Angel investing comes with many challenges. Here’s a list of how to deal with them: One’s angel investing experience will inform one’s investment thesis. That’s why every angel brings a unique perspective to the process. It takes more than intelligence to win at angel investing. It requires emotional intelligence as…

In selecting startups to fund, investors often use various deal flow channels to find the ones that fit their investment thesis. In addition to deal flow, the investor also needs proprietary insights. This comes from not only seeing a wide range of deals but also knowing which deals stand the…

During down markets, the founder may find it a challenge to raise funding at a higher valuation than the last round. If the company is not doing well, there’s the possibility of a down round. Instead of a down round, consider the following: Raise more funding but at the same…

Founders building their pitch deck have a choice as to how they frame their deal. They can focus on either the jockey, the horse, or the track. Here’s how to frame your startup in this model: Focus on the team. This is the jockey in our analogy. Show how the…

Fundraising requires a great deal of work. At the core of it is the CEO pitching and following up with investors. There are elements that can be outsourced to others. Here’s a list to outsource in your fundraise: Branding and Design The logo and color scheme on the pitch deck…

A key slide in the pitch deck is the Go-to-Market slide. This slide shows how the startup will enter the market and generate adoption. Here are some key steps to build a Go-to-Market slide for your startup: Identify your ideal customer profile and show how it fits into the industry…

After the pitch, the startup seeks feedback from the investor. Sometimes the follow-up is clear and cogent. Other times, the feedback is vague and unclear. Here’s how to decipher the investor’s response: “This is not in my sweet spot.” This is a vague way of saying no, as it gives…

Startup advisors can be a great resource to founders. Here are some key factors that can make the advisor role successful Be selective in choosing them. Look for an advisor who is the best in their field. Timeline is a key factor. Find an advisor who can help now and…

Startups give stock options to employees as part of their compensation package. Most startups create an options pool at the Series A fundraise. A founder-friendly term sheet will have both the investors and the founders pay for the options pool. In an investor-friendly term sheet, the founders will pay for…

Startups that take a long time to reach an exit should consider allowing employees to sell stock on the secondary market. While many startups launch an exit in the five to seven-year range, many more are still running well past this timeframe. Founders compensated employees with stock options. Employees signed…

An exploding term sheet is one that comes with a specific deadline, including a time of day and date. It often gives the founder very little time to make a decision. For founders receiving an exploding term sheet, consider the following: Most of the time, the investor will invest beyond…

Startup investors seeking higher returns should consider the following factors: Due diligence — there must be a meaningful amount of due diligence performed on the startup before investing to increase the returns. At least twenty hours of diligence should be done for any investment. Diversification — it’s important to invest…

Startup investing requires a portfolio approach. Here are some best practices for building a startup portfolio. Determine how much time and investment dollars to allocate to startup funding. This could be done on a total allocation basis or on a time basis such as annually. Determine how many startups to…

The due diligence report is written by the due diligence team. It covers the financial, operational, legal, and strategic aspects of the startup.  A due diligence report for a startup investment contains the following: Market analysis This includes the size, growth rate, sectors, competition, and the startup’s target customer. Product….

In pitching the startup, the founder shows how the business will be positioned in the market. The four-quadrant slide is one tool to show how the startup compares to the competition. Here’s how to set up the four-quadrant slide. Start by identifying the key criteria for customers. This could be…

Startups should build a financial forecast for their business. Even if the future is uncertain and all the data is not known, it’s still important to build one. Here are the reasons why: It validates the founder’s hypothesis. A founder should have a hypothesis about the business. A financial projection…

Founders live in the center of the startup world and thus see many companies raising funding. A startup investor will do well to tap into the knowledge of founders about other startups raising funding. An investor who treats founders well will find they are often amenable to making referrals. Here…

Startup investors spend their day looking for quality deals. There are business plan competitions, demo days, and other formats where founders pitch.  Then there’s warm introductions and referrals. The quality of these deals tends to be higher.   Most investors don’t take time to refer a low-quality deal. Instead of looking…

Founders searching for investors need to qualify the investors for their deal. Here are key questions to ask an investor before pursuing your fundraise: Are they currently investing? What was the most recent investment made? How many of your funded companies achieved an exit? How many of those exits were…

Climate Tech is an up-and-coming investment opportunity. Here are the sectors, benefits, and risks. The key sectors include the following:  Renewable energy such as solar, wind, and geothermal. Carbon capture for capturing, storing, and utilizing carbon emissions. Sustainable transport such as electric vehicles. Smart agriculture such as vertical farming. The…

Artificial intelligence companies bring new challenges to the diligence process. Here are the key steps to diligence an AI startup: Does the AI startup have a clearly defined market that needs the product? How competitive is the startup over other providers? How well does the product fit the customer’s needs?…

Investing in startups requires due diligence. In addition to financial diligence, an investor should consider technical due diligence. Here are the key areas to review for technical due diligence: Scientific risk. This is the risk in deep tech startups that comes from basic science. Look for startups that have de-risked…

A community is a network of contacts who come together for a common cause. Venture capital funds should build a community. Here are the reasons why: A community will generate more and better deal flow. Those in the network will know of the venture capital fund and will send deal…

Investors considering funding a startup should test the startup’s potential. Here are some key techniques for evaluating the startup. Try to sell the startup’s solution to a potential customer. Gauge their reaction to the product and its price. If accepted, then this validates the value proposition of the company. Assess…

There are regulations around the fund manager. A fund manager is considered an investment advisor, which is defined as anyone who provides advice to others regarding securities in exchange for compensation. VC fund managers must register with the SEC unless they qualify as an exempt reporting advisor. They are not…

There are regulations around startup funding. These regulations provide an exemption from the securities laws. Here’s a list of key regulatory terms to know: Rule 506b Founders or issuers of a stock can raise an unlimited amount of capital. They can raise from an unlimited number of accredited investors. They…

Regulatory for private funds includes venture capital funds. VC funds can find an exemption from regulatory requirements by one of the following: Having fewer than 100 owners in the fund. This excludes entities created for the purpose of investing in the fund, such as SPVs or Special Purpose Vehicles. This…

Startup investors see a tremendous amount of deal flow. Finding quality deals is the challenge.  Here are some key steps to automate the dealflow process: Set up tools to search for founders with a specific background. For example, one can set a search to find founders from Y Combinator or…

Venture capital requires a specific type of startup to meet its investment objectives. Here’s a list of key criteria VCs look for: Large market size. The market is large and growing fast. This provides the startup numerous opportunities to find a position in the market. Large market population. The market…

How To Handle Soft Commitments Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. Investors provide soft commitments to hold their place in a fundraise but delay the actual investment. The soft commitment is not legally binding. Investors often…

In raising funding, the founder should be doing as much diligence on the investor as the investor is doing on the startup. Here are some key steps to perform due diligence on an investor: What type of investor are they? Angel, venture capitalist, family office, other? What is their track…

Investors funding a startup must first complete the due diligence process. The objective is to understand all the particulars about the company and the team. Here is the list of the basic due diligence process: The investment. This includes the term sheet, other investors in the round, and dilution impact….

Vesting shares means taking shares granted to an employee and having them earned over time.   A typical vesting schedule is four years with a one-year cliff. This means the employee granted shares will not have ownership of the shares for the first year. At the end of the first year,…

Due diligence is the process of reviewing the condition of a company to be acquired. The purpose is to understand the company’s current status, including risks, assets, liabilities, and potential opportunities. Reverse due diligence is when the company being acquired reviews the condition of the acquirer. Here are several reasons…

A dataroom is a collection of the key documents of a startup for a fundraise. The dataroom can be kept in software specifically designed for dataroom access or in a simple storage folder. These documents include legal entity filings, patents, financials, forecasts, cap table, contracts, and more.  A well-organized data…

Investing in a series of venture capital funds is one strategy for venture investing. This is a fund of funds investment strategy. Venture funds give the Limited Partner access to the best VCs in the industry. Each of the funds used will also bring a set of management and carry…

Networking is a key skill in startup fundraising. The founder must be able to navigate a community to find investors for their fundraise. Here are some best practices in networking in advance of a fundraise campaign: Always ask for referrals. In each discussion, ask for two names of other people…

Dilution is a major issue for founders. Each stage of fundraising causes another reduction in the founder’s ownership. Here are the levels of dilution at each startup stage based on current data: Seed round — 20% Series A round — 20% Series B round — 17% Series C round —…

Ideating a new startup begins with a problem. Here are the steps to ideating your next startup: Scan the market for problems. Review the news to find startup ideas. Review customer reviews of products and services. Talk with others about the problems they encounter. Make a list of problems found…

In ideating a new startup, focus on things other startups cannot do. High-value startups do things other startups cannot This value comes from several sources as follows: Technology edge. The startup has technology that translates into higher revenue and/or lower cost of service. Consider what new technologies can be applied…

Founders raising funding must first get the attention of the investor. Some connections come through warm introductions. Others can come through cold email. Here are some key steps to take in reaching out to an investor: Research the investor to understand their investment interest. This includes the sector and stage….

One often hears of other founders raising funding in a matter of weeks.  While it appears the founder raised funding with little effort, this happens because the founder spent years building relationships and curating investors. Before launching a fundraise, be sure to prepare your network. Many founders raising funding go…

In preparation for raising funding, be sure to include warm-up meetings. Six months in advance of launching the fundraise, set up meetings with investors to indicate you will be raising funding soon. The purpose of the warm-up meeting is to gauge initial feedback on the idea. It also alerts the…

Founders raising funding pitch many investors. It’s often the case that the founder doesn’t know who is interested and who is not. One idea is to require investors to track your deal.  They must remain engaged with it at some level or they are out. This pares down the investor…

Successful startup investing requires a consistent flow of quality deals. The best startups pick the investors. It’s the law of supply and demand. Where there are more investors than capital available to invest, the founder chooses.  Here are some key steps investors should take to build that pipeline of deals:…

Founders raising funding should start with family and friends. It’s not the amount of funding raised that counts, but rather the fact that one’s family and friends support the founder. From there, the founder draws the circle wider to the investors in the local community. This includes the local angel…

Startup investors invest across all stages of startups. For each stage, the investor should focus on a key point. Here’s a list of the investor focus at each stage of the startup: Pre-seed — focus on the team. At this stage, there’s little else to review. It’s about the team’s…

Angel investors are high-net-worth individuals who invest in startups for a profit. They make money when the startup exits by selling the business to another company or going public. The vast majority of exits are through sales to another company. The challenge for the angel investor is that most startups…

Investors often ask for a pitch deck in advance of the meeting. Here are the advantages of sending the pitch deck ahead of time. The investor has time to review the deck and prepare for the meeting. If the deal is completely out of scope for the investor, then canceling…

The first call with an investor is an important one, as it sets the stage for follow-up calls. Here are some key steps to take in the first call: Keep the conversation two-way rather than letting one side or the other monologue. The founder doesn’t learn anything about the investor…

Achieving an exit is the final hurdle in launching a startup using investor funding. Here are some key practices in going through the M&A process. The factor driving the entire process is the company’s business model and how it will sustain over time. Recurring revenue businesses command higher valuations because…

Before launching a startup, a founder should first validate the startup idea. Here’s a list of key steps to validate your startup idea: Is the idea big enough to justify a startup? Many ideas are simple side gigs with little return to the founder. Are you solving a real problem?…

The key to a successful fundraise is to follow up with the investor to close. It’s important to maintain communication with an investor to carry the funding process through diligence. In some cases, the investor fails to respond to a fwup after a pitch. Here are some key steps to…

In pitching for funding, the founder identifies the problem to be solved. And then describes the solution to be offered. It’s important to show not only the solution with its features but also the benefits. Show how well the solution solves the problem as follows: This could be a customer…

Having a better product than the competition is no guarantee of success, but it does help with your fundraise. Here’s how to build a better product: First, understand the customer and the work they must do. Know the overall process flow and how the customer’s job fits within it. Analyze…

Startups fail for many reasons. Here’s a list of the more common ones: Ran out of cash.  This is the most common reason of all.  Could not raise additional funding. Lost too much business to the competition. Did not generate enough revenue to make the business model work. Had a…

Angel investing can be a rewarding experience, providing not only investment returns but also making the world a better place. It also comes with challenges. Here is the challenge of angel investing: There’s a small number of investable startups. There’s a large number of startups to comb through to find…

Early-stage investments require follow-on funding to reach a substantial size, providing a return to the investors that justifies the risk.  Here are the odds that a startup will raise its next round of funding. After the first round, about half go on to raise a second round. This is not…

In startup investing, the team is the most important factor pointing to success or failure. Here are some key steps in evaluating the team for your startup investment. Look for examples of execution on the current startup. Execution trumps the idea. If there’s no execution, then it doesn’t matter how…

Founders raising funding often ask for general interest first with no commitment. A soft commitment is an interest from an investor just short of a commitment. Investors use this to maintain the dialog with the founder as they learn more about the deal. Some use this as a bargaining chip…

Startups raising funding must show a growth story. The best growth story is a revenue curve going up and to the right at a 45-degree angle. For venture,  the growth curve must be at least 50% year over year. Here are some key steps to take to expand sales: Increase…

Burn rate is a key metric investors use to check the health of a startup. Based on the burn rate and cash in the bank, one can calculate how much time the startup has.  Here’s how to calculate burn rate. Use incoming cash as the first data point.  It’s a…

Angel investors are familiar with startups raising funding who come through their normal channels. Deals are often submitted on their software platform or referred by a trusted source. In the world of crowdfunding, startups come through a new compliance channel called Reg CF. The startup posts their deal on a…

Startup investors not only provide capital but also ongoing support to the startup. Here are some key steps to be a good startup investor: Research the market and provide actionable recommendations to the team about customers to pursue. Provide ongoing support through the tough times as well as the bad…

Founders raising funding must capture the attention of the investor. Here are some key steps on how to make the pitch more engaging: Include market research to validate the problem to be solved. This touches on the target market, the competition, and customer needs. Make clear the problem to be…

Investors looking to invest in a startup often look at the revenue as a sign of traction. In the very early stages, the presence or absence of revenue indicates the fundability of a company.  As the company grows, one can look at the growth rate as a sign of traction….

Starting a fundraise can be a daunting task for the first-time founder. Here are some key steps on how to get your fundraise started. Research the market by talking with other founders who are raising funding.  Check the current climate for fundraising. Look at their fundraise documents, including the pitch…

Startups generate a return on investment for their investors by measuring how much their business generated funds returned compared to investment. For the impact space, one can calculate the return on mission. Here is how to measure the return on mission for your impact startup. Calculate the overhead-to-program expense ratio….

In pitching investors, founders should strive to connect with them. Here are some key steps to connect with investors: Fit the startup fundraising standards. Too many out-of-standard details such as fundraise amount, terms, and valuation will put off the investor. For example, traditional first rounds are $500K to $1M. Asking…

Investors looking to invest in a biotech drug startup should diligence the team for key skills. Here are the key skills needed for biotech drug development: Knowledge of how to drug a target. This means identifying a molecule, often a protein, that is associated with the disease to be treated…