Discussion Topics

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…

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…

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…

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…

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…

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…

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…

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:…

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…

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…

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…

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…

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,…

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…

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…

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…

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…

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…

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…

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.  …

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…

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…

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,…

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…

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…

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…

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…

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…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. Any financing you have must also be accounted for in the financial statements.   You’ll need to set up a tab in your spreadsheet to capture the details of a loan,…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. For sales forecasting, begin with your current sales funnel and revenue history. The more you know about your sales process — lead generation, conversion, and time in funnel, the more…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In setting up for your financial projections model, personnel is straightforward to forecast. Each employee has a salary, benefits, and payroll taxes.   Payroll taxes are a calculation off of the…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. Cost of Goods Sold, called COGS forecasting, represents the cost to build and deliver your product or service. This includes the cost to build the product or hours to deliver…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. Financial projections also called the pro forma, is a key document you’ll need for your fundraise.  Investors will want to see detailed, five-year financial projections as it shows you’ve thought…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. There are two approaches to financial forecasting for startups. The first is top-down forecasting. The second is bottom-up forecasting. Bottom-up forecasting uses the company’s historical data for cost and sales….

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. There are two approaches to financial forecasting for startups. The first is top-down forecasting. Top down takes a macro perspective by using the overall market sizes and industry estimates for…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. A financial model provides three outputs. Key financial statements, an operational cash-flow forecast, and key metrics for the business. Key financial statements include the profit and loss statement (called P&L),…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. The most important financial statement is the cash flow statement because cash is the most important financial metric for the business. If you run out of cash then you most…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. After completing the financial projections, you may want to create various scenarios of your financial model.  Startups are often optimistic, while investors are pessimistic. You may want to create a…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. The elevator pitch is the short-form version of your presentation for investor opportunities that give you a limited amount of time. The key to an elevator pitch is not to…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. After the pitch comes the investor discussion, in person or by conference call.  Research the investors in advance by looking them up on LinkedIn and their own company websites. In…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In developing the pitch deck, there are several mistakes I often see. One of the most common is trying to explain in great detail how the product or technology works….

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In your pitch deck, the fifth slide is the monetization slide. It answers the question on how you make money.  Show the business model you are using such as recurring…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In your pitch deck, the twelfth slide is the Investment Opportunity slide. This slide shows the fundraise target and how much is raised so far. Include interest and committed investors…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In your pitch deck, the eleventh slide is the Financial slide. The Financial slide gives the current status of the company with respect to revenue, expenses and profit. You want…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In your pitch deck, the tenth slide is the Value Proposition slide. The Value Proposition slide shows what value your product/service brings to the customer.  It should answer the question,…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In your pitch deck, the ninth slide is the Team slide. Show the C-level team, include the CEO, CTO, and CSO. Include a picture of each team member with their…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In your pitch deck, the eighth slide is the Competitive Advantage slide. First, highlight your core value proposition for the customer. Show what value the customer receives from your product/service….

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In your pitch deck, the seventh slide is the Competition slide. The Competition slide often helps highlight the market size and strength by showing who else is playing in that…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In your pitch deck, the sixth slide is the Traction slide. For this slide, show current sales as well as the funnel of upcoming sales opportunities. Include forecast numbers for…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In your pitch deck, the fourth slide is the Market slide. The Market slide shows the size of the opportunity. Show total available market, which is anyone you can sell…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In your pitch deck, the third slide is the Solution slide. For your solution, show a picture of the core product or technology so the investor gets a sense of…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In your pitch deck the second slide is the Problem slide. It’s important to start the pitch with the problem you are solving so the investor has a frame of…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In your pitch deck, the first slide is the Title slide. It’s important as it’s the first slide the investor will see. It should convey the style and culture of…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. After funding, you need to keep your family and friends investors informed on the status of the startup. Consider the following: Be transparent about the results and share both bad…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. The goal of the pitch deck is to introduce your deal to an investor and find out what is essential to that investor. The goal is not to tell your…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In raising funds from family and friends, you could take it in the form of a gift.   Most family and friends want to help you out rather than make a…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In launching your startup you must consider your intellectual property strategy. Intellectual property or IP includes patents, trademarks, copyrights, and trade secrets.  You should trademark your company name. For your…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In raising equity funding, you can only raise from investors who are accredited. The Securities and Exchange Commission (SEC) establishes the criteria for those who are accredited. You can see…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In launching your startup you must consider employment law.  You should check to see what contracts your prospective employee may have signed with a former employer around non-competes, non-solicitation agreements,…