success

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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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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How to Understand Your Term Sheet

How to Understand Your Term Sheet

What is a Term Sheet?

Term Sheet

A Term Sheet just to be specific is an agreement between you as an entrepreneur and an investor — a series of terms you think that matter. Some key values of the term sheets include what the valuation of the business is, how much investment the company is getting and for what percentage. Early Term Sheets are for entrepreneurs who are raising seed and angel capital, which is what we will focus on this article. Personally, I like to keep them simple, not a lot of bells and whistles, not a lot of rules.

However, Term Sheets can vary depending on what type of funding round you are in, and how much is at stake, as well as who is involved. If you decided to go for Series A & B rounds, your Term Sheet is going to get more complicated which includes who’s going to be on the board and how many board seats are there, what happens when the board voted for you as a CEO to step down. Yes, I know right, if it’s not for the movie I recently watched, I always thought the CEO represents the top of the ladder and they exercise full control over the company.

There is a great set of templates available online put together by Fenwick & West (National Law Firm) and Andreessen-Horowitz (Silicon Valley VC Firm).

Breaking Down the Term Sheet

Term Sheet

Pre-Money Valuation

According to Investopedia, Pre-Money Valuation refers to the value of a company not including external funding or the latest round of funding. Pre-money is best described as how much a startup might be worth before it begins to receive any investments into the company. This valuation doesn’t just give investors an idea of the current value of the business, but it also provides the value of each issued share.

To calculate the value of your shares for the current round using Pre-Money Valuation, it’s not rocket science. Let me walk you through this, assuming the Pre-Money Valuation is at $3,000,000, we will divide that by the existing number of shares (10,000,000 for example)=price of shares at which new investors will buy. Hence, $3,000,000/10,000,000=$0.30. Each share would cost $0.30.

Post-Money Valuation

On the other hand, post-money refers to how much the company is worth after it receives the money and investments into it. Post-money valuation includes outside financing or the latest capital injection. It is important to know which is being referred to, as they are critical concepts in the valuation of any company.

To put it simply, Post-Money valuation is Pre-Money valuation + Amount Raised. Let me walk you through the calculations, given the same amount of Pre-Money valuation as the previous example, at this round your company raised $1,000,000 and hence your Post-Money valuation would be $3,000,000+$1,000,000=$4,000,000.

However, if the calculations get more complicated as the company grows, this is a great online Post-Money valuation and Pre-Money valuation calculator to generate the numbers for you.

Preferred vs Common Shares

When a business wants to raise money by attracting investors, it can do so by issuing stock: common stock or preferred stock. There are many differences between preferred and common stock. The main difference is that preferred stock usually does not give shareholders voting rights, while common stock does, usually at one vote per share owned.

Common stock allows its holders to make a profit through rising share prices and dividend payments. Holders of common stock also get to vote on corporate issues, such as electing new directors to the corporation’s board. For example, Detour Gold Corp. interim CEO Michael Kenyon resigned 3 months ago following a vote by shareholders and hence the company took an entirely new direction because of common stock shareholders.

However, should the company end up in bankruptcy, holders of common stock are last on the list to get their money back. Putting it simply and plain, if you hold common stock and the company goes bust, you are unlikely to get any of your capital back. For more in, see The Motley Fool.

Preferred stock also represents owning a share of the company, but it works a bit differently than common stock. Preferred stock pays a predetermined dividend, whereas the dividends paid to common shareholders tend to vary according to the company’s fortunes. Dividends on preferred stock are often larger than those on either common stock or the company’s bonds. Holders of preferred stock do not get a vote on company matters. And if a company’s assets are liquidated, the preferred stockholders get to redeem their shares before common stockholders do, giving them a better chance of getting at least some of their money back.

For most investors, common stock is a better deal. It’s slightly riskier than preferred stock but will usually show a slightly higher return as well. If you want to enjoy the potentially high returns of a stock investment but want to minimize your investment’s volatility or your exposure to company-specific risk, the preferred stock might be a better choice. Preferred stock may also be better if you’re looking for a source of income you can depend on, as the dividends paid on such stock are fixed. But whichever class of stock you choose, be sure that it’s an investment you’ll feel comfortable holding over the long haul.

Participating or Non-Participating Preferred

Non-participating preferred typically receives an amount equal to the initial investment plus accrued and unpaid dividends upon a liquidation event. See more at STARTUP COMPANY LAWER. Holders of common stock then receive the remaining assets. If holders of common stock would receive more per share than holders of preferred stock upon a sale or liquidation (typically where the company is being sold at a high valuation), then holders of preferred stock should convert their shares into common stock and give up their preference in exchange for the right to share pro rata in the total liquidation proceeds. Non-participating preferred stock is favoured by holders of common stock (i.e. founders, management and employees) because the liquidation preference will become meaningless after a certain transaction value.

“Participating Preferred” also typically receives an amount equal to the initial investment plus accrued and unpaid dividends upon a liquidation event. However, participating preferred then participates on an “as converted to common stock” basis with the common stock in the distribution of the remaining assets.

Participating Preferred stock is favoured by investors because they will receive a preferential return over both low and high exit transaction values.

A perfect example by founders workbench to illustrate what is going on is the following. Assuming company A has one series of non-participating preferred stock with a liquidation preference of $6 million representing 50% of the capital stock of Company A. If Company A were to be sold for $10 million, the investors would receive $6 million (as the $6 million investment amount is greater than the preferred’s 50% share of the $10 million sale proceeds) and the remaining $4 million of proceeds would be distributed to management. Company B also has one series of preferred stock with a liquidation preference of $6 million representing 50% of the capital stock of Company B, but its preferred stock is participating. Upon the same $10 million sale event, the investors would receive $8 million (the $6 million liquidation preference plus 50% of residual $4 million of sale proceeds) and the remaining $2 million of the proceeds would be distributed management. Thus, in the same $10 million sales, the difference between participating vs. non-participating preferred resulted in a $2 million shift in economics away from management to the investors, which represents one-half of the return that management would have received had the preferred stock been structured as non-participating.

Potential Red Flags in a Term Sheet

Red Flag

After breaking down various important key terms in a Term Sheet, let’s dive into what red flags to look out for in a Term Sheet.

1) Review Period

Some Term Sheet will include a Review Period that allows them to pull the Term Sheet after it’s been signed. Including this is like saying your investors assume there’s a high chance that the deal will fall through, which is ironic since it’s counter to investor norms. That being said, reputable investors would not issue a Term Sheet with a review period if their business diligence is done and they are confident towards the deal.

2) Change in Management

As discussed earlier, your board of directors could replace the CEO if they deemed the CEO to be not a fit. However, these can be done without specifically including it to the terms. If this term appears in your Term Sheet, remove it. Investors would rarely willing to invest in a company where they immediately hope to remove to CEO, and of course, frankly speaking, this is quite rude as well.

3) Guaranteed Exit (within 5 years)

Last but not least, guaranteed exit. This basically means the founder legally commit that they would find a buyer for investors’ shares within 5 years. Startups have unproven economic business models. More likely than not most startups are still experimenting or pivot in the initial years. It is unknown how long this could take because it differs from case to case. 5 years is perhaps when they figured it out what worked and what does not. Lots of opportunities for capital to be returned will arise organically over the life of your company and hence if the investor wants an exit within 5 years, no doubt this is a huge red flag to look out for.

Conclusion

Image result for term sheet for startup
Investor Meeting

As you can see, the Term Sheet can be really quite scary and exciting for new startup founders. If you are pursuing Seed or Angel round funding, Term Sheet is usually less complex and provided by the investors whereas if your company is more mature in the future and decided to go for Series A & B funding, the Term Sheet is usually created by the company. Are you a startup seeking funding during Seed or Series A? We are here to help!

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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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ICO 101 and Why Should You Consider It?

What is ICO?

ICO

ICO, ICO, ICO. There’s no doubt everyone is familiar with or at least heard of cryptocurrency. If not, you are really living under a rock! Even my taxi driver is familiar with the most popular form of cryptocurrency, Bitcoin!

If you are like me, interested in investing in cryptocurrency simply because everyone is talking about it, I’m sure you’ve come across terms such as ICO (aka. Initial Coin Offering)

ICO is a way to crowdfund by issuing cryptocurrency tokens for blockchain projects. And no, these cryptocurrency tokens are not Bitcoin if you are wondering. Instead, they are tokens made by the company which explains why there are thousands of cryptocurrencies circulating in the market right now. ICOs have proved to be valuable fundraising tools for investors since the concept was brought into the limelight in 2013. So far this year, investors have used ICOs to raise over $1.8 billion.

During an ICO, there are two kinds of token you can purchase. First being the utility token, it’s meant to be used on goods and services developed by the cryptocurrency company and nowhere else. The second type of token is the security token, it works very much like stocks where you buy part of the company during IPO. However, unlike IPO, you will not get the equity that comes with regular stocks.

Let’s say now that you have decided to invest in a security token, how can you trade it? You must register yourself on an exchange to trade tokens. However, please do extensive research on various exchanges as not all exchanges will accept the token you own unless you’re holding to the popular ones such as BTC, LTC or ETH. Popular exchanges include and not limited to Coinbase, Coinmama, Luno, Bitpanda, and Kraken.

ICO has achieved its goals if the soft cap is reached. The soft cap is a minimal amount for the project to move forward. And of course, there’s a hard cap, the maximum acceptable amount. However, if the soft cap is not reached, most ICO will return its funds to investors.

ICO is considered a high-risk investment. One of the recent tragic cases on ICO happened in 2016. DAO launched its ICO in 2016 and raised over $150 million through the ICO campaign. However, the smart contract behind the DAO had a small bug that was later exploited by a hacker who eventually made off with $50 million. Both the fundraisers of the ICO and the investors were devastated by the news.

If you decided to test the market or are very interested in investing in ICO, practice doing extensive research around the project by researching about the whitepaper, understanding how the projects apply real-world value and knowing who the key stakeholders of the company are.

The main difference between ICO and Venture Capital

Crowdfunding

Venture capital is raising money from a group of venture capitalists by pitching to them your idea/project to convince them to invest in your company in exchange for your company’s equity. Interested in pitching to venture capitalists? Get your Capitalization Table in check!

How to choose between VC and ICO?

VC vs ICO

VC over ICO

Addition to funding, if you are seeking to expand your reach, consulting services, and business guidelines, this option is for you. VC investors are more reliable since they are experienced businessmen. If you are looking for long-term support on your project, you can rely on VC investors as they have part of the company’s ownership and hence in the long term, without question, they would want the company’s equity value to rise. In addition, VC has a stronger advantage when it comes to public perception. Raising money from VC gives you a stronger trust credit since they are business professionals and they will carefully vet through your project before investing hence if they decided to invest in your project, it proves to the public that your idea is brilliant.

To summarize, benefits of VC includes building valuable connections, investors’ support, and PR credit.

ICO over VC

If you are only looking for a quick way to raise money by reaching out to the mass, this option is for you. Everyone, including a taxi driver, can be an ICO investor. You can raise enough money from everyone. It is an easy way to raise money if your idea can convince the mass. Also, your investors do not have any ownership right, hence you get the freedom to decide over things instead of gathering all the company’s stakeholders before moving forward with your decision.

To summarize, benefits of ICO includes easy reach in fundraising and freedom, no equity required.

Which is better for me?

While ICO and VC are similar processes, they can be very different and each at the opposite end of the spectrum. Which method is better really depends on your objectives and the nature of the company. However, both are promising and a necessary way of raising funds in order for your company to strive.

I hope that you’ll arm yourself with the right knowledge regarding which funding method is best for your company. Please leave any comments if you have burning questions and I’ll be ecstatic to acknowledge them.

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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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All You Need to Know About Capitalization Tables

All You Need to Know About Capitalization Tables

What is a Cap Table?

Capitalization Table

Cap Table is a spreadsheet for an early-stage venture or a start-up that lists all the company’s securities, their holders and the price paid by the investors to hold these securities. It shows each stakeholder’s percentage of ownership and how it can be diluted over time. In short, your Cap Table is a standing summary of who owns what in your company. It is a crucial part of your data room file for early stage investment. For the full package, check out our previous article: What to Include in an Investment Package.

Why is a Cap Table Important?

I wouldn’t be writing this article if it isn’t. Most important to investors, they will want to look at your Cap Table. How you have raised money and who owns the company. In fact, this might be the only thing investors would care about, aside from your ideas. It is also interesting for them to know who else has already invested. They may be interested because the other investors have a strong reputation and are very hands on or they are competitor investors.

Shareholders want to keep track how much of the company they own; founders and investors would like to know how much of the shares they are giving away if the company issues more shares.

So, founders, do not screw up your Cap Tables! Because screwing-up your Cap Table is like getting a face tattoo when you’re drunk!

How to Use a Cap Table?

Spreadsheet

Understanding Your Equity

One of the uses of the Cap Table is to make decisions on should you raise funding for another round. Cap Table also shows how certain decisions can affect the company’s ownership structure and by how much.

Managing Stock Options for Employees

When the company expands, and more employees are hired, you would want to introduce incentive plans such as incentivizing them by giving them stock options. By offering some degree of company ownership to employees, it gives them the incentive to contribute more so their contribution can be monetized as the company’s stock price rises.

Cap Table then come in handy in situations as such. Cap Table can easily calculate out by adding in an extra stakeholder, by how much would current stakeholders’ share change. Also, by showing you how many shares are available to be issued with an addition stakeholder.

How to Make a Basic Cap Table?

Excel

I was looking around the net and realized most cap tables are more complicated than it should be. There should be a basic Cap Table template out there but seriously, it seems to me that every template seems to overcomplicate things. Cap Table can be quite tricky sometimes if you have never worked with one before. Hence, for those entrepreneurs out there who are looking for a basic Cap Table, fret not! This article is for you.

I have quickly put together a basic Cap Table template using Excel for you to reference on. Please remember with every additional round of funding, you must update your Cap Table. For example, and not limited to — changing stock options for stakeholders, issuing new shares and transfer of shares. Without further ado, I present to you the basic fits all Cap Table.

Capitalization Table Example

A basic cap table should be divided into two sections: ownership and valuation. Using the example above, highlighted fields are variables for you to fill in whereas the rest are automated using formulas. In the ownership section, enter each investor’s name and the dollar value each of them contributed and the rest of the fields will be automatically generated for you!

Same goes to the valuation section, enter the current company value, the current number of shares and new equity raised. The screenshot should be an easy way for you to follow and generate your own basic cap table template.

I personally do prefer a simplified and transparent cap table as I certainly do not think you need a complicated cap table at an early stage in order to run a startup. I strongly encourage to try it out yourself. The template can be found here! Modify, if you have to in order to create a cap table that a story about your company!

Remember, there is no “right” way to format your cap table, but to keep it organized and simple. The right cap table for a founder might look entirely different than the right cap table for another founder.

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Why Startups Should Never Give Discounts

Why Startups Should Never Give Discounts

When your business is starting out, it is common to want to sell right away, rack a huge number of clients and build credibility in your industry. Building all of that takes time. What startups tend to talk about these days revolve around motivation, grinding and how well to treat to your customers. What they leave out is how not every client is good for your business, how “doing whatever it takes” may harm you in the short and long run, and how all this may affect your credibility overall.

From working with 300 startup clients, I have had the chance to see that our market is very dynamic from one client to the next. Normally, our clients are not known to have deep pockets so that is where I learned the unique lessons about discounts. A couple of key learnings have come out of that over the years that I wanted to share…

1. 80/20 Rule

20% of the people take up 80% of your time. This is a tried and true statement among many psychological situations. In business, this would be true of your clients. In a startup’s early days, it may seem like you are supposed to give discounts in order to make those initial sales and gain your credibility. However, we have seen a huge difference in those clients who will and won’t see your value. (Check out our previous article: Am I Being Paid What Am I Worth?)

For example, we had a standard fee for writing business plans as an extra add on for those looking for funding. We had a client in the past who tried to negotiate during the 11th hour when I was almost finished the business plan to demand a discount. The request was to do 3 weeks worth of work in just a few days and they did not finish preparing their research either. Because of the situation the client put us in and the hard deadline, we spent 40% of the time negotiating and 50% of the time working on the business plan (and about 10% of the time sleeping). It was a prime example of how a client took 80% of our time and it was a hard lesson to learn.

80–20 Rule

What can you do about it?

A) Walk away…

In hindsight, we did not need their business. It would not have affected our brand and our core business of helping startups get investor funding. This business plan writing was a side service that was offered.

B) Flip your 80/20 rule to benefit your business!

Applying the 80/20 Rule to Your Business

2) Beware of Acquaintances Who Try to Squeeze Your Business

As your business grows and people start to see value in what you, some people will migrate back in your life and ask for discounts to gain the benefits. One example that happened was an acquaintance of mine who needed marketing consultation because he was part of a “Co-CEO” team but neither of them was the marketing/business person. This acquaintance is someone who I haven’t seen in about 10 years and only met through school friends a couple of times. I did not know he moved back to the city a few years ago. So after agreeing on the rate and services to be provided, this acquaintance messaged me back a day later and aggressively wrote this:

“Good morning,

I’ve just checked the contract and want to point out one thing

Are you really charging me the fees the same as you charge to strangers ?”

I was not sure what this aggressive greeting was about. I eventually saw that it was his way to “ask for a friend’s discount.” I was really confused that this happened after everything was agreed upon and written up in a contract that he then refused to sign. His partner and I sorted it out later and we commenced the work. It was done in bad faith after all because the 6 month contract…got cut into a 3 month contract…got cut into a 3 week contract…

Back Stab

Back Stab

Back Stab

What can you do about it?

There are a lot of support systems in your community or even online like a Facebook group full of entrepreneurs who will give great advice based on your specific situations. I went on a Facebook live chat full of entrepreneurs because I was new to this situation and was starting out this branch of the business at the time. I went on a live video to talk to people who have walked this path. They explained that I should not consider these people to be “friends.” Also, I should go back to them and ask for more. That is what I did during the second negotiation. They only hired for 3 weeks (but it was possible that is what they intended in the first place when negotiation a 6 month contract).

Another solution is to hire a sales coach if you are new to these negotiations. If you need recommendations for sales coaches or facebook support groups, send me a message!

If startups bow down to giving discounts every time they are asked, they will only be attracted discounted clients. These small clients will take up 80% of your time. You will be spending less time doing what you love — which is providing the solution or product. Even if your product or service is superior on the market, if you act like you are worth less, than that’s how the world will treat you.

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The Importance Of Customer Service To A Startup

As the owner of a young startup or business, your goal is to get customers by the droves. The type of business your startup is into makes no difference. As long as profit and not loss is the goal, your business is dependent on the presence of customers.

In the same vein, every business owner wants customers to keep coming back to do more business. Every company wants customers to advise friends and colleagues to do business with them. This is the cycle that the whole profit and loss industry runs on. This cycle has been around for centuries, yet it is still doing the trick.

Building a network of happy and satisfied customers doesn’t just happen overnight. It is a complicated network that thrives on awesome customer service. Just as strikers are to a football team, so is customer service to a startup business. Without it, there is no focal point.

With the advent of the digital age, the impact of customer satisfaction has increased drastically. Nothing spreads faster than rumors. With the internet, they spread faster than the speed of light. One tweet or a blog post from an irritable or dissatisfied customer can potentially mar your startup business. As the owner of a new business trying to break into a highly competitive market, you can grasp the importance of reputable customer service.

Essentially, customer service is a personal interaction with customers that becomes a pipeline to invaluable feedback, insight, and advertisement. Notice the use of the word “personal”. Most startups make the mistake of outsourcing their customer service needs. It is supposed to be a two-way communication that brings you and your customer closer together.

There have been some huge success stories due to excellent customer service by huge brands. Today, Nordstrom is one of the biggest retail companies out there. Back in the seventies, Nordstrom allowed a man to return his tires and even gave him a refund.

This was done despite the fact that Nordstrom did not sell the tires to the man. It had only moved into a shop which was previously used by a tire business. That story is still talked about and has played a massive part in the popularity and success of the company.

Today, Nordstrom continues that fine tradition by using Groupon deals to attract and communicate with its extensive customer base.

Another company that has benefited from impressive customer service is Target. Today, Target is the second largest discount store retailer in the United States. That is no mean feat, and it came about through one of the most impressive acts of customer service.

A young man walked into a Target store a few decades ago looking to buy a clip-on tie for an interview. Target didn’t sell clip-on ties at the time. The young man later left with a knotted tie and some advice on conducting himself during an interview. He then got a job at Chick-A-Fila, and great tales have been told of Target ever since.

Customer service is a vital cog in the machinations of a startup business. In case you are confused about the tenets of impressive customer service, here are a few tips to start you on your way:

  • Let your customers know everything your business entails
  • Answer the newest electronic mails and digital inquiries first
  • Shorten the line and process for getting across to your customer care representatives
  • Make use of personalized emails
  • Use human touch to deliver delightful surprises to your clientele
  • Inspire your customer base, make them feel special and part of something bigger
  • Always be ready to provide solutions to every inconvenience no matter how inconsequential it may seem
  • Learn from customer inquiries and issues to improve your customer experience
  • Finish with a smile.

Check out these examples!

Target

Target

Nordstrom

Nordstrom

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