then talk about breaking the raise into smaller rounds so the […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In determining your raise amount, consider what you need for the next 18-24 months and focus on that window rather than the entire life of the company. Raise enough to accomplish the goals for that […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. I often hear investors say if the company just had revenue then the risk would be gone. But once the startup achieves revenue, the next stage of risk comes up – will they be able […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. Startups raising funding should keep track of their cap table which shows who has ownership in the business. If you have one, make sure to keep it up to date.   If you don’t have one, […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. Depreciation represents the reduced value of assets. Each asset in your business has its own useful lifetime.   Based on that useful lifetime, one can expense a portion of the value each year over the life […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. Your financial projections will be important for your fundraise. Banks will want to see your projections when you apply for a loan.  And investors will want to see them as well when you raise equity […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. Operating expenses are the day to day expenses a business incurs. They support the operational side of the business covering sales, marketing, product development, and administration. These expenses include legal, digital marketing, payroll for employees, […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. For later-stage startups with revenue, one can use the financial projections to estimate the company’s valuation for fundraising purposes.  Discounted cash flows, called the DCF method, values the company based on future cash flow projections.  […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. Your financial statements will generate a wealth of metrics on your business. Investors want to know these metrics – also called KPIs – which stands for Key Performance Indicators. You can use the metrics to […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In preparing your financial projections, you’ll need to account for investments into assets, also called capital expenditures. These include real estate, intellectual property, equipment, facilities, and buildings.  Assets also include computers, servers, and office equipment. […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. Working capital is the capital you need to run the daily operations of the business and includes anything that can be converted to cash.   This includes cash, accounts receivables, and inventory.   Accounts payable reduces your […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. All businesses must pay taxes, including startups. Taxes include payroll and social security taxes which are based on the salary of employees and paid monthly. Even if your business is not yet profitable you still […]