Tag Archives: Investment

Mistakes to Avoid When Pitching to a VC

Venture Capital Mistakes to Avoid from The Startup Garage

Mistakes to Avoid When Pitching to a VC

Avoid the “How Embarrassing!” Moment

No one wants to look dumb — especially while requesting a significant amount of money. As a growing business, it is important to have a firm grasp on the capital raising process — especially if your goal is expansion. The number one concept to understand about Venture Capital is that it is for businesses with established revenue looking to scale up.

If you are not to this point yet, seek angel investment or look into crowdfunding.

Regardless, the tips here of what to avoid will help you plan for the road ahead.

Not Enough Focus on the Financials

A VC firm will make the decision of whether or not to invest in your business primarily based on the numbers. There is an expectation of risk, but the assumptions and projections — as well as past revenue — will need to suggest a healthy return in order to be considered.

[pl_blockquote pull=”right” cite=”From ‘Pitching A VC Why Financials Matter’ by David Hornik”]
“It is almost assuredly the case that an early stage company’s projections are wrong. In the last decade I have only seen one company actually hit the numbers they pitched me on. The rest of the companies have missed by varying degrees of big time. But the real question when listening to a pitch isn’t whether the company will actually hit the numbers they are projecting, but rather what those projections say about the entrepreneur and the business? Is the entrepreneur focusing on the right things? Do the financials make reasonable assumptions? If the assumptions are anywhere close to right, is there a big interesting business to be built? Smart investors will dig into your financials to get a better sense of how you are thinking about your business.”
[/pl_blockquote]

 

Insufficient Market Validation

You will be expected to have accumulated some sort of customer base. Merely providing hopeful statistics on the market will not help prove the target’s willingness to adopt the product, or that there is even a viable business in discussion.

 

Requesting an NDA

Don’t ask an investor to sign a Non-Disclosure Agreement, even if it is just to protect your grandmother’s secret sauce recipe. An investor won’t sign an NDA… ever. And you will look like an idiot for asking.

 

Unconvincing Exit Strategy

What you’re selling the VC firm is a stake in your company over a given growth period. Their reason for buying in is to receive a large sum once the business has reached its growth goals. In order to be attractive, present a clearly defined exit strategy. Sell them on the opportunity.

 

Replacing Conventional Introductions with Digital Advances

With what has been said on the importance of the numbers, note that a VC firm is not investing in a product or even the business per se. They are investing in you, the founder. Maintaining a professional level of communication is extremely important. Introductions should first be made in person. If you’re not sure how to go about meeting these people, start networking. Local events and groups are a good way to start. Resourcefulness and the ability to network are traits an investor at any level would be interested to see.

Always remember your audience.

 


Whether you have a question about Venture Capital, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

What to Know about Venture Capital

What to Know about Venture Capital from The Startup Garage

What to Know about Venture Capital

What to Know about Venture Capital

Venture Capital (VC) firms collect money from a collection of wealthy individuals, insurance companies, educational endowments and pension funds.1 These assets are allocated over a portfolio of stocks, bonds, real estate, etc. Typically between 5% — 10% are assigned to “Alternative Investments.”

The alternative investments are the high-risk/high-reward class of assets and are what is available to fund startups.

VC firms are typically set up as limited partnerships with two types; limited and general partners. Limited partners provide the funding in the form of a Capital Commitment, or obligation to pay when called upon. It is the responsibility of the general partners to put together deals that are attractive to their counterpart, in exchange for a percentage of profit.

VC firms knowingly make high-risk investments. The funding they provide is in exchange for equity in the company, and like all things when dealing in risk — the higher the risk, the more expensive it is. Your risk as a startup will be determined by the information and confidence you present. Ownership required by the VC firm can range between 15% — 25%.

The funds raised in a VC round for a tech startup serve one major purpose — scaling.

VC firms evaluate businesses that have a proven track record and product. Candidates must be able to present evidence to the market and sales potential and are interested in either growing up or out (geographically or for enterprise). This limits who this applies to primarily, but not exclusively, to tech businesses.

In order to be accepted by a firm, the numbers must work. VC firms work in the millions and billions, and will expect a model that has the capacity provide a large exit. While most VC recipients do not reach the numbers required for acceptance, confidence in the company’s potential is expected.

Of the millions of companies created every year, just a few thousand get VC funding. Nearly every tech company you recognize has been funded by VCs, including: Apple, Amazon, Google, Facebook, eBay and PayPal.


1 The Nuts and Bolts of Business Plans – MIT Course 15.S21. By Joe Hadzima (nutsandbolts.mit.edu)
 

Whether you have a question about Venture Capital, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

How to Determine Your Startup’s Valuation for Investors

Startup Valuation from The Startup Garage

How to Determine Your Startup’s Valuation for Investors

Startup Valuation

One of the biggest questions from startups is, “How much money should I ask investors for?”

What they should really be asking is, “What is my company’s valuation?” You must know how much your company is worth before asking for any amount of money. And when you do, you want to make sure it is the minimum amount you need to make your idea work. It is not a good idea to under or overestimate thinking you can either get your foot in the door or negotiate down with an investor. It can ruin your credibility and chances of getting funding before investors even look at your business plan.

Making Your Case To Investors

Now that you have a general idea of how much your company is worth, here are some things to think about and how you use that information to justify your request to investors.

  1. Consider implied ownership cost. Don’t ask for an investment that is more than your business’ valuation. If your valuation is $1M, you can ask for $200-300K and offer 20-30% of equity in exchange.
  2. The type of investor you chose is important to how much capital you can ask for. Angel groups will not consider an offer over $1M.
  3. What stage is your company in? If you are in the early stages, but have a prototype, angels might be interested. Keep in mind if your company is still in the “idea” stage, it has no valuation and investors other than your friends and family will not be interested.
  4. See where your cash flow bottoms out, and add a buffer. To be credible, your request size must tie into your calculated financials.
  5. What are the investment terms? The most common is an equity investment. You need to figure out what works best with the valuation of your business and choose terms that will keep the investment amount credible.
  6. Single or staged delivery. You can request to schedule a single investment in tranches, based on milestone achievements. This can allow a larger commitment and lowers investor risk.
  7. How are you using your funds? Investors expect uses to apply to your core mission and want to see a “use of funds” list.
  8. Estimate a return on investment. To help your credibility, project a return on investment at the time of exit.

It is difficult to determine the appropriate size of investment, but it is important to get it right the first time in order to keep hold of your credibility.
 

Want To Learn More?

Raising Capital from Angel Investors eBook

Download our free Raising Capital from Angel Investors eBook.

This guide will walk you through the process of obtaining seed capital for your startup. This book includes:

  • An overview of the angel investor process and who they are
  • The milestones angel investors look for when evaluating your business
  • Strategies for finding the angels best fit for your startup
  • How to nurture the relationship, prepare for the meeting and deliver the pitch
  • Rounding out the details and preparing for the future

Seed and Series A Technology Funding Report

Capital Raising Trend Report from The Startup Garage

Seed and Series A Technology Funding Report

Tech Seed and Series A Medians and Averages Show Little Change

Despite some notable early-stage Juiced and Jumbo Series A round investments in tech firms such as GitHub and Clinkle, the average and median Seed and Series A transactions are showing little change.

Juiced Series A deals typically range between $8M and $15M.  Companies raising this type of capital typically have substantial market traction and boast teams of 20+ professionals.  These deals resemble traditional Series B investments.

Jumbo Series A deals typically range between $15M and $60M.  Companies raising this type of capital typically have been bootstrapped for quite some time, boasting revenues of $10M+ and looking for institutional capital to grow fast with goal of reaching a not too long term IPO.

Average and Media Seed and Series A Deals

The average tech Seed deal has stayed consisted at $800K with the media at $50K as outlined in the graph below:

Average and Median Tech Seed Deal Size from The Startup Garage

 

The average tech Series A deal reaches $5.1M with the median at $3.35M as outlined in the graph below:

Average and median tech Series A deal size from The Startup Garage

 

 

Looking at these early-stage deals by sector we see that Internet Seed deal averages declined to $770K while medians increased slightly to $530K.  Meanwhile, mobile Seed deal averages grew to $830K with medians also increasing to $520K.

Average and median Internet Seen deal size from The Startup Garage

Average and median mobile Seed deal size from The Startup Garage

Within Series A, median deal sizes in the mobile sector are also growing faster than the internet sector:

Average and median Internet Series A deal size from The Startup Garage

Average and median mobile Series A deal size from The Startup Garage

All data and graphs thanks to CB Insights.

 

Whether you have a question about early-stage tech financing or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Angel Investment Trends in Q1 2013

Angel Investor Trends in 2013 from The Startup Garage

Angel Investment Trends in Q1 2013

Angel Investor Valuations Remain Strong

Angel investor median deal sizes increased as valuations remained strong in the first quarter of 2013.  The majority of deals went to healthcare, mobile and internet startups.  Highlights from angel investing in the last quarter include:

  • The median angel deal size for Q1 2013 reached $680K – up 5% since last quarter and 24% since the same quarter last year.
  • 81% of deals were completed in angel groups’ home states.
  • Median pre-money valuations for angel deals remain unchanged from 2012 at $2.5M, dispelling the great ‘bubble myth.’
  • Internet, healthcare and mobile dominated angel investment dollars, receiving over 72% of overall angel deal flow.
  • The most active angel groups in Q1 included Alliance of Angels (CA), Desert Angels (MA) and Golden Seeds (NY).

All data thanks to CB Insights.
 

Whether you have a question about Angel Investment or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Investment in Mobile App Development Industry is Soaring

Mobile App Development Trends from The Startup Garage

Investment in Mobile App Development Industry is Soaring

VC Funding in Mobile App Development Still Hot

Since 2012, mobile app development companies have taken $262M in VC funding across 36 deals, which accounts for 59% of the $446M to the mobile app development space overall.  Some of the largest acquisitions included Kony Solutions at $18.3M in a Series D round from Telestra Ventures as well as Mobiquity at $12M in a Series B round from NewSpring Capital and Sigma Partners.  On a broader note, VC funding to the developer tools category as a whole reached $646, a 77% increase from the previous year.

M&As Are Also Hot

Investors bullish outlook on the market has been spurred by the increasing number of enterprises utilizing mobile apps as well as numerous M&As in the space.  Some of the large M&As include Facebook’s acquisition of Parse for $85M and IBM’s acquisition of Worlight for $70M (highlighted in the chart below).
VC Mobile App Development from CB Insights

Graph and data thanks to CB Insights.

With growth projections for the mobile industry as a whole in the double digits, mobile app development companies will likely continue to see an increase in VC funding in the years to come.


 

Whether you have a question about Mobile App Development or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Asian eCommerce Investment Report

Asian eCommerce Investment Report from The Startup Garage

Asian eCommerce Investment Report

While financing in the Asian eCommerce market remains hot, exit valuations remain rather dreary.

Since 2010, $6.9B has been invested in Asian eCommerce companies across 383 deals from venture capital investors.  Both deal volume and funding activitiy to the region are up 30% and 56% year-over-year respectively.  Not surprisingly, India and China dominate the majority of this activity.

While the number of exits has continued to grow, the valuations of these exits have not been as high as investors might have hoped.  The majority of exits have been relatively small as far as venture-level exits are concerned, at less than $50M.  Nonetheless, there were 29 exits of Asian eCommerce companies in 2012 with 14 exits year-to-date in 2013.  Despite 60% of Asia’s disclosed eCommerce exit valuations coming in at less than $50M, clearly investors believe the tide will turn as they continue to pour millions into the market.

Statistics thanks to CB Insights.


 

Whether you have a question about eCommerce Investment, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

6 Classes of Mobile Startups That VCs Find Interesting

6 Classes of Mobile Startups That VCs Find Interesting from The Startup Garage

6 Classes of Mobile Startups That VCs Find Interesting

As most consumers nowadays would agree, one of the most useful consumer devices is the smartphone.  VCs happen to concur.  With that said, they find some spaces in the mobile tech sector to be more exciting than others.  Below is a list of the 6 top sectors that get VCs excited:

1. B2B Business Solutions Mobile Applications

More and more, businesses are turning to mobile applications to streamline their business and/or adopt an entirely new business model that is dependent on these technologies.  Some usch mobile applications include Flurry (mobile analytics), AdMob (mobile advertising) and Urban Airship (mobile push messaging).  What makes these solution providers so attractive is their straight forward business models and large market opportunities.

2. Location Enabled Applications

Businesses such as Uber (ordering a ride when you need it) and HotelTonight (finding a place to stay overnight) also employ a straightforward business model, they take a percentage of every transaction.  Noticing a trend?

3. Mobile Automation

Another space that VCs are investing in are mobile applications that control non-mobile products such as Nest (mobile control of building thermostats) and eSecure (mobile control of building alarm systems).  These applications make other services much more useful and provide on-the-go access.  They also provide opportunity for large acquisitions by major industry players.

4. Mobile Payments

Mobile payment applications such as iPhone’s square also employ a simple business model, they take a transaction fee.  They also provide businesses with loyalty programs and couponing services.  The beauty in the business model here is that they have a strong value proposition for all parties involved.

5. Mobile Games

Though mobile games are a dime-a-dozen and it is very much a hit driven business, the leaders of these simple games (Angry Birds, Minecraft, etc) generate hundreds of millions of dollars in sales.

6. Photo Applications

The success of companies like Instagram, Snapchat and Vine is no secret.  In a similar boat are mobile messaging applications such as WhatsApp and Voxer.  While these companies do not have early proven business models, those that make it big can implement one down the road.

Keep in mind, the key to VC investment in mobile and the internet in general is to invest in what hasn’t already been introduced.  Rather, VC investors are looking for the next best thing.  Nonetheless, what we can learn from the categories above is that they like simple business models that can scale, quickly.


 

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VC Funding for Retargeting Ad Companies Grew by 62%

VC Funding for Retargeting Ad Companies Grew by 62% from The Startup Garage

VC Funding for Retargeting Ad Companies Grew by 62%

Retargeting specifically refers to tools that display ads based on previous online activity from search history to website visits. Targeting has become big business with companies like Google, Twitter and Facebook launching their own dedicated retargeting platform. Retargeting covers a variety of different functions such as:

  • Search Retargeting – Companies that utilize consumer’s previous online search habits to deliver targeted ads.
  • Site/App Retargeting – Companies that deliver targeted ads based on past website and app visits.
  • Social Retargeting – Companies that mine social data including social networks and blogs to deliver targeted ads.

Year-on-year funding into retargeting companies (businesses that target ads based on past web behavior) has risen by 62% with year-on-year deal growth growing by 32%. In the last year, venture capitalists have invested nearly $217M in retargeting over 25 deals as depicted in the chart below.

The Startup Garage Enterprise. TSG Enterprise. In the last year, venture capitalists have invested nearly $217M in retargeting over 25 deals as depicted in the chart below.

The Startup Garage Enterprise. TSG Enterprise. In the last year, venture capitalists have invested nearly $217M in retargeting over 25 deals as depicted in the chart below.

According to CB Insights, close to 30% of deal activity in the space went to mid-stage financings at the Series B stage while seed/angel rounds only captured close to 14%.  California saw the highest amount of deal activity in teh space with more than 38% followed by New York at 19%.

The Startup Garage Enterprise. TSG Enterprise. In the last year, venture capitalists have invested nearly $217M in retargeting over 25 deals as depicted in the chart below.

The Startup Garage Enterprise. TSG Enterprise. In the last year, venture capitalists have invested nearly $217M in retargeting over 25 deals as depicted in the chart below.


 

Whether you have a question about VC Funding for Ad Companies, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Angel Investor Portfolio Insight

Angel Investor Portfolio Insight from The Startup Garage

Angel Investor Portfolio Insight

Angel investors typically invest in seed or early stage startups that are seeking between $150,000 to $1M.  Often, a group of six to twenty angels will pool their funds to make such an investment.  The average check written by angels is ~$30,000.  They are typically accredited investors that are investing with the intention of engaging with the management team in some capacity (advising, coaching, consulting and possibly even becoming a member of the board).

Angel’s seek startups with a premoney evaluation of $0.5M to $3M and typically seek 20%-40% ownership.  Angel’s are looking for returns of 10X+ in less than 5 years.  Angels are typically uninterested in anything less than a 10X potential return as the investment will not balance the deals that go south in their portfolios.  Along the same lines, Angels look for exits of $30M-$50M.  Angels typically undergo extensive due diligence prior to closing a deal.


 

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