Saturday, January 16, 2016

Why we need to Rethink Investor Recognition

I deal with startups from across the country but mostly from the tech centers, Austin, San Francisco, New York, and increasingly Chicago, and Atlanta.  I can tell almost immediately if the startup is coming from the Bay Area because they are head and shoulders above all others in how they treat the investor.

They thank the investor for the time they are spending.  They show respect for the investors background (and most often have actually looked it up and found some talking points to start off the conversation).  They show gratitude for the "insight and helpful advice" the investor is giving them.  As an investor, I know this is somewhat fawning and it can be overdone, but the fact that they are taking time to research before the meeting, and showing a modicum of respect for the investors time and advice sets a better tone for the discussion.

Outside of the Bay Area, most entrepreneurs come to pitch their deal and get a response--nothing more.  They treat the investor and the entrepreneur as equals and while most say thank you for taking time at the beginning of the meeting, that's about it.  There's no tone set for the discussions -- this will be another conversation with just another investor -- no big deal.

On your next pitch, research the investor you are going to meet and take an extra step to thank him for his advice and show how it means something to you.  You're not just raising funding, you're building a relationship.

Friday, January 15, 2016

The Rise of Analytics in Fundraising

Analytics is fast turning into a must have.  It comes under various names-- Big Data, Predictive Analytics, and more.  Big data refers to the acquisition and management of large data sets.  Predictive analytics refers to the brand of data mining concerned with the prediction of future probabilities and trends. The goal is to find the one or two variables that can predict an outcome.   Some are familiar with the law of large numbers which says if you perform the same experiment on a large data set, the expected outcome will converge as more experiments are done.

In the investment world, analytics are used to determine where and how much to invest.  The goal is to yield the highest possible return.  The variables cover the type of investment, the duration, and the amount to invest in each type.   The same concept now applies to many other areas.

There are now databases of backers for rewards campaigns.  Here's one example by Krowdster.

For those raising funding, Funding Analytics takes in a large number of potential investors and then determines what factors are the key variables.  Since investors change their perspectives, so what they look for in an investment will change as well.

At its most basic level, funding analytics shows you which investors are most likely to invest in your startup or growth company.

Thursday, January 14, 2016

TEN Funding Program-- How to Raise Funding at Every Stage of the Business

Crowdfunding can be used to raise funding throughout the life of a business.  When the idea of a new business strikes you and there's nothing built yet, then you should run a donations campaign--ask family and friends to donate $10K collectively.  Make sure they understand that no one is getting paid back.  The value of this step is that it establishes a network to support your business.  The money can be used for some initial costs such as filing patents, building websites, and starting work on a prototype.

The next step is to use a Rewards/Prepay campaign to pre-sell 50 units of your product.  It can be anything.  The key here is that you start to build your customer network.  If you can't presell 50 units, then you have a product problem that needs to be solved first before you go any further.  The funding you raise should be enough to build the first version of your product. 

With a successful rewards campaign behind you,  you now move towards turning those customers into investor using the Texas Intrastate crowdfunding campaign.  The Texas Intrastate law gives anyone the ability to invest in your business.  Again, the funding helps, but building your network is the important point.  If all fifty of your Prepay customers invested in your business you now have fifty brand ambassadors supporting your business--not a trivial support by any means. 

With support from your customers, and now investors in your business, you approach angel investors and start to raise funding to grow the business.  Angels invest $250 to $2M to grow a working operation.  When you arrive at the angel investors door, they are expecting you to have a product at some stage of usage and some revenue.  The previous steps give you the ability to do that. 

If you need more funding, then you can go back and raise revenue-based funding.  The investors at this stage take a piece of the revenue as payment rather than an equity stake.  

If you find yourself having trouble raising funding, it may mean that you skipped some key steps. You should go back and fill in the gaps of building your support network and your customer base before proceeding. 

Wednesday, January 13, 2016

Texas Venture Growth Forum Event Results -- 1

The Texas Venture Growth Forum (TXVGF) held its inaugural event October 7-8, 2015 in Austin bringing together a community of over 900 Texas stakeholders to address the Series B funding gap in the Lone Star State.

In total, there were 124 one-on-one meetings between 26 B+ series company CEO’s representing over $334M in funds raised, and 32 late stage funds and investor groups that represented over $15B in assets under management. On social media, the reach of the TXVGF extended beyond the microcosm of the AT&T Center to well over 70,000 people interested in startups.

Texas State House Representative Jason Villalba, provided the keynote calling for the state to support the reseeding of the venture capital community in Texas which at one time in the 90s was robust and growing. Since the dotcom crash, the community has recovered but never fully developed a Series B level funding community.  Neal Dikeman chaired the panel on Corporate VCs describing Shell Technology Ventures approach to investing in startups.  One out of five VC deals are now done by a Corporate VC in the US.

The event was a tremendous success and a tangible foot forward in advancing Series B+ investments in Texas’ startup ecosystem. In the spirit of maintaining momentum, the team behind the Tech and Mobile event has been working non-stop to plan similar events in the Cybersecurity and Life Science spaces for 2016. These events will provide an opportunity that investors and CEO’s in these spaces will not want to miss. 

Tuesday, January 12, 2016

Want insurance for your next angel investment? Consider Assureli

Assureli’s algorithm and risk model helps angel investors make some money back on their investments even if the business they invested in fails. 

Originally from San Antonio, Texas, Tarek Hassan from assureli, has always been an entrepreneur.  He graduated from the University of Texas at Austin in 1998 and his first business, Surf Break, was a partnership which he created with Southwest Airlines and American Airlines, putting internet stations into their boarding areas (started in Austin airport in 2002) to help increase the value of customer service for their passengers in the boarding area.

Today he and his CTO, Pat Luciano have created a new risk model for the insurance industry focusing on startups.  With the 2012 JOBS Act and the SEC rules coming into place they are looking to help accredited and soon unaccredited investors reduce their risks.  The team includes two entrepreneurs, a Mathematics professor, and three actuaries. 

Assureli provides insurance to investors of startup opportunities

The idea came from seeing the large growth of entrepreneurs with great ideas and a growing number of investors entering the market through crowdfunding.  Assureli allows investors online or offline a new alternative to investing.  Instead of investing your money and losing it all when the business you invested in fails (which is a majority of the time) now the investor can pay a little extra with Assureli’s premiums to insure your investment.   If the business fails within a certain time period, the investor can make anywhere from 25%-75% of your investment back depending on when the business fails.   The premiums range from 10%-19% of the investment.  The insurance is non-transferable.

How does it work?

The premium payment to assureli will range from 10% to 19% of the investment made into the companies, based on risk of the segment.   Higher risk industries such as the food/hospitality industry will be closer to the 19% mark for example. 

How does the investor receive coverage in the event of a loss?

When the business invested in, fails in
year 5, then 25% of the investment is returned to the investor. 
year 6, then 50% of the investment is returned to the investor. 
year 7, then 75% of the investment is returned to the investor.

Under what conditions does it not payout?

The business is not determined to be a failure and funds will not be returned to the investor when the company fails, if:
1.      Business does not show signs of at least a 10% increase in revenue and customer base year-over-year, for the previous 3 years in a row of operations.
2.      An investment equal to half of the amount or more of the investment in question, is paid to the company on/after the 3rd year anniversary date of the first investment, to help its growth.
3.      Investor inaccurately submits information regarding the investment amount or the company the investment is made into.

What do you think?

We have included a very short survey and would like to request some feedback please.  It will take you only 2-3 minutes at most, it’s just a few quick questions, and it can provide the right feedback as we move forward to offer you this service, sooner rather than later.  Here is the survey link and a request for your feedback.