Crowdfunding is coming to Texas sooner than you think. Here's why

While the SEC continues to work the JOBS act through their process alongside FINRA developing the details for how to enforce it, states throughout the US are enacting intrastate crowdfunding laws of their own.  Kansas, Georgia, and Indiana have already enacted their own laws with Wisconsin, Washington state, Maine, and North Carolina about to enact their own version.

These intrastate crowdfunding laws are typically lower cost variations of the JOBS act that the SEC is currently working on.  For example, the SEC version requires a company raising $1M to provide audited financial statements.  Intrastate laws typically require $1M raises to provide CEO approved financial statements.

Texas will soon enact their crowdfunding laws through the state securities board.  Since Texas' state securities board handles regulations regarding the sale of securities they don't have to go through the state legislature to make such a decision.   A hearing is set for May 21, 2014, for comment on the proposed legislation with a ruling expected shortly thereafter.

For startups seeking funding, they can now pursue a much larger population of investors -- ie, the non-accredited investor.  The Texas intrastate crowdfunding law will keep the state on the forefront of the low-cost model for starting and running a business.

It'll be here in Texas, before you know it.

Best regards,
Hall T.

The Most Common Reason Why Startups Fail to Raise Funding

I work with entrepreneurs every day on starting and growing their business.  In addition to building a product/service that the market wants, recruiting a team that is effective, and finding customers, they must also raise funding.  A select few have the funding to start and grow the company but the vast majority of today's startups do not.  They have to raise funding from outside sources and they know it.

The most common reason why startups fail to raise funding is that they don't budget the time or financial resources to do it.  When they ask me for help in fund raising, I ask for their business plan.  In reviewing it I find they have a time and financial budget for building the product.  They also have resources set aside for marketing and selling it. When I ask for their time and financial budget for raising funding, I often receive a blank stare.

The four components of a startup are product, team, customers, and funding.  They budget time and dollars for the first three but many miss the fourth one--funding.

Fund raising typically doesn't require a great deal of financial resources up front but it does take some.  Pitching to angel groups requires application fees.  Putting investor docs in order requires some cost as well.  The cost is not great but a budget of zero dollars makes it harder.

The primary cost in raising funding is time.  It's a near full-time job for three to six months in most cases.  Who on your team is dedicated to the process?  Closing investors is not unlike closing a customer.  You must have several interactions.  For a new company with a new product is almost never one visit and you're done.  You have to go back and show how the product is improving.  Getting the first customer is the hardest and as you gain more users it does get easier.  The same is true with investing from investors.

So if you're starting to raise funding, I recommend you review your time and financial budget and make sure you are prepared for it.

Best regards,
Hall T.

Sanjay Nasta Talks about Global Student Entrepreneur Awards

Sanjay Nasta Talks about Global Student Entrepreneur Awards

Where are you from originally?

Mumbai, India but we moved to South Bend, Indiana in 1977 (in time of one of the worst blizzards of the century).   Moved to Austin in 1983 (driving through Hurricane Alicia in Houston).   We don't have a good history when we move so we're staying put!

What university did you go to?

Notre Dame and then University of Texas at Austin

What brought you to Austin?

Warmer Climate and the University of Texas

What is your group’s mission?

The Entrepreneurs' Organization (EO) is a global business network of 9,500+ business owners in 131 chapters and 40 countries. Founded in 1987 by a group of young entrepreneurs, EO enables small and large business owners to learn from each other, leading to greater business success and an enriched personal life. Our vision is to build the world's most influential entrepreneur community, which aligns with our mission of supporting entrepreneurial education and engaging entrepreneurs to learn and grow.

As a global business owner network and association, we help transform the lives of the entrepreneurs who transform the world. 

The Entrepreneurs’ Organization also operates the Global Student Entrepreneur Awards (GSEA), the premier award program for undergraduate students that own and run businesses while attending a college or university; and Accelerator, a series of quarterly, high-impact learning events designed to provide top business owners with the tools, knowledge and skills they need to grow their businesses to more than US$1 million in annual revenue.

What need does it fulfill?

EO provides a safe forum to learn from each other.   

What exactly does it bring to startups?

The GSEA awards are focused on startups run by undergraduates.   Past applicants/award winners have said the biggest benefit is the inclusion into the EO community, interaction with business peers.  The award does have $10,000 worth of prizes.

What type of startup would benefit from your group?

A business run by an undergraduate students

What advice do you have for entrepreneurs?

Learn from your peers, from groups such as TexasOpen Angel Networks.   Interacting with your peers expands your ideas, gives you solutions to problems you will face.

Claude Aldridge Talks about Trellie -- a Women's Wearable Tech Lifestyle Brand

Claude Aldridge Talks about Trellie -- a Women's Wearable Tech Lifestyle Brand

How did you start the company?

The company was formed when longtime friends, and now cofounders, realized their families shared a common problem…important missed calls. After realizing they weren’t the only ones, they set out to do something about it. When they came across some Nokia research that said women miss 50% of their calls because there phone is buried in their purse, the light bulb went off.

What was the most challenging aspect of starting up?

That point where your heart and mind are 100% focused on building a company and successful solution but you haven’t fully transitioned out of your other obligations.

What is your company’s mission?

Trellie is a Women's Wearable Tech Lifestyle Brand that enables women to simplify and prioritize their busy lives. Through wearable technology and elegant design, Trellie seamlessly empowers women to filter out the noise and focus on what is important in their lives. 

What need does it fulfill?

Trellie solves two main needs. Wearable technology was invented because the mobile phone is not a very practical user interface. We want to be connected to people and things that are important to us but it is simply not realistic to carry our mobile phone around in our hand in order to stay alert. Wearable tech bridges this gap of our reliance on the power of the mobile phone with the stylish, practicality of technology that subtly fits into your active lifestyle. Secondarily, in this day and age, we are inundated with emails, texts, social, calls, etc. to the point where we need a way to filter out the noise and refocus on what’s important.

What is the next step for your company?

We are deep in R&D on our second product which is taking all of the learnings of our first product and baking them into a complete redesign that is sleeker, smaller and not just for the handbag.

What are your core three values:

1. Women’s wants in technology (very different than men) have historically been overlooked in product design.
2. Wearable technology is the first true opportunity to marry fashion with tech in a practical, feasible way.
3. Staying true to our female target market will help us differentiate and allow us to build “the” lifestyle brand for womens’ wearable technology.

What advice do you have for entrepreneurs today?

Just keep pushing forward. By doing this, opportunities that you never could have imagined will magically present themselves. Capitalizing on the right ones is what will separate the successes from the failures.

What resource have you found to be the most helpful and why?

Our advisory group and investors have been immensely helpful. Besides the early capital support, the opportunities that they have helped create for Trellie are amazing. The knowledge and experience is invaluable but pales in comparison to the strong encouragement they consistently provide.

Crowdfunding Campaigns -- Will They Become the Criteria for Loans in the Future

I recently spoke about the additional benefits of crowdfunding with Broderick McClinton of EquityEndeavor a new portal focused on Austin and New Orleans.  It's a rewards site similar to Kickstarter, despite the name.  He indicated he plans to change the name to match their method of crowdfunding.

We discussed the concept that a crowdfunding campaign can tell one a great deal about a startup or growth company.  If the campaign has a clearly defined product, a demand from the market, and funding from backers, then it's probably a strong company.  On the other hand, if the campaign doesn't receive any interest from backers then it's probably going to have a hard time making it in the market.

In fact, lenders could use the results of a crowdfunding campaign to determine if the startup should receive a loan or not.  A campaign clearly outlines the core product/service.  Market demand can be determined by the fund raise trajectory -- how much and how fast  the raise take place.  Finally, did the startup deliver on their promise from the campaign.  The last one determines if the company can execute on a project.

As the business world moves transactions to performance-based models, this is another example of "prove to me you can do it and then I'll do my part."  In working with investors, I found they over weight what they see entrepreneurs do while on their watch and underweight whatever the entrepreneur did previously. In the same vein lenders are trying to determine what the startup can do currently and running a crowdfunding campaign while on their watch is a great way to determine ability to payback rather than historical credit reports.

It's an interesting idea.

Best regads,
Hall T.

Prasad Menon Talks about the Bayou Microfund-- a Microfinance Prorgram

Prasad Menon Talks about the Bayou Microfund-- a Microfinance Prorgram

Where are you from originally?

INDIA, CAME TO US IN 1979

What university did you go to?

PLYMOUTH UK

What brought you to Houston?

NEW JOB

What is your group’s mission

OUR MISSION IS TO INCUBATE MICRO ENTREPRENEURS AND FUND THEM WITH INTEREST FREE LOANS

What need does it fulfill?

PROVIDES INTEREST FREE LOAN VIA KIVA ZIP AND DIRECT GUARANTEES FOR LENDING

What exactly does it bring to its members?

PROVIDES  MICRO LOANS TO THE UNSERVED COMMUNITY

Who would benefit from your group?

THE MICRO ENTREPRENEURS

What was the most challenging aspect of starting up the initiative?

GETTING IT TOGETHER, IT WAS  JUST LIKE START UP , VERY LEAN , ALL FUNDED BY ONE PERSON , ME !

What advice do you have for entrepreneurs? 

CHALLENGES AND OBSTACLES ARE JUST STAIRS TO GREATER HEIGHTS

What Houston-based resource have you found to be the most helpful and why?

THE TIE GROUP , UNIVERSITY OF HOUSTON MICRO FINANCE GROUP, and NEIGHBOURHOOD  CENTERS.

Texas Entrepreneur Network Celebrates Five Year Anniversary

Today marks the 5 year anniversary for the Texas Entrepreneur Network (originally called the Austin Entrepreneur Network).  I started it to provide networking, mentoring, and funding for early and growth stage companies.   Our results are in: $106M+ raised for entrepreneurs through the TEN Funding Forums 1000+ pitches in the First Look Forum & Funding Forums 7X return for Austin angel network $10M+ raised through Accelerators $5M+ invested through a university-based angel network 250 angel investors educated through a non-profit entity I just want to thank you for your support over these past five years and wish you success in your work in 2014. As always, please let me know what I can do to help you. Best regards, Hall T.

Are You ready to get Married?

Investing in early stage companies is not unlike getting married -- it follows the same steps.  In many cases the time some investors spend in a deal is longer than some people spend staying married.  The average length of a marriage today is 8 years. I know many investors who are in deals for ten years or more.

Here’s a comparison between getting married and investing in a startup.

Marriage                        Investing in a Startup

Longing                          Seeing others make a profit

Introduction                  The entrepreneur pitch

Dating                             Getting to know the team

Engagement                  Due Diligence

Marriage Ceremony     Signing the terms sheet

Honeymoon                   Excitement of joining a new co.

Post-honeymoon          Day to day work on the business

I draw this comparison because I see many investors rushing through the “dating” process only to find they picked the wrong one.

As an investor you’ll spend quite a bit of time with the startup over the coming years so you want to check compatibility with the management team.  The key areas to look for alignment are:  hiring people, managing budget, and building culture.  Products and strategy will change to fit the market and the current business conditions. 

If you’re investing in a startup you’re about to get married.  Make sure you’ve done the necessary due diligence on the people.

Best regards,

Hall T. 

The Searchfund—Another Investment Innovation

Entrepreneurs typically come up with their own ideas and invest time in building a basic business at which point they seek funding to grow it.  There’s a method called the Searchfund in which an entrepreneur raises funding to find a business which can then be funded for acquisition and growth.  The concept comes from Stanford. you can see more at this link about the basics.  

The search fund concept originated in 1984 and has become increasingly well known among business schools and private investors. A search fund is an investment vehicle to allow an aspiring entrepreneur the opportunity to search for, acquire, manage, and grow a company.  They raise an initial seed amount of funding to support the search effort which typically takes two to three years.  Once they have identified the acquisition target, they raise a round of funding to acquire and grow the company. The follow on funding can be in the form of debt, seller equity rollover, earnouts, traditional senior and subordinated loans, and equity financing from new investors.

One can find opportunities from retired CEOs or trade association presidents, brokers, or other personal contacts.  Skills needed for a  Searchfund program are the same as for an entrepreneur --  a wider view of the world, attention to detail, perseverance, ability to build relationships, and strategic thinking.

Benefits of running a Searchfund include expanding one’s view to a wide range of industries in a short amount of time. One can find a target company to acquire and then lead that company to success with the potential for a high financial gain.  About one in five Searchfund ends without finding a target acquisition

The returns match those of venture funds and angel deals.  The Search Funds 2011 study shows the asset class at 34.4 percent IRR and 11.1x multiple of investment.  Results from the Stanford experiment with search funds provided the following results:

“As of December 2011, 26 principals or partnerships were either looking for a company to buy or raising funds for acquisition; 50 had acquired companies that were still in operation; 3 had deviated from the search fund model; and 71 were classified as “terminal.” Of the 71 terminal search funds, 23 acquired and exited a business, 17 acquired then shut down a company, and 31 concluded without an acquisition.”

I know several investors interested in pursuing a Searchfund. If you are interested in being a part of Searchfund, please contact me.

Best regards,

Hall T.

Greg Leman Talks about the Baylor Research and Innovation Collaborative

Greg Leman Talks about the Baylor Research and Innovation Collaborative

Where are you from originally?

I am a Midwest guy.  Grew up in NE Indiana

What university did you go to?

Studied Chemical Engineering at Purdue University, and after working a few years at Dow Chemical, went to grad school at University of Illinois, Urbana campus where I earned a masters and PhD in Chem E as well.

What brought you to Austin?

The opportunity to leverage what I learned over 25 years in research, product development and business leadership to create a new program in Technology Entrepreneurship at Baylor University brought me to central Texas.   I quickly became connected to IC2 Fellows at Baylor  and others who introduced me to the Austin community of tech business innovation.

What is your group’s mission?

Enable accelerated commercialization of things that matter.  In our view this is possible only when we focus on both the innovation and the innovator – sustainable positive impact through tech ventures demands development of leadership as well as technologies.

What need does it fulfill?

As Baylor emerges as a much more research-focused institution, the local need is for easy-to-utilize commercialization pathways that help these research insights to make a manifest difference in society.  More broadly, we are responding to the need for new companies and the SME segment of the commercial world to drive economic growth and create jobs.

What exactly does it bring to startups?

Since we are an accelerator, our key deliverable is commercialization process coaching.  The processes we have developed have proven to be successful in taking ventures to their next key milestone at a 75% rate.  For startups the next major milestone is usually funding the next phase.  In our system most of these startups achieve that funding by a reformulating their plans, which happens as they gain deeper insight into the opportunity set (often significantly altering their prioritized path forward to reach cash positive state more quickly) and also by doing a much better job communicating a compelling value proposition.  Further, we find that teams that have been through our highly iterative process gain such a comprehensive understanding of how all the pieces of their plan depend on each other that when reality happens and they need to reformulate on the fly, they can do so quickly and knowledgably.  We teach them how to skillfully pivot.

What type of startup would benefit from your group?

Pre-funded startups will benefit greatly because we accelerate their path to clear, executable strategy that delivers on proven customer needs.  These teams often have a macro-level understanding of how their technology could solve an important problem, but are very weak on the details of that need, how various customers will find solutions to it and thus what business model will enable a profitable solution delivery system. 

Startups with a successful launch behind them with revenues from their initial target customers in place will benefit by using our process to investigate, prioritize and execute on growth in adjacent opportunities.  By aligning operational, financial, product development and strategic implications for each choice or series of targets, these startups typically discover better rollout options than they had in mind, and gain insight into the talent acquisition challenges they will have over time, allowing them to solve problems proactively.

What was the most challenging aspect of starting up the initiative?

We ourselves are in effect a startup – The BRIC just opened its doors in January of this year, and Baylor has never before had a tech biz accelerator in place.  On the other hand, we are drawing on the experience of a senior coaching team and an acceleration process that team has developed over the past 7 years.  This process created a highly experiential learning environment that mixed venture-teams with student-analysts, so we in fact have a well-proven product.  Still, branding and market awareness have been two of our biggest challenges.

What advice do you have for entrepreneurs?

Commit deeply to your purpose  - your intent to “make meaning,” as Guy Kawasaki described it.  Then, you will be better at focusing on the things that keep you on your path, rather than on just any chance to turn a buck and survive another day.  Conversely, be much more flexible in the details of how you will create that meaning, and work much harder than you think you have to, so that you can truly understand what customers, investors, and other stakeholders can teach you about the process.

What Austin-based resource have you found to be the most helpful and why?

The network.  Every time I have needed to add to our team or gain insight into a particular issue, it seems I end up tapping folks who either are or have been part of the Austin venture scene.

Links:

www.baylor.edu/launch

www.baylor.edu/bric