Startup

3 Most Common Legal Mistakes When Building a Startup

3 Most Common Legal Mistakes When Building a Startup

Launching a Startup

Launching a startup can be a very exciting yet hectic venture. While enthralled in building your company and generating ideas for a product, it’s easy to forget one of the most challenging components of the entire process: the legal side. This is often the trickiest part for entrepreneurs because navigating the multitude of complex laws and corresponding paperwork involved in starting and building your company can be quite difficult and time-consuming. As a result, it’s very easy for entrepreneurs to get caught in the middle of a heated lawsuit over a simple mistake, the consequences for which are often very severe. Here are three of the most common legal mistakes entrepreneurs make when building a startup.

1) Picking an Unoriginal or Semi-Original Name for Your Company

Who’s Here

When creating a startup, it’s important to carefully choose the name of your company and consider its potential legal ramifications. Every entrepreneur knows that your company’s name needs to capture the purpose or function of your product so that potential consumers will know what your company is about. It’s also well known among entrepreneurs that what kind of entity you choose for your business must be factored into your company’s name. This matters because it affects how much personal responsibility you bear for your company and its financial obligations, such as unpaid debt and taxes. But there’s another component to naming your business: ensuring that your chosen name is entirely original. This part of the naming process is where many startups who find themselves in trouble regarding their chosen name go wrong. Entrepreneurs want the name of their company and product to be as catchy, clever, and intriguing as possible. However, if you do not do your research to confirm that your company and product’s names are completely original, larger incumbents may notice and drag you to court. Unfortunately for you as an entrepreneur, they are very likely to win simply because they are much larger and have better legal teams, even if they do not have a particularly strong case.

In 2010, Brian Hamachek developed an app called Who’s Near Me Live, which enables users to chat and call others based on their current location. However, Stephen Smith and his company, myRete, who developed Who’s Here back in 2008, did not like the name of Hamachek’s new app and made it known to him. In order to avoid a lawsuit, Hamachek decided to change the app’s name to WNM and make sure all references to his app called it WNM. This appeared to resolve things for about a year, until Smith filed a federal lawsuit against Hamachek for trademark infringement. He then gave Hamachek a choice: either shut down WNM or hand over all of your assets. Hamachek refused and litigation continued for several years while Hamachek continued to make offers to Smith in order to reach a settlement.

Although WNM was ultimately able to survive the lawsuit, Hamachek felt the heat of the entire ordeal. He lost out on tens of thousands of dollars in legal fees, which he otherwise could have put towards his product. Additionally, due to the length of the litigation surrounding trademark infringement, Hamachek had to spend hours on end every day for several months dealing with the lawsuit instead of spending it on further developing and improving the app. It is also worth noting that Hamachek consulted with Smith when developing Who’s Near Me Live to ensure that his app’s name was distinct and he still wound up in legal trouble. Therefore, when it comes to naming, complete originality is a must.

2) Not Being Fully Transparent with Investors and Shareholders

Closed financial records

When starting a business, entrepreneurs often will set goals in terms of sales (in units and/or dollars), revenues, profits, and annual growth. Some startups find that sales are slower than expected, they have a serious cash flow problem, or maybe they just want to keep more of the revenue they earned. Many entrepreneurs who engage in this behavior did so under the belief that they and their company would be able to benefit by hiding certain information from third parties, such as investors and shareholders. However, more often than not, their lack of transparency catches up to them later on in the process. As hard it can be to admit you have a money problem, it is crucial that you are upfront with investors and shareholders about where your company stands because the consequences of withholding pertinent information are much more severe than being transparent about your money problem.

In 2016, Domo, Inc., a fast-growing computer software startup based in Utah, found themselves in hot water when Jay Biederman, a company shareholder from Delaware, requested financial documents in order to determine how much his shares of the company were worth. Domo was able to remain a private company and thus avoid mandatory disclosures. It looked like a lost cause for Biederman, until he found out that Delaware state law required full financial disclosure if the plaintiff could prove that they owned shares of the company. Since Biederman had proof he owned 64,000 shares, Domo was forced to open its books. Financial records revealed that after a $200 million investment by a private equity firm, the company was valued at $2 billion and the shares Biederman bought earlier for 32 cents each were now valued at $8.43 per share. Afterwards, Domo had to cough up the amount they had cheated Biederman out of when they withheld financial documents.

As the Biederman vs. Domo, Inc. case demonstrates, attempting to hide financial records and mislead shareholders and investors, either intentionally or unintentionally, is something to avoid at all costs, particularly as you seek a new round of funding. Having a pending lawsuit under your company’s belt serves as a giant red flag for potential investors. This is particularly true if the case involves a lack of transparency, as this may permanently destroy investors’ ability to trust you. Losing the trust of investors may also mean losing your ability to receive additional outside funding, which could prove fatal for your startup.

3) Copyright, Patent, and Trademark Infringement

Trademark infringement

When starting a business, you need to take the necessary steps to protect yourself from unfair and/or predatory competition as well as infringement. To do this, your company will require legal protection, such as copyrights and patents for your products or trademarks for your brand (logos, slogans, etc.). Securing legal protection for your company and its products can take months or even years to obtain and is quite expensive, especially for patents, which can cost as much as $15,000. On the other hand, it is very easy to unintentionally infringe upon a name or product already legally protected. Therefore, you need to ensure that all your company’s products as well as slogans, logos, and content on your company’s products and website are entirely original in order to avoid copyright or trademark infringement. If anything of yours is too similar to copyrighted, trademarked, or patented content, even just a couple phrases on your company’s website, you may quickly find yourself in the middle of an infringement lawsuit.

Michael Glanz, founder of HireAHelper, Inc. knows this to be the case. In 2008, U-Haul sued Glanz and his company, alleging trademark infringement. U-Haul pointed to two phrases used on HireAHelper’s website, “moving help” and “moving helpers” and claimed they were too similar to two registered trademarks of U-Haul. Despite Glanz’s attempts to settle with U-Haul, they refused and brought him to court. After three years, U-Haul finally agreed to settle the case for an undisclosed amount, though Glanz claims the terms were almost identical to the ones he proposed at the start of the ordeal. While HireAHelper was able to survive and later continue to grow, significant financial damage was inflicted upon Glanz and his family as well as co-founder Pete Johnson.

When all was said and done, Glanz owed $250,000 in legal fees, Johnson had to sell his home and move in with Glanz and his family, and Glanz’s parents had to push their retirement back by an entire decade. As damaging as the consequences were for Glanz, they could’ve been far worse. Had U-Haul taken them to court and won, Glanz and his family could have had their personal earnings wiped out, which would have resulted in Glanz losing his home just after having a newborn and would have all but certainly been the nail in the coffin for HireAHelper. Due to U-Haul’s size compared to HireAHelper’s, the former would almost certainly have won the case had a settlement not been reached.

Conclusion

Startup growth

When you’re creating a startup, the legal side will likely be the most challenging part to deal with. The three cases discussed in this post demonstrate just how perplexing business law can be, but also how easy it is to run afoul of it. In all three cases, the end results were heavily damaging for the entrepreneurs involved and a settlement of some sort was the only thing standing between the legal system and their entire business. Taking the time upfront to ensure that you know and understand all relevant business laws and that you and your company are in compliance with all of them is a necessity in order to avoid these expensive but preventable legal pitfalls. Avoiding these mistakes will allow you to focus your time and attention on the health of your business and will increase the likelihood of success and stability of your business in the long run. Are you a startup seeking funding during Seed or Series A? Check us out here!

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VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.

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3 Most Common Financial Mistakes When Building a Startup

3 Most Common Financial Mistakes When Building a Startup

Healthy Financial Growth

Launching a startup can be a very exciting yet challenging and frustrating time for entrepreneurs. One of the most difficult components of building a startup is the financial side. This proves to be difficult for a great number of entrepreneurs because of its complexity and the amount of time involved in figuring all the different pieces out. First, you need to figure out who your target market is and from there, figure out how large your addressable market is. You also need to identify all your costs (one-time and annual, fixed and variable), your break-even volume and price, and projected revenues, profits, and annual growth for the future. Not only do you need to identify all these pieces of information, you need to know the precise dollar amount for each piece. As a result, it is very easy for entrepreneurs to make a small financial mistake that snowballs into a catastrophic blow to their business. Here are three of the most common financial mistakes entrepreneurs make when building a startup.

1) Running Out of Cash

Running out of cash

When creating a startup, there will be a lot of expenses to deal with. No matter how long your company is around for, there will always be annual expenses such as salaries, taxes, utilities, and rent for office space. But when a company is nascent, you also have to deal with additional expenses, such as purchasing equipment, acquiring legal protection for your company and products (e.g., copyrights, trademarks, and patents), and heavier-than-normal advertising. As a result, it is very easy to fall into a spending trap early on in the process. However, if you do not adjust your spending once these one-off expenses are dealt with, you may quickly find yourself having serious perpetual cash flow problems. Startups that do not rectify this and fail to receive additional funding wind up burning through all their cash. According to research done by CB Insights, 29% of the failed startups they examined reported running out of cash as one of the primary reasons for their failure, which was the second most common reason found for why startups fail.

Flud, a newsreader for mobile devices, learned this lesson the hard way. The company was founded in 2010 by Bobby Ghoshal and Matthew Ausonio. In its first year of existence, the company was off to a roaring start. They were able to secure a round of seed funding worth $2.1 million, Google and Apple promoted the app, and the company enjoyed a lot of positive press early on. But while more competitors focused on acquiring users started to pop up and thrive, Ghoshal and Ausonio were hung up on the addition of new features to the app as well as making technical fixes. Additionally, they were seeking an $8 million round of funding from investors. While they were hung up on those two things, Ghoshal and Ausonio became oblivious to another serious problem: they were quickly burning through their cash and were in danger of running out. Unfortunately, the problem was never fixed and in August 2013, the company shut down after they were unable to receive additional funding from investors.

When Flud was launched in 2010, it was believed to be one of the next big things. Indeed, the company garnered more attention in its first year of business than many startups do in their entire life. Just before shutting down, they had $500,000 in bookings for the product and were very close to getting an additional $8 million in funding from investors. These factors alone would have led people to believe that Flud would not only be around for the foreseeable future, but would have thrived in the online news space for years to come. However, because Flud was unable to properly manage its cash, it had to shut down after just three years. Had Ghoshal and Ausonio ensured that the company’s cash flows were stable, the company would likely still be around today. As the case of Flud demonstrates, it can be quite difficult to fix this after it initially spirals out of control. Therefore, it is important that you properly control your company’s cash flows from the start in order to avoid the possibility of burning through all of your money.

2) Improperly Pricing your Product

Problematic pricing and costs

When launching a startup, several financial analyses must be done to determine what the selling price of your product will be so that you meet your financial goals, namely breaking even, and later on, making a profit. To determine this, you need to know several financial factors, such as market demand, costs (fixed and variable), and consumers’ price sensitivity/elasticity of demand. However, if you do not price your product properly in accordance with these factors, your product will not be successful on the competitive market and therefore, your company will quickly start losing money. If your product’s selling price is too low, you may find yourself unable to cover costs and will lose money on each sale. On the flip side, if the selling price for your product is too high, you will not bring in customers as projected and therefore; revenues are likely to fall short of costs. In either case, improperly pricing your product could result in the demise of your business.

In 2014, Thomas Pun, CEO and founder of Delight IO, learned this the hard way. Initially, Delight IO, which set out to provide users with data captured during interactions between mobile users and helps visualize it (mobile analytics), received lots of positive feedback on its services. These initial responses led Pun to believe that’s what subscribers to the Delight IO platform desired. However, contrary to what Pun believed, the product-market fit was not fully there for his company’s product, as many users who desired this type of service wanted actual information and not just raw data. Additionally, the high price point of $300 for the product and services that fell short of subscribers’ expectations eventually caught up with Delight IO. Sales started to slow in early 2013, resulting in Delight IO incurring thousands of dollars in losses for several consecutive months. Unfortunately, after just two years of existence, the company shut down in January 2014.

As the story of Delight IO demonstrates, fully understanding the desires of consumers and then finding the ideal product-market fit is crucial to properly pricing your product. Unfortunately, Delight IO did not find their product-market fit, failing to realize that many consumers who paid for this type of service wanted real information, not just raw data. Had Pun better understood his target market and therefore had been able to properly price his product so that the company could turn a long-run profit, his company would have been able to excel in the visual analytics market. Instead, he lost his company after just two years. Therefore, it is important you fully research and understand the demand for your product and know your costs so that you can properly price your product, as your company’s survival strongly depends on doing so.

3) Making Poor Hiring Decisions

Poor team dynamics

When you are first launching a startup, there are a lot of items for you to deal with, particularly if you are going solo on the venture. So it often makes sense to hire one or two people to help with managing the company, particularly with finances and marketing. However, the hiring process must be met with skepticism, caution, and delicacy, as two issues can arise. The first is if you hire too many people early on, you may incur an excess of employee-related expenses, such as salaries, training, and legally required employee benefits. The second is if you do not properly screen potential employees for experience, personality, goals, and work ethic, your company may incur costs both in terms of revenues and in terms of reputation due to damage caused by poor-performing employees. A damaged reputation may also pose additional challenges when looking for additional funding from investors. Additionally, internal conflicts, particularly among co-founders and/or other parts of management, could hinder your company’s ability to get stuff done. Any one of these factors could do enough internal damage to the point where the company is unable to survive.

ArsDigita, a former Boston-based tech company, found this to be the case. The company, which focused on web development, was founded by Philip Greenspun, Tracey Adams, Ben Adida, Eve Andersson, Olin Shivers, Aurelius Prochazka, and Jin Choi in 1997. For the next three years, the company saw very healthy growth, earning up to $20 million in revenues and $7 million in profits annually by the end of the 20th century. The company was helped by the ongoing dot-com boom of the late 1990s. However, rifts on the ArsDigita team started to form in 2000 after Peter Bloom (General Atlantic), Chip Hazard (Greylock Ventures), and Allen Shaheen invested in the company and gained control of many management decisions, with Shaheen taking over as CEO. From there, things spiralled downwards. The three men significantly increased the cost structure of the company, which included expanding the ArsDigita team from 80 to 200 employees and doubling everyone’s salaries. Company spending spiralled so far out of control that an additional $20 million was blown just to get the company back to the same revenues it had when Greenspun was CEO. Additionally, the three men made poor management decisions regarding products and partnerships/alliances, namely in passing up a potential product alliance with Microsoft, and often found themselves in conflict with the co-founders. Conflicts continued on for months at ArsDigita. Finally, in February 2002, enough financial damage had been inflicted on the company due to its poor team dynamics that they had to shut their doors and sell their assets.

ArsDigita serves as yet another example of a company with so much potential to succeed. They were earning millions every year, had the help of several investors, and were being pushed along by a booming market. Despite all this, the company failed. Had Greenspun and his fellow co-founders been able to get on the same page with their newly hired investors in terms of financial goals and work towards those goals as a team, ArsDigita’s chances of survival would have been much greater, even once the tech bubble burst in 2001. However, since various members of the post-2000 ArsDigita team were frequently in conflict with one another, particularly surrounding cost structure and spending, the company was torn apart by the rifts caused by the poor internal dynamics and ultimately could not survive .

Conclusion

Successful startup launch

When launching a startup, it is crucial to have the financial side nailed down because these metrics are often considered the key indicators of the success of your business in both the short run and the long run. The three cases discussed in this post demonstrate just how important it is to manage your company’s finances and financial decisions properly and how damaging making poor financial decisions can be for your startup. In all three cases, the end result of these simple yet avoidable mistakes for the entrepreneurs involved was the loss of their businesses. In order to avoid these mistakes, several steps should be taken before and during your company’s launch. Having a clear and well-defined product-market fit before launching, knowing exactly what your costs are, including properly differentiating between one-time and perpetual costs, and hiring a qualified CFO to help manage your company’s finances are just some steps you can take in order to increase the likelihood of financial success for your company.

Additionally, utilizing platforms that help startups track their financial health can help to ensure your company remains financially stable and continues making progress towards your set financial goals. Doing these things will help you avoid these common financial mistakes, which will allow your company to not only survive, but thrive in competitive markets and increase the likelihood of your company succeeding in the long run. Are you a startup seeking funding during Seed or Series A? Check us out here!

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VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.

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How To Adopt An Entrepreneur Mindset 

How To Adopt An Entrepreneur Mindset 

Entrepreneur Mindset is KEY

Mindset

“Entrepreneurs have a mindset that sees the possibilities rather than the problems created by change.” For the past few years, I’ve pursued the answer as to how are entrepreneurs different from the rest of us? It’s apparent that more and more young people are starting to build their own businesses. Tobi Lutke, who founded Shopify in 2006 used his experience as an entrepreneur and a software developer to launch Shopify and it is now a billion-dollar company.

According to FOUNDER INSTITUTE, employees don’t become successful entrepreneurs simply by starting a company; they must also embrace an entirely new way of thinking to adapt to and thrive in the unpredictable world of start-ups. Are you an employee who’s looking to make a transition to becoming an entrepreneur, keep in mind the following five key mindsets you’ll need to adopt before taking the leap.

What Are The Entrepreneur Mindsets?

Mindset

1. Reach Out To The Customer First

Though it may seem to many like product development should come first, master bootstrapper Greg Gianforte insists that is the wrong approach. When it comes to reaching customers, public relations can either be a company’s best friend or its worst enemy. Building the foundation for a strong customer/business relationship comes from mutual trust and respect.

Greg Gianforte focused on the tech sector where his experience was strongest. But instead of starting with a prototype for a product or service and then seeking funding, he started by getting on the phone with potential customers. That led to conversations about what kind of product they would buy. After a month of phone calls, Gianforte spent about 60 days coding the product his customers said they wanted. He claims his company, RightNow Technologies, was cash positive from the beginning. The business makes cloud-based software for large consumer businesses and was sold to Oracle in 2011.

2. Network To Build Business

Many entrepreneurs talk about the importance of networking, but few are as specific about how and why networking is important as Jason Nazar, co-founder, and CEO of Docstock.com. Today, studies have shown that up to 80% of jobs are never advertised — they are filled by word of mouth. So it’s who you know and who knows you that matters. You must develop relationships and connections within your network to have more opportunities to advance your career. Attending meetings and social events hosted by your professional association is a great way to connect with people in your field. Always have a goal in mind when networking. People always say that a plan without a goal is just a dream. Networking events should be part of your overall plan to ensure you get the most out of your valuable time. If there is no connection between your strategy and your actions, there is a problem. Want to explore various networking goals? We got you covered here.

Nazar says he owes his success — particularly the founding and growth of his current company — to his networking efforts. He says he used networking to raise $4 million in startup funds. He says he also used it to locate a co-founder and build the majority of his organization.

3. Keep Control Of Your Vision

It is important to have vision and purpose because it helps make our decisions that create our lifestyle. Discovering your vision isn’t that hard. I’m sure you are like me, wanting to achieve and accomplish certain things during our lifetime, and for most of us, the passion we feel deep down ignites us and brings our hopes and dreams to the surface. If you have trouble discovering your vision, ask yourself this — What are you deeply passionate about? What type of work do you find engaging and truly enjoy? At the end of your life, what will be the greatest accomplishment?

Jack Ma, also known as Ma Yun, is the founder and guiding hand behind Alibaba, a giant Chinese-based wholesale eCommerce site. Despite its popularity and financial success, Alibaba’s road to acceptance outside China has not been easy. Ma believes in his vision for his company to get the job done. Now Alibaba is one of the largest companies the world has ever since.

4. Take Ownership

When you begin to do the work and take ownership over your life, you start to realize the power of time management, control, and autonomy. You live life on your terms this way.

Oprah Winfrey had experienced plenty of success as a broadcaster and even in the entertainment industry before ever launching the Oprah Winfrey Show in 1986. But it wasn’t until after taking ownership of her syndicated talk show from ABC that Winfrey’s entrepreneurial skills began coming into focus. Her production company would eventually produce other TV and film projects.

Winfrey’s entrepreneur mindset eventually led her to launch a magazine and even her own TV network.

5. Focus On What’s Good For Your Business

You can’t grow a business until you have a focused vision of where you want it to go. The overall strategy is the big picture and the ultimate direction as well as the purpose of the business. To achieve focus on a daily level, consider the following: The Pareto Principle (80/20 Rule). It states that 20% of your actions and inputs will create 80% of your desired outcome. The key here is identifying and focusing on the 20% that is actually achieving the 80% of your desired outcome and not falling in the trap of working on the 80% that’s only achieving 20% of the desired outcome. The 20% you do choose to work on should mostly work towards improving the one metric you chose to focus on.

From bestselling albums to a nightclub, a clothing line, a sports franchise and more, rapper Jay Z is known not just for his music but also for his business acumen. His success is based in part on his focus. It includes a refusal to spend his time on anything that does not expand his entrepreneurial ventures.

Cultivating an Entrepreneur Mindset

Mindset

Do you see yourself having these mindsets? Channel these qualities into your business and be persistent. Or pick a trait to which you aspire and see how you can put that trait to work in your professional life.

Mindset is crucial. In the words of Oprah Winfrey, “The greatest discovery of all time is that a person can change by merely changing his attitude.”

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VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.

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The Role of Due Diligence 

Why is Due Diligence Necessary?

Due Diligence

“Due diligence is both an art and a science.” According to Investopedia, Due diligence is an investigation or audit of a potential investment or product to confirm all facts, that might include the review of financial records. Due diligence refers to the research done before entering into an agreement or a financial transaction with another party.

Because of the due diligence, your investors may come to a different or more nuanced understanding of the opportunity and seek to renegotiate the initially agreed terms or even decide to decline the investment.

Types of Due Diligence

Due Diligence

There are various types of due diligence given that every circumstance is different and there’s no formula for it. Mainly, there are four basic types of due diligence which include commercial, financial, tax and legal due diligence.

Commercial Due Diligence reports analyses company performance, the likelihood that the business will meet its targets, and highlights potential problems that may occur as a result of an acquisition. This report provides the potential buyer with in-depth knowledge of the target company and the market in which it is positioned. It is designed to enable the prospective buyer to make an informed decision, and highlight any potential risks associated with the target business.

Financial Due Diligence typically, the scope would include an analysis of the historical quality of earnings, quality of net assets, working capital requirements, capital expenditure requirements, financial debt and liabilities, and forecasted financial results. In short, it focuses solely on the financial health of the company.

Tax Due Diligence is a comprehensive examination of the different types of taxes that may be imposed upon a particular business, as well as the various taxing jurisdictions. To put it simply, it could be viewed as an extension of the financial due diligence, where the focus is on identifying potential additional tax liabilities arising from non-compliance or errors.

Legal Due Diligence covers a wide scope of legal matters, including proper incorporation and ownership, contractual obligations, ownership of assets, compliance, and litigation. It aims to confirm the validity of the rights being acquired by your investors and the absence of legal risks which could undermine the value of the investment.

How Long Does Due Diligence Take?

Duration

According to David Braun, CEO of a Capstone (they specialize in M&A) generally, on average due diligence should take between 30 and 60 days to complete. It is the optimal time to complete a thorough evaluation of the business without letting the process drag on. Why is this such a long process? Read on!

Due Diligence Process

Process

Before the Due Diligence, gather your internal and external team of lawyers, accountants, advisors, and investors. The internal and external team will come together to discuss an opportunity, and terms of investment. Key terms discussed are usually laid out in a non-binding document such as a Term Sheet or a Cap Table. These usually are discussed through a virtual data room whereby information is typically secured hence ensuring only approved viewers get to access the confidential documents. Virtual data rooms can be created virtually and many firms provide them. Datarooms.com, Drooms, etc. are just some of the few that provide safe due diligence with information like this. Need help in generating a Cap Table? Or don’t know what to include in your Term Sheet? We got you covered!

During the Due Diligence, there is a lot, when I say a lot, I meant a lot of information requesting and receiving. So be prepared for that! That aside, there will be on-site visits at the target business by the due diligence team. During the onsite visit, the due diligence team gets to interview with various management team members from various functions; they will discuss the findings as well as draft out a report on the findings. The report is then sent to your investors and further negotiation on changes to the term could take place. Overall, since it is not a one-man show; it involves various stakeholders and hence there is no doubt due diligence process is such a long process.

Conclusion

Process

To ensure a smooth due diligence process, I would advise every business to do a lot of research and do your own due diligence first, so you can answer all the questions raised by your internal and external team. Usually, a framework or checklist would come in handy when you want to do your own due diligence and they can be found here. It goes beyond the basic checks you would normally make and it’s safe to say that if you find it to be relatively straightforward, you probably didn’t do it right. On top of the checklist, follow this article on Due Diligence in 10 Easy Steps. Check out our article on What to include in an Investment Package, it will come in very handy when you do your own due diligence.

According to our experiences, some potential red flags that you should look out for when doing your own due diligence are and not limited to the following — Make sure your business’ contracts are fully disclosed, your business is not in the middle of any litigation case, and check the local laws to make sure there aren’t any violations. You should always try to overcome the red flags or the difficulties faced before the actual due diligence.

No matter what, always remember that due diligence is your best opportunity for investors to understand the risks involved in your business before signing a long term relationship hence, be prepared to do everything to minimize the risk. Are you a startup seeking funding during Seed or Series A? Check us out here!

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VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.

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Top 10 Questions from Investors 

Top 10 Questions from Investors 

questions from investors

questions from investors

If you’re raising money for your company and wanting to pitch to angel investors and venture capitalists, then it is essential for you to know and expect what questions will be asked and how you should approach these questions. More often than not, they will ask you the same questions over and over again which will help determine why they should choose you. Make sure you are taking notes on the questions from investors so that you can score during future meetings.

For the past 2 years, VenturX has been actively participating in pitching to investors and of course, we have compiled the top 10 questions your investor will ask you and how you should approach these questions.

Top 10 Questions and How to Approach Them

Q&A

1) Where do you see the sales trend over the next 1–2 years?

This is an open-ended question. To approach this question, you must give a broad response and even touch on a variety of issues that could prove valuable to the investor’s decision-making process. The time frame will give the investor a good gauge of the opportunities as well as the risks involved over a short term. You need to provide as much proof that your answer is not full of just speculations (ie. we have 5 signed letters of intent for the next 4 months, we already have $100,000 in purchase orders that we just need to fulfill, etc.)

2) Who are the competitors in the industry?

The investors want to know who the potential competitors in the market and they expect you to know them in detail. They would also want to be alerted with any new products or services that may appear in the market which could impact your company. You should already have a concrete plan on how to deal with these competitors and focus on what makes you so special over them before your pitch.

“If an entrepreneur tells me that they don’t have ANY competitors, that is a red flag! They didn’t do their homework!” — Marvin Liao, Partner at 500 Startups, San Francisco. 

3) What obstacles are you currently facing?

No doubt every business is prone to failures and weaknesses, they are part of the equation of growth and they are often where all of the great learnings come from. The investors want to know what are the vulnerabilities in your company. However, keep in mind that identifying the problem is only answering part of the question. It is more vital to convince them how are you going to overcome these problems in both short and long term and convince the investors you have what it takes to overcome any potential obstacles.

4) How is your business performing?

Your investors are interested in how your business is performing. You should give them an introduction to Key Performance Indicators (KPIs) and other non-financial metrics that are going to affect the company’s growth. For software companies like us, KPIs include the lifetime value of a customer, customer acquisition cost, and monthly recurring revenue. Whatever your key metric is, it’s usually unique to your specific business. For more info, check out one of my favourite books “Lean Analytics” — by Alistair Croll and Benjamin Yoskovitz

5) How do you track trends in your market?

Due to the nature of start-ups, especially tech-based start-ups, things change very quickly. Investors would like to know if you are aware of your industry, as well as how you find data to stay on top of industry trends. Before pitching, be prepared to share how you find data about your customers and industry, as well as how you can leverage this information to improve your business to stay on top of the game.

6) Can you tell me a story about a customer using your product?

This should not be a surprise as it should already be included in your pitch. According to our experiences, the best pitch usually is the ones that open with a story about how your products and services are helping customers. We would advise using real names to be as specific as possible to describe how your services have transformed your customers and get rid of their “pain.” Hence, be sure to craft an excellent story on your customer and let that tell a story for you!

7) How can I connect with some of your customers who have used your product or service?

If your investors ask this question, you are on the right track! They find your pitch interesting and begin what’s called the due diligence process. During due diligence, they want to know a lot more about your target market/customers. Some insights you should provide to your investors are: who they are, how you know who they are, how did you find them, what do they think about your product or service, how often are they using it, on what scale, how you interact with them, etc. This would be a good place to use metrics that we guide our startups with such as Conversion and Engagement.

8) How would you predict your market will be like in five years as a result of using your product and service?

This is a great opportunity to tell a story on the growth of your company. Predict or picture how your customers’ future as a result of using your product or service in five years’ time. Prove to your investors that you are able to envision and think critically about your product and how your customer will evolve over the next 5 years.

9) What if five years down the road we think you’re not the right person to continue running this company-how will you address that?

Don’t be surprised when they ask you this question. Yes, it is rude and odd but often times, particularly with high growth start-ups, funding CEO does not remain the CEO who scales the company beyond the start-ups’ phase. This is the part where you convince the investors what kind of entrepreneur you are. The reason they asked this question is that more often than not, many founders’ ego get into the way of a company’s growth and they refuse to step down for the good of the company. It is important to address this issue and prove to the investors you do not have such “quality.”

10) How much equity are you offering?

This question usually comes at the end and if it does, it should tell you that you are on the right track and your investors are interested in the deal. The investors would like to know how their shares will be allocated and how it will be diluted assuming there are future rounds of funding such as Series rounds or even IPO when your company has matured enough. A good way to answer this would be to provide data such as generating a Capitalization Table and show them how much shares and how will that change down the road. If you need help generating a Simple Capitalization Table for your pitch, fear not, check out our article on Cap Table 101.

Pitch

That should be the top 10 questions you should expect your investors to ask during your pitch. It should have covered all grounds, if not I’d love to hear from you any types of questions that aren’t covered in this article — please post them in the comments down below and don’t forget to give us a clap if you enjoy reading this article. Interested in knowing how will VC invest in 2019? Our article got you covered! Are you a startup seeking funding during Seed or Series A? Check us out here!

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About VenturX

VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.

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Differences between SAFE and Convertible Notes

Differences between SAFE and Convertible Notes

Investment

With convertible notes slowly becoming a thing of the past, in recent years startups are beginning to embrace Simple Agreements for Future Equity (SAFE) as an alternative to raise funds. Despite being similar as both are tools for raising funds, there are many outstanding differences between them and we will dive deeper into them in this article.

What are Convertible Notes?

Convertible Notes

According to FundersClub, convertible notes are an investment that is structured similarly to a loan. A convertible note is a type of debt which might convert into equity in the future. Debt, I’m sure most of you out there are familiar with this term, if not put it simply — When I borrowed money from you, I have to pay you back in the future, but with interest. A convertible note is a type of debt but slightly different as instead of paying you back with interest in the near future, we change that into equity and offer you part of the ownership. Sometimes we like to call convertible note debt-like since it’s similar to debt with slight variations.

What is SAFE?

SAFE

SAFE was introduced by the Silicon Valley accelerator Y Combinator as the new big boy in town for startups to have more options, or even to replace convertible notes when it comes to raising capital. To put it simply, SAFE is a warrant to purchase a stock at a later priced round, and hence is basically a contract. The main difference SAFE differs from convertible notes are maturity date, interest rate, and conversion to equity.

Maturity Date

Maturity Date

While SAFE is not a debt and hence does not have a maturity date, convertible notes do have a maturity date.

Upon reaching the maturity date, entrepreneurs face tough decisions on whether to pay back the principal of the convertible note, with interest or convert the debt into equity for the investors. Most would opt for the latter option as paying back the principal amount with interest could be difficult for startups, especially at an early stage.

Interest Rate

Interest Rate

As discussed earlier, since SAFE is not a debt, but a warrant/contract, it does not carry an interest rate hence keeping things simple and founder friendly. While SAFE does not carry an interest rate, convertible notes, on the other hand, carry an interest rate (simple and not compounded) between 5–8%.

For example, if the interest rate was 5% in a $100,000 convertible note seed financing and Series A funding round occur a year later, the investors would convert an additional $5000 ($100,000 x 0.05).

This may not be considered important for a short-term investment but may create financial problems if it’s long term and since there is maturity date for convertible notes, this might post as a bigger problem to entrepreneurs. The interest rate, however, could be a way to incentivize startups to raise rounds on a timely basis. That being said, there is a maximum interest rate that may be charged on a loan depending on which state, this is known as Usury Laws by State.

California for example (for obvious reasons), according to Law Office of Melissa C. Marsh, ” Pursuant to California law, non-exempt lenders (the average individual) can charge a maximum of: (i) 10% interest per year (.8333% per month) for money, goods or things used primarily for personal, family or household purposes and (ii) for other types of loans (home improvement, home purchase, business purposes, etc.), the greater of 10% interest per year, or 5% plus the Federal Reserve Bank of San Francisco’s discount rate on the 25th day of the month preceding the earlier of the date the loan is contracted for, or executed. In other words, the general rule is that a non-exempt lender cannot charge more than 10% per year (.8333% per month) unless there is an applicable exemption”.

Conversion to Equity

Conversion to Equity

While both SAFE and convertible notes do offer a conversion into equity, there are differences since they do not call for the same terms of conversion.

SAFE only allows for conversion into equity at the next round of financing. Meaning, if you decided to opt for SAFE during the seed round, conversion into equity option is only available the following round, meaning Series A round. Hence SAFE does not carry a multitude of conversion events.

Speaking of which, I almost forgot to mention during the next funding round, SAFE can be converted even when you raise any amount of equity. Many have argued that SAFE is very easily manipulated because, without minimum amount raised to trigger conversion, you could simply raise $8000 the next round and trigger the conversion.

For convertible notes, besides allowing a conversion during maturity, it does have an option to convert at the current round, and future round. Also, a conversion would take place when the minimum amount (reflected on the agreement) is met.

For example, assuming investor invested $200,000 and were granted the right to convert to equity at a $2 million valuation. If the start-up were then acquired for $10million, the investor would receive $1 million or 10% of the proceeds, by converting the $200,000 loan into equity representing 10% of the issued and outstanding equity, post-conversion ($200,000 divided by $2 million + $200,000).

What’s the Best Option for Seed Investment?

Seed Investment

So, after diving into the 3 main differences between SAFE and convertible notes, what does that mean for all entrepreneurs out there? For my take, SAFE is made simpler for entrepreneurs and they can use SAFE to raise capital with ease without having to go through the trouble of negotiating maturity date and interest rate terms, and also clarify when is the next funding so as to trigger the conversion. SAFE does indeed align the interest of investors and entrepreneurs in a whole new different way. That being said, always remember that what might be a pro to one start-up could be a con to another and hence depending on the nature of your start-up, choose wisely. Are you a startup seeking funding during Seed or Series A? Check us out here!

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About VenturX

VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.

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Networking in Silicon Valley

Networking in Silicon Valley

Silicon Valley

Silicon Valley

There is a stigma that people in Silicon Valley are not like anyone else. From my time living there and then going back a few years later, I learned these tips about the how to formulate a simple networking goal, what questions to ask and how to get ahead of the game! I decided to write this article because I was scratching my own itch. It was something I wished I could find more info.

Questions to ask when you meet an investor:

1) Their favourite question of mine seemed to be: “If you only one day left in San Francisco, what would you recommend?” If you feel pride and joy about your city, it is something that would bring your thought back to happy memories that you would recommend to newcomers.

2) General questions about their work: What is your investment focus, what is your average investment size, etc..

3) What are you hoping to get out of this event?

4) How is your current firm different from the last VC firm you were at? (This is a great question for those who changed firms, which does happen a lot.)

5) Offer them something instead of ask for something.

Tim Ferriss made this great video about how to ask questions. Why would this be a good source? He is from San Francisco himself and he is an elite podcaster. Podcasters are trained in their craft to do one thing — ask good questions. His key insights are:

a. Ask questions that are easy to answer. Instead of “what do you like to read?” change it to “what is the one book you give as a gift most often?”

b. Asking the right questions produces an interesting conversation. (he has a different way of saying it.)

See the full video here:

Formulate Your Networking Goal

Form my last article, “Do networking events contribute to your business goals?” I talked a bit about the importance of investing any time or money towards a networking even only if it helps you reach your business goals.

For any goal to be obtained, it had to be: measurable, timed, and accountable.

When I attended the TechCrunch event in February 2019, I had a goal of meeting X number of startups in investors in my industry. I only had 3 hours at the event. I was accountable to my friend who I will report to the following Sunday.

Even before I went to the TechCrunch event, two friends invited me to the Facebook campus for lunch earlier that day, so I was already in the mindset of achieving my goals. So, if there was any space for extra networking, I would make a new “Facebook” friend. Unfortunately, I did not have enough time at Facebook to make new friends.

How to get ahead of the game

· Add people to your LinkedIn beforehand with the note “Looking forward to meeting you the TechCrunch event tonight — Sydney, Founder of VenturX.” It is simple and short enough to fit in that introduction box LinkedIn gives. The reason for that is to get a small idea of who is attending and what their business is about (and if it relates to yours). Note: you can only do if you have newsletters or an email from the event organizer telling you who is going to be there. I received this list 2 days beforehand. (Estimated Time: 5–7 mins for 20–25 new contacts)

· Add attendees beforehand on twitter. If you are in a B2B business like VenturX, I recommend following their company twitter and check on crunchbase for the founder’s names too. (Estimated Time: 10 mins for 20–25 new contacts)

· When you get a strange request from someone you don’t know, I recommend saying hi and asking how you can bets work together. If I don’t know you and you send me a request, I will ask you that. (You can try and reference this article.)

· Thank new contacts afterwards for any tips or resources new contacts gave you. People always like to hear that their advice was helpful

· If you taking photos for company social media account as well, get there early and take photos. This is especially if your phone is slow. It takes 15+ minutes to find the wifi password, connect to wifi with my slow phone, think of hashtags, find the event hashtag, and think of my own hashtags/text, and take pictures. If you want to tag any sponsors/ people, it would take even longer.

In conclusion, networking events are great for face to face interactions so the person you are dealing with isn’t just another email to type.

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Top 3 Venture Capital Investment Trends 2019

How will VC change in 2019? I’m sure many of our readers are familiar with VC. To keep things simple, Venture capital (VC) is raising money by pitching to them your idea/project to convince them to invest in your company in exchange for your company’s equity. With an increasing number of companies going public, the VC industry continues to evolve. If you are interested in getting funded by VC and curious about how the investment trend will be like for 2019, this article is for you!

US 2018 funding

Before moving forward to 2019’s trend, let’s look backward at last year’s trend. According to a new report gathered by PwC and CB Insights, total annual funding in US 2018 increased by 30% as $99.5 billion was raised across 5536 deals.

There is no doubt VC investment shows no signs of slowing down. 2018 alone, Unicorns companies (privately held tech start-up valued at over 1 billion US dollar) were responsible for a quarter of the funding in 2018. These include new players such as Lyft, Stripe, and Slack. The trend seems quite optimistic and the following are the top 3 prominent sectors VCs are likely to invest their money in.

1. Blockchain

The global blockchain technology market is projected to be worth $20 billion by the end of 2024, according to Transparency Market Research. Many have wondered is blockchain technology the new internet? It was developed by Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency Bitcoin. But since then, it has evolved into something much greater. As the name indicates, blockchain is a chain of blocks contains information. The blockchain is a distributed ledger that is opened to anyone. They have an interesting property, once a data is being recorded in the blockchain, it becomes very difficult to change it.

So how does that work? The main reason why blockchain is so secure is that the way it’s developed. Each block contains a datahash and the hash of the previous block. You can compare a hash with a fingerprint, it identifies a block and its data. A hash is unique just like a fingerprint. Changing something within the block, such as data, will cause the hash to change. If the hash changes, it no longer is the same block. Given the third property of a block, hash of the previous block, if you tamper with the data of the previous block, the hash changes and in turn, this will make the subsequent blocks invalid. Hence, changing a block’s hash will consequently result in the whole blockchain being invalid.

The blockchain is also being distributed which makes it so secure. Instead of using a central entity to manage the chain, it uses P2P network, so everyone can join. Each computer, or node, has a complete copy of the ledger, so one or two nodes going down will not result in any data loss. It effectively cuts out the middle man — there is no need to engage a third-party such as banks to process a transaction. You don’t have to place your trust in a vendor or service provider when you can rely on a decentralized, immutable ledger.

2018 Blockchain Investment

In its latest report, blockchain research group Diar reports that blockchain and cryptocurrency-focused start-ups have raised nearly $7.9 billion in 2018 which approximate to nearly 8% of the total funding in 2018. Various VCs have expressed interest to fund companies that use blockchain to build their infrastructure, especially the ones that store health records and track trademarked and copyrighted licensing rights and content.

There are many exciting upcoming projects blockchain has to offer in 2019 such as Aelf, who currently raised $40 million ever since they developed an “operating system for blockchain,” which the project compares to what Linux did for computing. Using an Aelf side chain, any developer can create a customized blockchain designed for a specific purpose. In this way, the project aims to overcome the performance issues faced by other blockchains at the same time as creating a fully interoperable ecosystem. Another very promising project is by BEAMwho currently raised $25 million. BEAM is a next-generation confidential cryptocurrency based on an elegant and innovative Mimblewimble protocol. BEAM users have complete control over privacy — a user decides which information will be available and to which parties, having complete control over his personal data in accordance with his will and applicable laws. Given blockchain is decentralized, many developers are continuously finding new ways to secure privacy. Their project is intending to release enhanced functionality including atomic swaps with Bitcoin, hardware wallet integration as well as mobile wallets on iOS and Android. Privacy enthusiasts have much to get excited about.

As you can see, blockchain technology itself is likely to receive more attentionfrom the VCs this year with all these upcoming promising projects. In 2019, we will see privacy and personal data protection trends continuing to grow in importance. This is something we can expect with blockchain, given that a large part of this technology is designed to verify the identity and protect the privacy of people and assets across traditional borders.

2. Artificial Intelligence and Machine Learning

When it comes to AI and ML, I’m sure many of you are thinking about robots, especially on Terminators and iRobot in the movies. ML is a subset of AI, it is an application of AI that provides system the ability to automatically learn and improve from experience. The main difference between AI and ML are AI works like a computer program that does smart work, while ML is a simple concept machine takes data and learn from them.

During the past few years, a couple of factors have led to AI and ML becoming the next “big” thing: First, huge data is being created every minute. In fact, 90% of the world’s data has been generated in the past 2 years. And now thanks to advances in processing speeds, the computer can make sense of all this information quickly. Because of this, tech giants such as Google, Amazon, Apple, and VC have bought into AI and ML by infusing the market with cash and new applications. I’m sure you are aware, or more than likely already on AI tech. No? Think again. Apple Siri, Amazon Alexa, and Google Home. I’m sure these products will ring a bell. That’s right AI is so prominent that it has already infused into our daily lives.

2018 AI investment

According to a new report gathered by PwC and CB Insights, venture capital funding of AI companies soared 72% last year, hitting a record $9.3 billion, which approximate to nearly 9.3% of the total funding in 2018. Big tech giants like Google, Facebook, IBM, Amazon, Apple, Microsoft, and others have put aside their doubts on AI technology and are actively embracing this new technology. As a result, entrepreneurs smell opportunities to introduce products and services based on AI in the market. In contrast to previous technology waves where Silicon Valley was the undisputed champion of start-up fund-raising, for AI-focused companies, no one location can be claimed as the nexus for investment or start-up creation.

There are many exciting projects on AI in 2019. While self-driving cars developed by Tesla is not new to most people, self-driving finance is. Based on the projects that are currently underway with banks, we can expect an increase in the number of customers that will rely on AI to drive their finances. Wells Fargo’s new predictive banking feature, powered by artificial intelligence, is one of several innovations the company is introducing to help customers seamlessly manage their financial lives and improve financial health by analyzing our banking transactions and provide tailored guidance and insights for decision making. To find out more about the top 100 AI start-ups in 2019, click here.

3. Healthcare

In recent years demand appears to be on the rise for health care products and services. What I mean by healthcare is broadly defined as everything from biotech, medical tech, healthcare, and IT services. The sector is fairly large and thus pretty attractive to both angel and venture investors.

2018 healthcare investment

According to a new report gathered by PwC and CB Insights, venture capital funding of digital health companies increased by 21.1 percent last year, hitting a record $8.6 billion, which approximate to nearly 8.6% of the total funding in 2018.

More and more VC is looking into funding biotech start-ups, especially those that leveraged on big data and biotech. According to Forbes, A common misconception of biotech investing is that early-stage companies are riskier to invest in than companies that have products in later stage clinical development. Yet many VCs actively invest in early-stage biotech because it allows them to de-risk the investment process by releasing money in smaller trances, allowing them to avoid investing larger pools of money in later stage biotech which may go toward more expensive risk areas such as regulatory, commercialization, and reimbursement. In the biotech sector, it typically takes millions of dollars to transform an innovative idea into a commercially viable product. Hence, venture capital funding is often a necessity and is critical to the success of a biotech company. The biotech industry is therefore closely linked to the venture capital industry that supports it.

Also, recent years more VCs are looking out for start-ups who incorporate AI and cognitive technologies to transform healthcare services. The true value of AI will be found in it working alongside humans to ease the pressure across the healthcare system instead of replacing current healthcare personnel due to process automation. This way, healthcare organizations can offer healthcare services more productively and effectively.

What’s Next?

From this research, we see that Blockchain, AI, and Healthcare are areas where VC will definitely lay their interest. Whatever the future may hold, emerging AI and Blockchain Technology is making indelible marks in financial markets to health care. It should be no surprise that entrepreneurial startups will be transformed by this technological tsunami and VC love transformation. If you are thinking of starting a tech startup, be ready to embrace the technological tsunami as 2019 is going to be an exciting year for you! Already a tech startup and seeking funding from VC? Check us out here!

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About VenturX

VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.

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How to Get on the Radar of an Investor

How to Get on the Radar of an Investor

“Before you walk in the room to pitch, I should have heard about you 10 times already!” — Investor, Montreal, CA

1. Personal Connections

Just like in other industries, getting a personal recommendation from a trusted source is ideal to meet people. Historically, word of mouth is still the oldest form of marketing because there is an element of trust.

People

What can I do?

There are a few steps that you can take today to plant that seed:

  1. Let people in your network (ie. brother, colleagues, startup friends, strangers you met at networking events, etc..) know that you are working on your business and currently seeking funding. People do not know you have a need unless you let them in on what’s going on. Depending on your relationship with the other person, you are not necessarily asking for something, you are just telling them what’s going on and where you are at.
  2. Show passion for your idea. Passion is contagious and it can motivate people to help you get to that next milestone
  3. Don’t assume. You never really know who people in your network know and don’t know. During my time working with hundreds of startups, we found that many unsuccessful ones make a lot of pessimistic assumptions. They assume they don’t know anyone who can help with funding. They assume the answer to any question will be no. Just remember that if you live to 80 years old, the average person will meet 80,000 people in their lifetime.

2. Pitch Competitions

If you live in a startup-friendly place like Montreal, then you are aware of the same startups who pitch at every competition hoping to win. They may not necessarily win any competition but they are marketing themselves to the room. The mere-exposure effect is a psychological phenomenon by which people tend to develop a preference for things merely because they are familiar with them. To get on the radar and have them like you, you have to first exist in the investor’s minds.

pitch competition

What can I do?

  1. Brand new 2019 kickoff, enter at least 2–5 competitions. The business will likely change over that time but if you sign up, you are more likely to force yourself to be marketed to the investors who don’t know you.
  2. The other benefit is that you likely get asked questions from judges so investors will see how you are answering them during the Q+A portion of the pitch. It can really help you stand out.

3. Meet at Networking Events

When you go to events with speakers, booth exhibitions or casual meet and greet events, sometimes you will see who the sponsors or speakers are directly in the event description. You can see beforehand who the investors are. See the example below.

Sample Eventbrite Ticket

What can I do?

What I trained my interns to do last summer was add every single person on LinkedIn 24–48 hours before. (You don’t want to do it too early in case both parties forget.) Then, take note of the most relevant people who we should meet. Because some events might be hard to navigate with lots of activities and presentations, you want to target only 5–8 key people who are most relevant for you.

3. Execute Good Content

Online presence is also relevant. Showing yourself as a thought leader and innovator in the space will trigger the interest of the investors you are trying to attract because it shows you know your stuff.

Content

What can I do?

  1. Find out who your favorite investors are following. Find out the topics they engage with and why that is relevant for your business/space.
  2. Imitation is the highest form of flattery. Upon completing the first tip above, you will find yourself researching more and more about what interests these investors and imitate those influencers or innovators they also respect in order to get inspiration for content.
  3. Find out how they wish to consume content so you are using the right vehicles too. For example, is it written on Word, Medium or LinkedIn? Is it a video on Youtube?

4. PR / Podcasts

A great way to get some exposure to investors, partners, and clients alike is podcasts, publications, etc.. It does depend on how comfortable you are at writing, being on video, doing podcasts, etc.. VenturX has all these channels and you can see on our Youtube and Twitter/ Facebook that every single podcast we guest star in, we also repurpose the content and repost to keep engagement high. The other thing is that the more you put your brand out there, the more opportunities will come knocking on your door. In 2018, we got a call from Brahm, who was following my content and had an interest in our innovative technology. In no time, VenturX is now going to be featured in the book “Innovate Montreal.” This book will be published in 2019 and it highlights the top innovators in the major cities around the world.

Podcast

What can I do?

  1. What are the top publications and podcasters that are relevant to your industry? Reach out to them and ask how you can get on their podcast? After doing a great podcast, you may get a positive recommendation to another…and then another…

2. Create a media kit in order to save all content in one place. You can share the link to publications who ask for it, you can also use it to collect past publications you have been featured in.

3. Create a newsletter for your potential investors and partners to keep them updated about the momentum you are building and whose show you will be featured next.

5. Engage with Investors on Social Media

Social media is a powerful tool to connect with people who may not be directly in your network. You can find out which investors engaged with your posts and why. When I posted my most powerful post yet, I was surprised by the amount of positive support and engagement from investors who I met at events. The post was called “The Time I Was Threatened By a Client.” It was authentic, honest and it reached people on a human level.

Social Media

What can I do?

  1. Find out who is following you and on which mediums? (ie. Product Hunt followers, Twitter followers, Medium claps, LinkedIn comments, etc.) Then if they are an investor who you want to engage with but do not know them, add them on LinkedIn and thank them for following. Start a conversation…
  2. This method only works if you are both putting out content and engaging on social media in the first place.

6. Ask for Referrals When Rejection

Turn those “not a good fit for us” into warm introductions. Of course, this depends on the investors you are talking to.

Referrals

What can I do?

If you get an answer to your unsuccessful pitch, you can ask for feedback and if they can refer you to someone who would invest in that space or industry where it could be a better fit. If it helps, you can have an “introduction template” to send them so it makes to easier for them to introduce your company that is most representative.

7. Awards, Grants, Recognition

Investors are always looking for signs that a startup will be successful. Some startup founders may not know which things are signs of success/ momentum and how to present them.

Winners

What can I do?

  1. Advertise the awards, grants, and recognition on your website. You can create a News Page like this. This will help attract traffic to your site as well if you won a major award that others may be searching for.
  2. Keep them updated by mentioning it in your newsletter. You can also link back to the same New Page so they can see more information.
  3. Write this at your email signature that you are an award or notable grant recipient. Not enough people utilize their email signatures but you should see it as your business card.
  4. If you were a speaker at an event, it should be your LinkedIn profile cover page/facebook cover page. It should show you on stage with a microphone and the name of the conference in the background. The same goes for any pitch competition won.

8. Key Advisors on Your Board

Some startups have certain key advisors on their board in order to get attention from their specialized industries. These names hold weight and get attention. If these advisors are very invested in the startups and hold advisory shares, they have the incentive to mention them to their network/ when they go on stage for speaking engagements, etc.

Advisor

What can I do?

  1. List key advisors who would be your dream advisors to be on your board
  2. Find out which boards they currently serve on and what motivates them
  3. Reach out to them and see if some will want to work with you and bring on industry expertise and networking opportunities

9. Associate with Communities

If your startup went through an accelerator or incubator that has a strong community such as Y-Combinator and Techstar, then these communities are also good sourcing of referrals for funding. From the past years, there are also investors we have met who explained that they limit their scouting pool to only certain incubators and fund graduates from those directly for the past years. They believe in those communities or have graduated from them in the past.

techstars, y-combinator, 500 startups

What can I do?

  1. Join those accelerators if you have time and accessibility (some might require you to travel)
  2. If you do not have time, they sometimes have short 1-week boot camps or online programs you can join to also get better acquainted with their communities and offerings
  3. Find out where they hold public open events to network with those funded founders and mentors and start making connections and seeing where you fit

10. Rinse and Repeat!

Staying stuck behind a screen will not get you better acquainted with investors you are trying to familiarize yourself with. Keep repeating these steps at every opportunity and get yourself out there to set up meetings and coffees. Take advice and feedback and really listen to what they are expecting from you. Be sure to have your data room files ready (see an example HERE!)

Investors Package

We keep reminding our startup clients it is very hard to be heard through all this noise. They do not have to worry about being overly flamboyant when marketing. Startups do not have the budget to market themselves to any extreme. Even when you think you are over-doing it, that person may believe to only have heard of you once. It takes more to be remembered in someone’s mind.

Good luck!

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Entrepreneurship: Be the Boss You Wish You Had

As we go through our entrepreneurship journey, we are so focused on our day to day tasks, that next funding round, and the next milestone. When reflecting on the big picture about making a difference, we often forget how much we as people factor into each other’s lives. On average, people spend 35–40% of their entire lives at work; that is 90,000 hours. When we go back to reflect on the people we have worked for and how it influenced us in a positive and negative way, it does show up when we dive into entrepreneurship and become leaders and bosses ourselves. Because we have the ability to make great impact on those partners, employees, and colleagues we spend so much time with, we should be strongly considering being the boss we always wish we had.

Everyone’s revelations about this topic would be different. For me, I had a series of great corporate supervisors who were supportive and knowledgeable. However, it was my experience at a small consulting firm that impacted what kind of leader I wanted to be or not. Here is what I learned from my former bosses.

Bosses VS Leaders

1. Do Not Oversell a Solution to Clients And Make Your Team to Under Perform

As a new CEO who is starting out, there is a lot of pressure to sell in order to pay the bills. However, if you sell 20 hours worth of work for only 11 hours because you are a terrible negotiator, then read this article about not giving into discounts: https://medium.com/@VenturX_team/why-startups-should-never-give-discounts-8c291ad93167 and find better clients. If your team works on a billable time basis, and you train your team to work the 20 hours, then 20 hours will still be billed and get mixed up in the finance department. The clients would file complaints against the employee or the company. The other scenario that happened is that you force some of your employees to be assigned to the bad clients and your employees are overworked and force to under-bill the clients. Your startup company would then be making less money and your employees would be constantly frustrated because they will never reach their target. They say that entrepreneurs have to learn at warp speed to succeed in business. This is a prime example as to the notable effects of an entrepreneur’s lack of negotiation and prospecting skills.

Oversell and Under Deliver

2. After the Job Offer, Do Not Propose a Lowered Salary

After accepting the job, a got a call from my future employer who suggested to go on a lower salary with an unlikely bonus system. As an employee it was my first time seeing red flags of mistrust from any employer. He did that after I turned down my other job offers in order to take this job. Entrepreneurs should never do that because it breaks trust and you get off on the wrong foot.

I have come to learn how important trust is in your team and when you get off on the wrong foot, you already tainted your own reputation.

Trust

3. Signing an Awkward Contract

When I was young and working for this firm, I did not know I could question contracts. To this day, I am not sure it was 100% legal in Quebec to make someone go on a 50% salary cut for a probation period and force them to disclose all their personal activities such as volunteering, health and wellness problems, religious activities, etc.. This was stated in our contract that I was afraid to question when signing.

What I do now, is allow all levels of employees to ask questions and even follow up if I have not heard from them. My goal is to train someone for the duration of their contract and ensure they are fulfilled and happy. I respect their personal life and I do not make them disclose details because I do not want to make them feel as uncomfortable as I felt with this previous employment. I did have one intern who requested for us to know each other more so we made it happen; Otherwise, I respect their privacy rights. I cannot guess what will make them happy, I just have to ask. I learned another great lesson that I shared on Jeremy Ryan Slate’s podcast which covers “Grown ups don’t know everything.” You can listen to it here: https://www.jeremyryanslate.com/450-growth-secrets-networking-secrets-intentional-founder-sydney-wong/

Contract

4. Do Not Change the Work Expense Policy After the Trip

On my first trip to Boston, it was clearly written that the meals for the day was $75 CAD daily. After I came back from the trip and spent a little under $75, the CFO co-founder pulled me aside to say that the change was that the meals would be now broken down to $25 per meal for a total of $75. I did not misread because that was not written in the policy they gave before the trip. Overall, this employee lost money in order to go to a mandatory work trip (to generate billable hours for this company).

What I would have done is to absorb that one time expense since the employee followed policy meticulously. Changing an important policy like that would have been announced publicly instead of being pulled aside to be shaken-down by a cofounder of the starting company.

Employer

5. Changing the Year End Bonus Structure

When the bonus structure changes as employees are getting close to the achievement mark, it is very demotivating. The original one was based on billable hours and the new one was imposed near the year end, making all my past achievements obsolete and disregarded. There was no point in starting from scratch. It seemed that the new one was put in place in order to not pay out any bonuses that year.

Today, new entrepreneurs are taught to underpromise and over deliver. When it comes to employees, it should remain the same. This rule of thumb is another element that makes or breaks trust between the parties.

6. Don’t Point Out How You Wish You Didn’t Pay Salaries to Your Employees

At the end of the year, the CFO presented our overall revenue and expenses. The awkward thing that happened was he point out the revenue was higher than he expected so “it makes [him] happy.” He also pointed out the expenses (mostly salaries) were also higher than he expected so “it makes [him] less happy and this should be lowered.” If it sounds like this cofounder is implying people should get fired, then you are right…

One good part of that presentation was that they did show the revenue for the year which makes employees feel that they were contributing to a bigger picture. It was a good graphical way to show it. Overall, I cannot see how a founder can put a chart on the big screen and tell a room of people who were overworked that he feels he has overpaid would be motivating.

Revenues and Expenses

Overall, there is a difference between bosses and leaders. Everyone makes mistakes. We can learn from the mistakes of our former bosses and try to impact others in a more positive way. As entrepreneurs, we are our own brand and we have to learn the optimal ways of conducting our businesses, ourselves, and our team as fast as possible.

Warren Buffet
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