Discussion Topics

Most startups envision a product and then proceed to build out an MVP. After they polish it enough they may show it to a customer.   In some cases, they try and take it all the way to a finished product because they want to show completeness to a customer. A customer should be involved before […]

The Venture Capital method of valuation uses a discounted cash flow combined with a multiples-based valuation.  The valuation takes into account cash flows in a best case, medium case, and worst-case scenario. It then uses an industry multiple to set the anticipated sell price. The cash flows and exit price are discounted giving three valuations […]

The CEO must operate in two modes: managing and leading. As a manager, the CEO must define the strategy, recruit the team, and set goals for the company.  This requires strong organizational skills. As a leader, the CEO must set the vision, motivate the team, and create a culture.  This requires having a vision, caring […]

Companies with a strong culture do better with investors, customers, and employees. Building a company culture is the long game, not a short one. From the beginning, focus on instilling core values into the business. As you recruit new team members, they too will have an impact on the culture. Here are some key points […]

Having a strong company culture helps the startup succeed. Customers and partners are attracted to companies with strong cultures. It guides the employees on what is important. The CEO fosters the company culture. In general, CEOs build cultures they like to work in. It’s important to hire well throughout the life of the company. The […]

An entrepreneur raising funding must demonstrate confidence.   Investors will look for someone who has confidence in their plan, their team, and themselves. Oftentimes entrepreneurs fake confidence and come off looking cocky, which is unfounded confidence. True confidence inspires others and persuades them to support the company. Investors look for this in the founder as he […]

There’s a quantitative side and a qualitative side to due diligence. The quantitative side includes checking the list of documents in the data room to verify the accuracy of those documents.   For example, do the entity filings match what the company said they have? Do the intellectual property documents match what they claim they have? […]

Entrepreneurs are often concerned about the confidentiality of their information.  During the initial engagement with the investor, it’s not common to sign NDAs (non-disclosure agreements) as the investor is still figuring out the basics of your business. At the introductory stage, keep the discussion on the general level. As you go further with the discussion […]

In startup investing, investors take in information from the startup about the product, team, financials, revenue, and more. This information does change rapidly in the startup phase of the business.  One method of assuring the investor the information provided is true and accurate is for the startup to sign a Reps and Warranties contract. This […]

In diligencing a startup, the size of the market is a key question. The larger the market, the greater the growth potential of the startup. There’s rarely a need to pay for research as so much exists on the web. In searching the web, you’ll find research reports giving market sizes, trends, analysis, and more.   […]

How can an investor group make the diligence process manageable?  Here are some steps: – Standardize the diligence process – Break it down into subtasks and define the process for each task – Assign the tasks to team members – Set target dates for completion and have periodic check-ins with each team member  – Focus […]

Tools are important for running a deal-flow process.   You’ll need tools for managing deal flow, running diligence, and tracking the portfolio.   For deal flow, there needs to be an application process for capturing the essential information and pitch deck. Examples include Proseeder, Gust, and there are others. For diligence, you need checklists to share with […]

In early-stage investing, someone needs to take the lead and screen the deals, diligence selected ones, and negotiate the valuation with the chosen ones. In most cases, the lead investor doesn’t want to be the only one in the deal and promotes other investors to join.  This promotion process is called syndication. Most investors are […]

In running a diligence process it’s important to keep track of the progress of team members. Set up frequent follow-up calls to check progress and resolve issues. Follow-up calls should be scheduled and led by the deal lead. A check-in call should take no more than 30 minutes. In the follow-up calls, make sure the […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. There are three phases to diligence before funding a startup: 1. Documentation diligence 2. Team diligence 3. Domain diligence For documentation diligence, ask the startup for a list of key documents for diligence. The key […]

In running due diligence it’s important to build a team and bring others into the process.  A deal lead should take care of gathering the initial documents so the team doesn’t stall out waiting on the startup. Assign each team member a task and include the instructions for the task. Make clear that the goal […]

After the diligence is complete and the open questions answered, the team must decide whether or not to invest. It’s important to identify the risks and write them out in the report. The team should articulate an investment thesis that includes the opportunity in the deal such as how big it could become.   The team […]

Startups can raise funding even without a lead investor. In this situation, the startup acts as the lead. Here are three steps to take: First, the startup must present investor-friendly terms and conditions. There should be no push back on the terms. Second, the startup must supply a due diligence package already completed. Consider adding […]

Startups who find an investor expressing interest often stop their fundraise as they believe – or sometimes hope – this will be the one who completes the rest of their raise. I tell entrepreneurs to continue the fundraise effort until the funds are in the bank account. I’ve seen deals blow up on the 1-yard […]

A startup investment goes through a series of stages. It starts with the pitch presentation in which the startup introduces the deal to the investors. Then there’s the first follow-up meeting in which the investors dig into the deal to learn the details. Investors want to think about it and also want to see the […]

I’ve had startups approach me and give me one or two lines about their startup. When I start to ask questions, they say they can’t tell me anything more without signing a Non-Disclosure Agreement or NDA. I often find this puzzling, as investors don’t sign NDAs to find out what the startup business is.   They […]

In running a deal follow-up process, you’ll need to create a diligence report. Here are some key points to consider: – Start with a template that lists the required information. – Include instructions in the original template for the team members to follow. – You may be cycling through many members so you should write […]

To pitch an investor, you’ll need a carefully crafted startup story.  Just any old story won’t do.  Tell the story in your own words as if you’re talking with a friend at a bar. Show how the story is relevant to those in the audience, something everyone can relate to. Keep the story simple.  It […]

There are five key elements to a startup story. Today we’ll talk about the Plot. After you establish the theme, hero, mission, and obstacle, you can start working on your plot. The plot is a series of events that leads to achieving the mission. Plots can be set up in several ways and choosing the […]

There are five key elements to a startup story.    The Mission is the job to be done.  It’s the goal of the hero both now and beyond the story. For your startup story, focus on what the CEO is trying to accomplish and how he plans to solve it. Outline how hard the problem is […]

There are five key elements to a startup story. The hero is the character whose journey the audience cares about the most.  In a startup fundraise story, this is the CEO. Most heroes are trusty and likable.   The audience empathizes with them in some way. Your story should focus on the hero and not just […]

Your story is a critical part of your fundraise pitch. There are five key elements to a startup story.   The first is your theme or purpose. This comes from what inspired your startup. There’s something about the world that you want to change so you started the company to fix it. Next, connect your theme […]

There are five key elements to a startup story. Today we’ll talk about the obstacle. The obstacle stands between the hero and the goal. All good stories have a conflict that must be overcome.   Obstacles could be competitors, lack of knowledge, regulations, and more. The obstacle creates tension which holds the audience’s attention and helps […]

There are three stories every startup should be able to tell to investors.  The first is your origin story which tells why you started the business to begin with and how you got to where you are today.   This story answers the question, “Why are you doing this?” which usually comes from the storyline, “I […]

How does due diligence vary between angels and venture capitalists? At a high level, the diligence is the same between angels and VCs. They both look for a good team, a strong market, and a quality product.  At a detailed level, the angels who come in earlier than many VCs will look at a deal […]

In talking with startups, I find the investor must always probe for the final answer. A single question rarely reveals the full answer. I spoke with a startup recently who said, “We’re raising a million dollars and we have raised half of it already.” On the surface, it sounded like they had $500K invested in […]

After an investor expresses interest in funding your deal, the first question to ask is, “What is your diligence process?”. While most diligence processes follow the same format of document review and analysis with follow-up questions, each investor has their own start time, timeframe of work, and specific documents they look for. It’s best to […]

In raising funding just as in running your business, investors look to see if you own it. Do you own the challenging problems, or do you avoid them? Do you own the core business, or do you delegate it to someone else? Do you abide by the contracts you sign, or do you try and […]

In launching your startup, look for a trigger that indicates when to start a fundraise campaign. Common triggers include: – Closing a lighthouse customer account or achieving a revenue target. – Signing up a new team member or advisor. – Finishing a beta version of your software or an MVP version of your product. – […]

In pitching your deal to an investor, it helps to know your investor first. What type of investor are they — angel, family office, high net worth, or venture capital? What is their investment thesis? Are they swinging for the fences, or do they want to make a series of doubles and triples? In your […]

In raising funding, the challenge for each round of the raise is different.  At the seed round, the challenge is to convince the investor you can sell the product. At this stage, investors look for evidence that you can build and sell the product to customers.  Customer interactions are important because it demonstrates to investors […]

Negotiating the valuation of a startup between the CEO and the investors is a major step in funding. An equity terms sheet requires coming to an agreement on the valuation which determines how much ownership is given to the investor. Both startup and investor must now ‘climb the valuation wall.’ Be prepared for the ensuing […]

Humility plays an important role in your fundraise. Startups demonstrating arrogance and hubris are discounted quickly by investors. It’s not only a sign of disrespect, but also a sign of disregard for the future. Who knows what tomorrow will bring and who you will need? Both startups and investors need to keep the community in […]

I talk with entrepreneurs every day about their fundraise. The most common question from the early-stage startup is, “Am I fundable?” The first question to ask is, “Do you have a growth story?”. Are things clicking forward on sales, team, and product development? I believe the prospective customer should be involved at every step and […]

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In meeting with a prospective investor, come prepared to discuss the following: –  Sales — ALWAYS have something to say about customer interactions. Even at the pre-revenue stage, talk about prospective customers and their reaction […]

In startup fundraising, there’s money and then there’s smart money. Smart money is an investor that can help your business beyond the dollars applied. A few questions will help identify smart money: 1. Can the investor help you in your specific industry segment? 2. Can the investor help you find additional funding? 3. Can the […]

In the movie The Godfather, Marlon Brando plays Don Corleon, the leader of the Corleon family. At one point someone asks him why he made a certain decision. The Godfather replied, “Everything is personal.” In fundraising, ‘everything is personal.’ You must build a relationship with the investor. Yes, there’s the pitch followed by questions. Yes, […]

In closing an investor, you’ll need to provide basic documents about the business to prospective investors for their due diligence.  There are several key documents you need for your diligence box or what some call a data room. These include: – Income statements, balance sheets, cash flows, with assumptions outlined – this shows the current […]

Pitching a startup with complex technology or product can be challenging. This is especially important for those in the healthcare space explaining a new technology to those outside of healthcare. So how do you describe the complex to the novice in a fundraise pitch? Know your audience. In general, most investors are savvy business people […]

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 […]