Discussion Topics

Communicating With LPs In launching a VC fund, you’ll need to set up ongoing communication with the Limited Partners called LPs. It starts with setting expectations for the returns on the fund.   In many cases, it’s 20% to 30% per year, with most funds returning capital in years 7 to…

Sourcing Deal Flow for the Fund In running a VC fund, you’ll need to set up deal flow sources and run screening processes. First, set up three to five quality deal flow sources that provide a consistent flow of startups to review. Maintain those relationships and provide feedback to the…

Team Skills Required In setting up your VC fund, you’ll need to build a team that can make it successful. Here are the critical skills required: 1. Business expertise and knowledge of the industry. 2. Basic finance related to startup investing. 3. Sales and marketing as it relates to startups. …

Designing the Fund In setting up your VC Fund, you’ll need to consider the structure and philosophy behind it. Here are some key points to determine: 1. The fee structure and how it relates to the current market rates. 2. The size of the fund and the general partners’ investment…

Fund Reporting In setting up your VC Fund, you’ll need legal and accounting support. Look for providers who have done the work before and bring experience to the project. You don’t want to pay people to learn on the job. You’ll need legal support to set up the fund documents….

Accounting and Governance There are specific rules for the governance of a VC Fund. The limited partners must be accredited investors. There can be no more than 99 investors in the fund. There can be no “bad actors” in the fund.  Venture funds are different from companies in that they…

How to Track and Report Results In running an angel group, it’s important to capture and report the investment results to the members. Here are some key points to consider: 1. Capture the investments made into a portfolio management system, so everything is in one place. 2. Keep the system…

How to Manage the Diligence Teams In running an angel group, managing the diligence process is key to successfully funding deals.  Here are some points to consider in managing the diligence process: Write out the diligence process for others to use and include templates and key questions to answer. Setup…

VC Fund Core Documents In raising a fund, you’ll need to set up the legal documents that define how and when the limited partners provide the funds, what the fund manager will do with those funds, and how they will return the funds back to the limited partners.  Here are…

Startup Boards — Investing in Startups There’s an old angel saying, “Angels like to have a little fun, do a little good, and make a little money.” Investing is more than just about money. I’ve found my successful investments covered all three of the elements of the old angel saying….

Startup Boards — 3X in 3 Terms Sheets The biggest challenge in investing in startups is finding the exit.   Time value of money is important and should be part of your return metrics. Startup investors look for a 44% IRR.   IRR is Internal Rate of Return and represents the return…

Startup Boards — Foundation for Startup Investing Startup investing is a risky business. Not all the investments will work out.   Know your risk tolerance and how much risk you want to take.   Most investors allocate 3 to 10 percent of their investments into startup investing. Allocate a specific amount of…

Startup Boards — Becoming an Angel Investor For those who want to become an angel investor to fund startups, here are some key steps: Meet accredited investor requirements. You must meet the SEC criteria for accredited investors. You can see the specifics on the SEC website. In short, you must…

Where Does the Angel Play? So, what startups do angel investors pursue? Angel investors invest in high-growth startups, most often tech-enabled. Restaurants, retail, and service businesses are not necessarily a fit for angel investors. Angels seek a return on investment in the range of 44% IRR. While some angels are…

Startup Boards — Startup Investor Skills — Managing the Portfolio Startup investors need to hone their skills in order to succeed over the long run. Key skills include:  1. Evaluating teams. 2. Assessing products and markets. 3. Accessing financial capital not only for the current round of funding but for…

Startup Boards — Startup Investor Skills — Accessing Financial Capital Startup investors need to hone their skills in order to succeed over the long run. Key skills include: 1. Evaluating teams. 2. Assessing products and markets. 3. Accessing financial capital not only for the current round of funding but for…

Startup Investor Skills — Evaluating the Product & Markets Startup investors need to hone their skills in order to succeed over the long run. Key skills include:  1. Evaluating teams. 2. Assessing products and markets. 3. Accessing financial capital not only for the current round of funding but for later…

Startup Boards — Startup Investor Skills — Evaluating the Team Startup investors need to hone their skills in order to succeed over the long run. Key skills include:  1. Evaluating teams. 2. Assessing products and markets. 3. Accessing financial capital, not only for the current round of funding but for…

Startup Boards — 3X in 3 Term Sheet Walkthrough The TEN Capital Early Exit term sheet includes a 3X redemption right, giving the investor the sole discretion over their right to 3X their investment at the three-year mark from the date of the investment.  A redemption right gives the investor…

Startup Boards — How to Perform Diligence in a Group In performing due diligence in a group of investors, it helps to assign roles and responsibilities. There are three phases to diligence: 1. Documentation diligence 2. Team diligence 3. Domain diligence The lead investor should take the three steps and…

Startup Boards — Know Your Why For startup investing, it’s important to know why you are investing beyond the monetary gain.  There’s an old saying among angel investors: “Angel investors want to make a little money, do a little good, and have a little fun.”   Successful investors, I know, not…

Startup Boards — Building Your Entrepreneur Ecosystem I have found a number of investors want to build their entrepreneurial community as part of their investment thesis.   The most common lament from a startup investor is, ‘I invested my available funds and must wait ’til I see something return before investing…

Startup Boards — Early Exit FAQ It’s easy to get into a startup investment, but it can be hard to get out.  An Early Exit deal structure gives the investor a way out. The TEN structure uses redemption rights. What is a Redemption Right, and how does it work? A…

Startup Boards — Why Use an Early Exit Deal Structure In startup funding, 65% of the investments after three years are still in business but are no longer on the venture track.  In most cases, they are growing businesses but are not going to be bought out for a significant…

Startup Boards — Early Exit Deal Structure Investing in startups is risky. One way to reduce the risk is to define the exit.  TEN Capital’s Early Exit term sheet is a convertible note with a 3X in 3-year redemption right at ‘investor sole discretion’ to provide the investor an option…

Startup Boards — Diligence Process – Team Before investing in a startup, it’s important to review the diligence documents, so you understand the business.  There are three phases to diligence: 1. Documentation diligence 2. Team diligence 3. Domain diligence Domain diligence is an important part.  Check the industry to see…

Startup Boards — Diligence Process – Team Before investing in a startup, it’s important to review the diligence documents, so you understand the business.  There are three phases to diligence: 1. Documentation diligence 2. Team diligence 3. Domain diligence Team diligence is the most critical part.   Gather references for the…

Startup Boards — Diligence Process – Documentation Before investing in a startup, it’s important to review the diligence documents, so you understand the business.  There are three phases to diligence: 1. Documentation diligence 2. Team diligence 3. Domain diligence For Documentation diligence, ask the startup for a list of key…

Startup Boards — Diligence Process For startup investing, it’s important to have a diligence process. In most cases, you’ll sign a term sheet with funding contingent on passing due diligence. It helps to tell the company about your diligence process, such as what documents are required, what steps you perform,…

Startup Boards — Allocate Funds In preparing for Startup investing, you should determine up front how much you are going to invest.  In general, it’s best to keep your startup investing to 3-5% of your discretionary investment funds.   These are funds you can lose and not impact your lifestyle or…

Startup Boards — Deal Flow Sources For finding startups to invest in, set up a number of sources that fit your investment thesis. Track each deal that fits your requirements.   In general, you should spend some time networking with startups and investors to stay connected. Use your network of contacts…

Startup Boards — Investment Thesis In startup investing, you should have an investment thesis, which is what you invest in and why it will be successful. Here’s how you build your investment thesis if you haven’t done so already: Step one Look at 50 deals and write down what you…

How to Find Deal Flow In running an angel group, you’ll need to set up deal-flow sources to provide quality deals to the members. Here are some sources to consider: Ping the members of the group regularly for deals they recommend. Avoid the ones in which they say, “I’m not…

How to Recruit Members In running an angel group, it’s important to recruit new members. The first step is to showcase the deals you have to prospective investors to see if they find them interesting. You can send them recently-funded deals so the prospective investor can see the types of…

Branding for Your Group In running an angel network, it’s important to establish a brand for the group and promote it. A brand makes your group look bigger.   There are many funding sources in the market, and a brand helps your group stand out from the crowd. A brand helps…

Portfolio Analysis In running an angel network, it’s important to provide ongoing portfolio analysis for the members. Investors want to know how their current investments are doing. They also need to keep track of their current investments by sector and stage to allocate the remaining funds appropriately. In selecting the…

Best Practices for Running an Angel Network For running an angel group, here are some best practices to consider: 1. Build processes and programs. The second time you say something put it into an email template, a procedure document, or a website and make it a part of your program….

Fundraising Challenge for a Benefit Corp  There are many challenges in fundraising for a benefit corp. Here is a list of challenges: Because your company must demonstrate a public benefit, you must first set up a business that provides the benefit and can show the measured result. Many social impact…

How Angel Investors Engage Impact Investing Angel investors fill the gap between family-and-friends funding and institutional funding. They engage with impact startups in several ways: They fund startups with early-stage capital to launch the business.  They provide mentorship to the startup founders to help the company. Some angels work as…

What Is a Benefits Corporation? A Benefits Corporation is a legal entity that is set up to provide a public benefit. The company using this entity must commit to producing a public benefit. The board of directors must consider the consequences of its decisions on the community. The company must…

Impact Investment Thesis An investment thesis states what you will invest in, why it will be successful, and what outcome you anticipate.  It’s important to determine your investment thesis for impact investing. Here are some guidelines: Impact investing proposes to invest in innovative companies that seek to change the world….

What Is Esg? ESG stands for environmental, social, and governance, and represents the area of focus for socially responsible investors.  This is often referred to as sustainable investing. ESG investing incorporates environmental, social, and governance factors as it relates to the mission of the business.  It’s a set of standards…

17 Sustainable Development Goals Impact investing focuses on social and environmental causes. The United Nations provides 17 sustainable development goals which serve as the basis for impact investing as follows: 1. No poverty 2. Zero hunger 3. Good health and well-being 4. Quality education 5. Gender equality 6. Clean water…

Investor Motivations for Impact Investing Investors fund impact startups. Here’s a list of the primary reasons: The startup furthers social and environmental causes that align with the investor. Investors want to see their investment do more than just generate a return. The startup shows strong growth potential and targets a…

Indicators of a Successful Impact Investment Impact investing seeks to fund startups with social or environmental benefits. Those running impact companies must do so with the intention of providing a social or environmental impact with a measured result. The investment must provide a benefit that is more than what would…

How to Measure Impact Impact startups provide not only a product or service but also a social or environmental impact. Impact startups need to know how to measure their impact in addition to their financial return. Here are some ways to measure it: The startup could measure the impact for…

How to Find Impact Investors Impact investing continues to expand in scope. It covers many industries, including clean energy, food, education, healthcare, housing, clean water, and more. For startups looking for impact investors, here are some key steps: Determine your area of impact. This is important as many investors focus…

Startup Boards — Using Donor-Advised Funds for Impact Investing Donor-Advised Funds (DAF) are funds you set up with your brokerage firm to make tax-deductible contributions to foundations and non-profit organizations you want to support.   You receive the tax deduction when you transfer money into your Donor-Advised Fund.  The funds continue…

Startup Boards — Impact Measurements Impact is in the eye of the beholder.  What impact you see, may not be shared with the investor or company you are working with. You must measure your impact. There are several systems you can use, such as: GIIRS — stands for Global Impact…

Startup Boards —  Primary vs. Secondary Impact Investing In impact investing, there is primary impact and secondary impact. Primary impact comes from the company pursuing its mission.   You measure it based on the effect the business has on the cause it supports. For example, how many students improved their scores….

The Challenge of Impact Investing Impact investing seeks to make the world a better place through its investments. As with all investing, it comes with its own challenges. Most impact investments underperform the market.  The focus on providing social or environmental benefits degrades the financial return. Some researchers claim that…

Startup Boards — Impact Metrics In raising funding, you need to show your metrics.   Startups in the impact space should also show their impact metrics, as investors will look for your results there.  A common mistake by impact companies is to focus on the size of the market to be…

Key Terms in Impact Investing There are key terms used in the impact investing world.   Here is a list of the ones to know: 1. Below market rate — an impact investment made with the expectation that the financial return will be less than the market rate of a startup’s…

What Is Impact Investing? Impact investing is an investment in startups that can generate a social or environmental impact in addition to a financial return.   It can be done anywhere and at any stage of business. Impact investing includes not only angel investors, but also family offices, pension funds, wealth…

Venture Fund Defaults  In a market recession, it’s often the case that limited partners – called LPs – are unable to fulfill their capital commitments to venture funds.  For venture funds encountering this issue, the first step is to open a dialog with the LPs about the capital needs and…

Payback Period for the Product Investors look for strong margins on a startup’s product as it’s a positive indicator of customer interest and a profitable business.  One way to metric this is the payback period for your product.  It’s the amount of time it takes for a customer to repay…

How to Improve Your Valuation Valuation is a negotiation and not just a formula. Here are some key points to improve your valuation: Highlight the team and their contributions to the business. The team is often no more than one slide in the deck and rarely does their value come…

Using Metrics in Your Valuation Metrics can help drive the valuation for your startup fundraise. Here is a list of key metrics to include: Number of visitors to your website and their conversion to paying customers. The higher the conversion rate, the lower the cost of sales and the greater…

Maximizing Your Valuation Valuation is a negotiation and not a formula. While there are formulas and rules of thumb to help determine valuation, it comes down to positioning and negotiating. Here are some key points to maximize your valuation: Emphasize the team and show what they are doing to help…

Justifying a Startup Valuation Startup valuations differ from standard valuations in that they don’t solely rely on expected cash flows, book value, or other tangible aspects of the business. Intangibles such as quality of the team, intellectual property, product status, and customers are the driving factors. Most angel investors want…

Calculating Forward Multiples Valuations for software companies with recurring revenue are calculated using forward revenue multiples. While revenue is the primary factor in calculating the multiple, some companies can increase it by demonstrating excellence in other areas. Use these definitions to calculate it: Revenue growth – revenue this year over…

5X Rule of Post Money-Valuation As an investor reviewing deals, you’ll hear a wide range of startups with various fundraises and pre-money valuations.   So, how can you screen the deals to find those who have ‘reasonable’ valuations? Try the 5X rule. The 5X rule says to take the post-money valuation…

How to Make Your Data Valuable Startups can make their business more valuable if they collect data and turn it into a revenue-generating product. Many startups providing a service can collect data about the process, the customer, the market, and more. Raw data is not of value. It must be…

Startup Valuation Roadmaps Investors setting a valuation should review the cap table to understand how future rounds will cause dilution. A cap table tracks each shareholder and the amount of equity they own including the pre and post-money valuations. Key factors to consider are the following: Option pools — what…

How to Negotiate Valuation With a Startup The key to negotiating the valuation for a startup is to find and examine each value that is already in the business, as well as each value that must be built to achieve a successful exit. Start with the team and check to…

Minimum Information an Investor Should Receive After closing an investment round, the startup should set up a monthly report to the investors. Here’s a list of information to send an investor: Customer wins — list out key sales successes. Celebrate every win. Key metrics — show the core 1-3 metrics…

Investor, Advisor, Mentor, Board There are four ways someone can help a startup outside of becoming an employee. You can be an investor, an advisor, a mentor, or a board member.  As an investor, you can fund the startup. As an advisor, you can guide the founder on strategy and…

What You Should Do After You Sign the Check An investor does a great deal of work before the investment is made and must also do work afterward. Here are some key points to consider: As an investor, you need to maintain contact with the startup. Make sure there’s control…

Nine Types of Angel Investors There are many types of angel investors. Here are nine types commonly seen in the startup community: 1. Networkers — they know a great number of people and can make introductions to them. They are helpful in finding more investors as well as team members…

Angel Investing Best Practices Continued Angel investing is fun but difficult especially if you want to make a return on your investment. Here are more best practices to keep in mind: Take ownership of your due diligence and don’t rely solely on others. Work with angel investors both within your…

Angel Investing Best Practices Angel investing is fun but difficult, especially if you want to make a return on your investment. Here are some best practices to keep in mind: Treat entrepreneurs well because word travels fast in the startup community. No matter how hard you study, the real learning…