Discussion Topics

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. While the Coronavirus brings a lockdown in the movement of people, it doesn’t point to an altered future, but rather an accelerated one. The Coronavirus will accelerate changes in the…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. The Coronavirus has taken an historic 10-year bull market and turned it into a bear market. With comparisons to 9/11, the 2008 financial meltdown, and the Great Depression, startups and…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In raising funding, investors want to know what progress the company is making.  After the initial presentation, the investor wants to hear about progress in four areas: Sales, team, product,…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. Most startups focus on the product first and treat the customer as an after-thought.  The investor knows that in the long run customer revenue will make or break your business…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. To pitch your deal you must first start with a prospect list of investors. Include your contacts who are angels, family offices, and VCs. Canvas your network for those who…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. The investor will look closely at the team in your startup. In particular, they will look for skills and completeness.  Your team must have the skills you need to accomplish…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. The sign of a quality pitch is the simplicity in the message. One test is, can you say your business in five words or less? You should know your business…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In raising funding, you always start with your core network and increasingly expand the circle outward. The list includes the following: Family Friends Coworkers Your service providers such as attorneys,…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. Before you launch your fundraise campaign, prepare your business, investor documents, and your investor network. For the business, check with your team, board, and investors to gain alignment.  Your fundraise…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. For raising venture funding, first consider if you have a deal that’s in the game for venture funding by asking these questions: Is it a high-growth company? Is it scalable?…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In considering a fundraise, think about your ultimate goal with the business. Are you building a business that will be your lifestyle business for the next 20 years, or are…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. How do you know if you need funding for your startup? First, consider the type of business you are going to build and what it will take to get it…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. In raising funding it’s best to break the raise into milestones rather than raising the entire amount of funding in one go. Milestones are typically broken out as follows: Raise…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. I receive many a startup that tells me they’ve talked to everyone in their area to raise funding but they haven’t found all the funding they need.  What can they…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. After you’ve built your fundraise campaign and your list of interested investors, it comes time to close the funding round.   Here are some pointers for closing:  Sort and prioritize…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. To launch your startup identify a large market then target a small segment of that market to attack first. Choose your first segment based  on easy to access and a…

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. Securities law allows for startups to take investments from family and friends.  Here are the relevant exemptions. Rule 504 is The Seed Fund Exemption This allows you to raise up…

How much equity should you give up to the investors? Friends & Family Round: Less than 10% most often in the 5-6% Angel Round: It’s 20-25% VC Series A Round: 25% to 30% It’s important to keep the founders motivated so if too much equity goes to investors, there’s little…

Are you considering launching a Series A fundraise? For startups not requiring FDA, you will need the following: – A product with revenue, preferably above $500K/year – A growth plan to reach $10M annual revenue – A strong team with growth company experience – A credible funding plan to maintain…

Luis asks: Why am I being rejected for funding because I am a startup? Investors always ask that I have at least one year in business or more and that my company has revenue. Usually, when you start a business you start from scratch. That is when you need the…

In fundraising as in all business, one should always show a grateful attitude. This applies to both startups and investors. Begin your call or meeting with a thank you. Such as: -Thank you for taking time -Thank you for meeting with me It sets the proper tone for the discussion….

Startups make many of the mistakes.  Here are two common ones to avoid: Thinking you must have the perfect product before you talk with anyone – including customers.   Many startups go into development mode until they have their first product, and then launch it to the world. Often with a thud. Instead,…

I’ve talked with numerous startups who has a founder that no longer works with the company and has taken their equity with them. One solution to this problem is called Founder Vesting. Many startups choose to structure the founder shares as restricted stock. This reserves some shares which must be…

The terms sheet sets out terms such as Pari passu, Last Money in Rules, Exclusivity and confidentiality, and Conditions of Financing Pari passu is a Latin phrase meaning equal footing and without preference. This clause basically states that if the startup issues any new classes of stock then it shall…

The terms sheet sets out Drag along rights and Protective Provisions Drag along rights give the investor the right to force the shareholders (founders and others) to sell the startup. Drag along rights are common in VC deals. The primary reason for a drag along rights clause is that the…

The terms sheet sets out the Information Rights for the investors. The Information Rights section defines what information and reports are required and the reporting schedule, and sometimes which investors are entitled to receive the information. The standard set of financial reports that investors require include profit and loss (P&…

The terms sheet contains several investor rights relating to Governance and Control.  Here are three of them:  Right of First Refusal   The Right of First Refusal clause says that if a founder sells his or her shares, then the preferred share investor gets the right to buy those founder shares…

You may come across the term warrants in a terms sheet. Warrants are a type of security that gives investors the option to buy more stock over a designated time frame, at a specific price. Three parameters define the details of a typical warrant clause: the term, the coverage, and…

Pay to play is often used in terms sheets. A pay to play clause is intended to create an incentive for existing preferred share investors to invest on a pro rata basis in future financing rounds. The clause spells out that, if the existing investors choose not to participate in…

Terms sheets use anti-dilution clauses to protect the investors. Anti-dilution comes into play during down rounds in which the founders raise funding at a lower valuation than a previous round. There are three scenarios: No Anti-Dilution Protection – Investors and founders share in dilution from any follow on rounds funding….

Liquidation preference is a right commonly found in terms sheet. It provides the investor the right to receive their investment back and then the remaining profits are distributed pro rata to other stakeholders. It’s often expressed in multiples such as 1X, 2X, or 3X. This means the investors with those…

Here are some Financial Parameters to look for in a terms sheet: Type of Security: Convertible Preferred Stock, Series A Convertible Preferred Stock, or Series Seed Preferred Stock. Investment Amount: How much is being raised. Pre-Money Valuation: What the business is worth before the investment. The pre-money valuation can also…

In raising funding, valuation is a key number the CEO and investor must come to agree with. As a startup you must determine your target valuation. There are several methods. One method is the VC Quick Valuation Method This method starts with the exit of the startup. You assume the…

In raising funding, valuation is a key number the CEO and investor must come to agree with. As a startup you must determine your target valuation. There are several methods. One method is the Risk Mitigation Valuation Method. The Risk Mitigation method assigns dollar values to the startup’s accomplishments in…

In raising funding, valuation is a key number the CEO and investor must come to agree with.  As a startup you must determine your target valuation.  There are several methods. One method is called Step up Valuation It uses ten factors. Each factor adds $250K to the valuation To calculate…

In raising funding, valuation is a key number the CEO and investor must come to agree on. As a startup you must determine your target valuation. There are several methods. The first method is called Market Comp. In short, you look at other companies of a similar sector, stage and revenue…

The startup pitch is a key step in raising funding. You must be able to talk about your company in a compelling, coherent, and comprehensive manner in a short amount of time. Your pitch should contain the following: The Attention Getter: Lead with the most compelling reason why you have…

Some wonder what causes the failure rate for startups to be so high. Is it because they are doing new, unproven things? Was it because the market changed or the customer preferences shift? Or was it because they didn’t have funding or access to key accounts. The cause of startup…

I had a startup the other day approach me about investing. In the discussion it came up that one of the founders recently left and took half the equity with him. It appears there was no vesting on the founders equity. Vesting means one has to earn the equity by…

Who should have access to the cap table in a startup? The Cap Table which shows the ownership of each investor and those from the company is reserved for investors, board members, the CFO, and the corporate attorneys. For employees, you want to create a culture of openness. Employees and…

One common misconception about fundraising is that you must know an investor before you can approach for funding. It’s best to have some validation from your own group before approaching those outside of your core. Start with your current network and work out from there. Identify the right type of…

In looking at cap tables, there are several red flags to watch out for. Look for shares that are actually issued and not just verbally promised. Is the cap table up to date with cancellations and repurchases? Many startups consider their cap table to be a work in progress so…

I was approached by a listener the other day who was contemplating investing in a friend’s business. He was the first money in and was trying to figure out how much equity his investment bought. There’s an equation for determining equity ownership. There are three terms in the equation. Pre-money…

Many investors look for traction in a startup to gauge their progress. Traction stated as a single number on a pitch deck can be hard to judge as sufficient for an investment. Many investors tell the startup “nice traction, but we’d like to see more.” Instead of traction look for…

Many enterprise software programs come from service businesses solving a problem for their clients. In searching for a solution on the market, they find none, so they build their own. Later, other clients come ready to buy it. I call this contractor funding, and it’s one of the most overlooked…

It’s best to play nice with others in the startup community. While it may seem diverse and diffused, I’ve found word travels fast. The startup world is transparent and highly viral. So much of what happens regarding deal-flow and investing  is based on reputation and trust.  It takes a long time…

Before the fundraise, startups should spend time with the investor first. It’s less about the amount of face time and more about the number of interactions over the phone, via email, in person, and otherwise. It’s best to connect with investors before you start your fundraise so you have a…

Some startups think their business will succeed based on the idea, the technology, the market or something else. They think their technology will win the day, or that their idea is so great, or the market is growing so fast that they will succeed based on that alone. For the…

Most startup pitches focus on their future. It’s bright. The numbers are growing fast and will be big. The sky’s the limit. Just how much do investors put behind those startup forecasts? The answer: It depends on the historical numbers the forecast is based on. If there’s a consistent track…

I’m often asked when you should raise funding. There are funding requirements to consider. Calculate your cash burn and estimate the need for new cash. There are also preparation and timing issues. Start your preparation six months in front of the launch Launch your fundraise six months before you need…

There are truisms in the startup world you can always count on. A few that come to mind are: – All software has bugs. – All startups take longer than expected (to generate revenue, finish the product, fill in your favorite one here). And my newest one is: The only…

While unforeseen events can overtake a startup, many CEOs simply don’t plan ahead when it comes to fundraising. For every $1M you want to raise, it will take you one calendar year to raise it. Most of the time, an entrepreneur who approaches me is raising funding today and is…