venturx

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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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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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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How to Work on Your Startup Without a Product

Partnership

I met a great entrepreneur from Australia who was still in the midst of working on the product who taught a great lesson that I think more startups need to embrace. It was a lesson about vision, inspiration, and collaboration. This is a story about Partnerships.

Because at VenturX, we work so many technology-based startups, we often get hit with the question “How can I build more of the business when the product is not ready?” The key to any founding team is divide & conquer. When this startup came to us and was very early, they were not looking for investment or referrals or anything. Instead, they heard about us from our content via Medium, Twitter, and Facebook and wanted to form a partnership.

Here are 3 great tips:

1. The business founder should be building partnerships when the product is still undergoing development. It is never too early for those relationships.

2. When you don’t have your product ready yet, offer to help your partner first. Eg. Our new partner, intribe, offered great support via social media awareness. This was a great lesson about giving before asking. Because it is increasingly common for startups to be asking from everyone (please follow me, download this e-book, do you want me to get you more followers, etc..) It is refreshing and rare to meet those new partners who are giving before they ask. It makes them stand out. Another important aspect of this is to be realistic about how startups can give/help one another when they are small and starting out. We were given realistic expectations of what support we will be receiving via social media because it is what they could offer at the time. It yields an honest and authentic relationship right from the beginning

3. Keeping partners in the loop on your progress. Because we work with 300+ startup clients to get their financing, we do understand the pain of delays and various obstacles. When our partner schedule update calls every few months to give realistic updates and have a clear “call to action” for their partners, it is really appreciative. It shows that both sides do want to help each other and that each of their time is valuable.

Partnerships are a great way to open up your audience channels, penetrate the market quickly and co-brand. In our case, not only did this example broaden our marketing field but it also gave us an inspiring lesson to share as more startups come onto the field every day. These tips are great steps to building out those lasting relationships that can sustain through the life of your company.

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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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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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How to Build Traction Starting from an MVP

How to Build Traction Starting from an MVP

A vision without traction is merely a hallucination. Cultivating and creating a successful startup is more than just offering a product or service, it’s a consistent effort of building, measuring, and learning. However, one of the most important factors to venture capitalists (VCs) is traction and measuring the potential success of your product. In regard to measuring traction for your startup, below is a list of what potential investors will value when looking for investments.

Minimal Viable Product

Let’s begin off with an MVP (Minimum Viable Product). This is not a beta or prototype you are launching it’s rather a product or service you make to see if there is a market for it. You are trying to learn what your users want and don’t want and minimize the amount of time you spend on creating features or aspects of the product which is not valuable. Believe it or not, many big companies we know today originated from an MVP.

Dropbox

A good example to represent this is cloud database company called “DropBox.” Their MVP product was essentially a video which showed what they wanted to do and a signup form for people who were interested in the idea and wanted to be early adopters. Almost overnight, there were over 75,000 signups all with only a 3-minute video of Dropbox and not even an actual product of the software. If you are very early in your startup, make sure there is indeed a market for your product or service using an MVP. This is a valuable aspect to present to investors if you haven’t created real customer data points yet.

Below is a list of more MVP’s which you may find very interesting and see how the actual product which has derived from this has changed.

1. Airbnb

Airbnb

Co-founders of Airbnb needed help paying their rent in San Francisco. They also noticed lots of business conferences around; hotels were very expensive in their area. They wondered if strangers would pay to live in someone else’s house for a night. They provided all the facilities and tested out their product assumption using the interface you see above. Creating a website like this especially in the type of technology we have right now would cost you couple hundred dollars max.. If you have no idea about coding then check out ShareTribe, it is great place to create a peer to peer marketplace website and they take of everything for you. You get to focus on building your customer base and they take care of everything that’s technical. Base plans start at $100 a month and this is definitely a great way to see your your product has a market fit without spending tens of thousands of dollars into something that hasn’t been validated yet. In addition to this, hiring university students in computer science is also a great cheap alternative as well.

(MVP is estimated to be $100/ month and 2–3 weeks of coding)

2.Groupon

the point

They first started off creating “the point” which was a platform for bringing people together for fundraising or boycotting a retailer. This platform failed and from this they created Groupon. They used a customized wordpress blog and didn’t invest any time in developing a coupon system or designing a new website. They just took whatever resources they had and made a MVP out of it. It definitely was not scalable but it did answer Groupon’s questions for them. To recreate this type of MVP a simple subscription to “WordPress” will work as well. Relaying information on your own customizable wordpress website is great and more importantly relatively cheap compared to investing in a dedicated server and a team maintaining the site.

3.Buffer

Buffer

What Buffer did for their MVP was create a landing page where they showed what it would do for potential users; if you were interested, you could sign up as a paying customer. If you still weren’t sure as to why you wouldn’t join, it you could still sign up for their email alerts and executives would reach out to to find out why you weren’t convinced to use the platform. Hundreds of people responded and the demand for Buffer was evident. This strategy helped give valuable feedback and find out what users really wanted out of the service. In today’s day and age creating a landing page to show potential users is very simple. The only real aspect of what is being invested is essentially your time to review and analyse what users are saying about your potential product or service.

You can use WordPress for $10–33 dollars a month and creating the static landing page will take a few days.

4.Zappos

Zappos

The founder began off by posting photos from the local shoe store and uploaded them to this website. He then checked if anyone was interested and if there was he would go to the store and buy the shoe and then sell it to the customer. Doing this overtime he found out there was indeed a need for this type of service and answered his question if his product would be accepted into the market. Only after that, he invested into infrastructure and inventory. Reselling is becoming very common in the 21st century and online commerce is almost everywhere around the world. To recreate this type of MVP it is very cheap, quick and easy. For example you can get a subscription on “Wix” for $5–10 dollars a month and use a premade template to upload photos onto your site. This process can take as little as a day. There are multiple website builders such as Wix, Shopify and SquareSpace and all with free and paid options as suited to your individual needs.

You can get this website running in 1 day and $5-$10/month on Wix

5.Twitter

Twttr

It was first used as an internal messaging system for Odeo employees and it picked up so much that the monthly bill for the messaging system went into the hundreds of dollars. They noticed the demand and prepared to take Twitter large scale and release Twitter publicly. Creating an MVP like this is more expensive than the other options available. Creating a whole messaging system for internal use requires some capital equipment which many startups may not be able to afford. However if you do have a reasonable number of assets and capital equipment then you should consider creating something for a specific group of people then expanding once you see the validation. Another way to overcome this issue is getting a developer on your team who can use today’s available tools to create a messaging system more efficiently and cheaply.

6.Zynga

Zynga

Zynga uses landing pages and adword MVP tests to direct available resources into developing projects. What this means is that they launch ads for games in existing games and if the user clicks on it and seems interested in the new game, then they would continue developing the new game and put more attention towards it. Farmville, Yoville, etc. are all games that were developed this way and based of users interests. This type of MVP is essentially placing ads whiles users are playing games or browsing through Zynga. Sending ads to your own users are virtually free but placing ads through the Google Search Engine costs about $0.58 per CPC.

Creating and launching your own ads take a few days.

7.Foursquare

Foursquare

Foursquare began with a single featured MVP which is essentially a version of the product where design and features were minimal. They started off with user check in and offering gamification rewards. Once they realized users like this they added more features and then tested those out. It was a very repetitive process but in the end it creates a product completely sculpted by users. Although it is still very pricey to outsource work in the creation of making an app as an MVP (50,000–1,000,0000) it is strongly advisable to have a experienced coder who has coded apps before. This saves on a lot of money and you make it completely customizable towards your needs. The whole app making process however takes a number of months. If you are still insistent on hiring a company to create your apps there are few who are great at that (247 Labs, Openxcell, etc.)

This MVP takes 3–4 months to build.

8.Pebble

Pebble

Pebble actually was actually able to get money from investors; however, over time, the money ran out and they needed funding to showcase their research in E Ink displays in watches. They really wanted to find out if people would be interested in a smartwatch that had an exceptional battery and could connect to your phone. They started a kickstarter which had a video explainer describing the product and reached their goal of $100,000 in 2 hours. At the end of the fundraising they had raised 10.2 million for the project and then finally they went to manufacture the product after the evident market demand. Kickstarter is a great way to really see if your product has a market fit without starting to mass produce the product. It’s free to launch on Kickstarter but there is one catch. You need to get all the funding you submitted for, if not you lose the funding you raised. In addition to this there will be a certain percentage kickstarter will take away from each successful fundraising effort. Furthermore, you need to have pictures and a live demonstration of your product in order for you to be valid for kickstarter. This whole process will take a number of days and it will be for. More specifically the Kickstarter team spends 30 hours reviewing your submission and will reply back in 2–3 business days.

If accepted, this costs $0 and 1–10 days to make the graphics/ video. (This does not include promotional campaigns.)

9.Spotify

Spotify

Spotify has a 4 step cycle when it comes to creating and testing out its MVP. “Think it, Build It, Ship it, Tweak it.” Spotify is made up of many small teams and they have many ideas, the way they get this idea validated is by first creating the MVP based off their idea. Then they release it to users very slowly and take in a mass amount of reviews from their MVP. After, they tweak the MVP based off the reviews and users’ thoughts. They used this very process to scale from bottom up. While Spotify’s MVP product was very expensive because of its strong software background, Spotify was still able to minimize costs by creating a complete roadmap of early and cheap prototypes. They only completely launched when baseline of quantity was met.

The next sign of traction I would like to focus upon is customer acquisition. How are you going to reach out to customers? What’s the cheapest way to reach them? How much customer growth have you had? Different traction channels works for a variety of startups and can cause a chain of explosive growth for your venture. A few examples of channels for traction is through targeting blogs and search engine marketing.

A) Targeting blogs is one of the most effective ways to reach out to your first wave of customers and create your presence.

  1. The first step is to find a blog which is in the similar field as your product or service and ensure there are an appropriate number of followers on that blog suited to your needs.
  2. Secondly, reach out and offer your product or service to its readership to develop and build traction. Popular startups such as Code Academy , Mint and Reddit all got their start by targeting blogs. Mint actually gained initial traction by reaching out to mid sized blogs and ensured the bloggers were a good fit for their service. The famous bloggers used to exemplify the service and showcase it while Mint gave them VIP service in return through the service. This essentially grew the customer database.
Search Engine Marketing

B) Another channel to gain traction is through “Search Engine Marketing.” This term refers to placing ads on search engines such as Google and Bing and because SEO is so broad it will be applicable to any startup. This whole SEM process works by finding high-potential keywords which leads to your website or business online. The page that a potential customer lands on is called a landing page, and this is one the most important pages on your website. Key SEM metrics to reflect upon are CTR and the CPC. CTR (Click-Through Rate) is the percentage of people who clicked on your ads compared to the amount of people who actually saw your ads. The CPC (Cost per Click) on the other hand is the amount it costs to buy a click on an advertisement. What this means is how much are you willing to pay to get a potential customer on your website.

www.ancestry.com

A good example of a company that used this method to generate traction is Inflection, this is the company behind Archives.com which was soon to be acquired by Ancestry. They spent over $100,000 a month and dedicated several employees to customer acquisition through this method. Obviously very early startups don’t have this type of resources, but Monahan’s input on SEO is that “even if you decide to send less than 5,000, do it, because you get to have an early base of customers and users and it will create a whole bunch of things that are important in terms of regular metrics.”

The harsh reality is that majority of startups fail, and investors know that, that’s why traction is very important to them and making sure there is a market for that product or service. A MVP (Minimum Viable Product is a great way to see whether or not a business opportunity exists and ensures your long run potential. There are many ways to gain traction and I have showed many examples of it from successful startups who have all taken very different routes. Ensure there is a product market fit and traction will follow. The more traction you have, the greater the chance to catch an eye of an investor and finding external investment. “Almost every failed startup has a product. What failed startups don’t have are enough customers”- Gabriel Weinberg (CEO/Founder of DuckDuckGo)

To learn more about examples of traction feel free to head on over to the article written by us on how letters of intent can increase your startup’s funding success.

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Should Founders Work on Their Strengths or Weaknesses?

When looking at this scenario in a macro, it seems that most entrepreneurs at different stages of the business would choose to work on strengths and let another expert work on the weaker part. In theory it sounds logical and favourable. However, let’s examine these scenarios why a lot of first time founders seem to fall into the pit of spreading themselves too thin and focus too much on the business areas that are weak. Is there such a thing as a good balance? How do you measure it?

Different entrepreneurs will have strengths and weaknesses in different areas. Running a successful company is very demanding so it may seem that startup founders are supposed to be good at everything or all else will fail. Here is a short list of what strengths and weaknesses entrepreneurs may possess:

· Getting investor funding

· Pitching to investors

· Managing customers

· Managing internal team

· Building the product or service

· Marketing

· Sales

Investor Funding

Investor Funding

The famed author of the book “Rich Dad, Poor Dad” Robert Kiyosaki describes funding as a prime example of a necessary skill that most entrepreneurs are weak at. This is not to say they will not be successful but it is say that they should be aware of this early on in order to prepare for it when their business needs funding the most. A lot of startup founders try to take getting funding into their own hands, even though it is their weakness; they do this instead of hiring for others’ strength such as a software tool to help train their business or professionals to help broaden their network. Like any strength, securing investor funding requires knowledge of the startup investment field, relationship building, and logistical time. Usually startup founders would try and fail between 2 months — 12+ months before asking for the necessary help. By them, their business would have gone through a significant amount of suffering that could have been easily avoided. We have heard of startups who have gone through 1 year of unsuccessful capital raising before finally considering help with their weakness.

Tim Ferriss

Tim Ferriss

Tim Ferriss, #1 New York Times best-selling author and Silicon Valley entrepreneur, dedicates to steering people to work towards their strengths and hiring/ outsourcing for weaknesses in order to accomplish professional goals. When founders dive into the entrepreneurial journey and undergo self discovery, each will find where their strengths and weaknesses really lie. Each business decision relies on utilizing available resources, time, and strengths and weaknesses of people.

Team

When founders try and do everything themselves, they realize that they take a longer time to develop the skill sets that funding experts, accountants, web designers, etc.. would have. It would cost more time and money in the long run and the return on investment (ROI) is poor. When founders hire experts in the fields where they are weak, they can work along side the experts to better learn what the end result should look like. It would be a positive learning experience that also saves you time and resources in the end.

If founders did not put too much on their shoulders by hiring for weaknesses and doubling down on their own strengths, they will not only save themselves a lot of time but they will spend their days building their business and doing what they love.

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How letters of intent increases startup funding success

How letters of intent increases startup funding success

Letters of Intent

What is a letter of intent? Who are they for? Are letters of intent outdated? Are they legally binding? How is it related to funding? How does it increase my conversion metrics as a startup?

Let’s take a look deeper into one of the important elements of startup conversion called letter of intent. We have come across this topic when one of our startup clients who is preparing for funding using www.venturx.casuggested for more information about letters of intent and how it would affect his Conversion score on the VenturX tool. Let’s dive in and answer all those buzzing questions!

What is a letter of intent?

A letter of intent outlines the terms of a deal and serves as an “agreement to agree” between two parties. They are usually not legally binding but it depends on how it is written. Most partners, investors, merchants, etc.. tend to favour those that are not legally binding. Below, there are a few examples of letters of intent.

How does a letter of intent help me get startup funding?

Startups are always trying to defend their valuation of their business when it comes to funding. The truth is that most startups do not realize the gold and leverage they tend to have. Even when you cannot show revenue, you can certainly show traction. A written agreement proving the interest or partnership of another party is certainly a strong way to show traction. When you are up for investor funding, the investor has more confidence in what is presented when there are contact details, price points, etc.. on these letters.

Who should startups get letters of intent from?

There are several sources that startups could be collecting the letters of intent from.

1) Potential investors — startups might hit need to hit a certain milestone (ex. Patent approval) in order to get the potential investment. Like a term sheet, this letter assures other investors that your startup is valued at that particular pre-determined valuation. These would be used to back up those claims.

2) Clients — this works very well with Business to Business (B2B) clients. For example, before putting in a purchase order, the business you are trying to sell to might want to see test results, patent approvals, etc.. These terms would be written into the letter of intent.

3) Partners — there are many different kinds of partnerships. For example, a referral partnership would be when two parties refer clients to each other in exchange for a commission fee or just out of goodwill. When startups do not have a full product yet in order to sign a referral partnership agreement contract, a letter of intent could take its place until development is completed.

What should be included in a letter of intent.

1) Language and Tone: Think about who the letter of intent is for. For example, if you are a VenturX startup aiming for funding, your letter of intents would be read by the investors that VenturX matches you with. Therefore, your letters of intent would cater to the language of investors.

2) Pricing, dates of delivery, etc.. — if you have agreed on pricing, dates of delivery, etc.. that is great to add because it strengthens your letters of intent. Note that if deadlines are not met, you can send an updated letter of intent to be signed for the updated estimated delivery date. Specific details are better to be included when a third party is reading it because there is context and clarity.

3) Signatures — be sure that whoever’s signatures are on the letters of intent are the head decision maker and not likely to change jobs anytime soon. If this happens, you may need to spend more time getting another signed letter.

Examples

1. Purchasing Letter of Intent

This letter of intent includes details such as the pricing, who is buying, etc. It is a great example because these detail tell the investors that there is definitely traction in the pipeline. It helps support the analytics of the VenturX report for that company.

LETTER OF INTENT FOR PURCHASE OF COMPUTER EQUIPMENT

March 11, 20xx

Contact Name

Address

Address2

City, State/Province

Zip/Postal Code

OBJECT: LETTER OF INTENT FOR PURCHASE OF COMPUTER EQUIPMENT

Dear [CONTACT NAME],

[YOUR COMPANY NAME] intends to purchase certain computer hardware from [SELLER]. The purpose of this Letter of Intent is to summarize our discussions to date and to confirm our respective intentions with respect to the proposed transaction.

[YOUR COMPANY NAME] intends to purchase from [SELLER] the [MODEL] computer.

The purchase price for the [MODEL] model shall be the lower of [AMOUNT] or whatever better price [SELLER] is able to extend to [YOUR COMPANY NAME].

[YOUR COMPANY NAME] and [SELLER] will use their best efforts to conclude a contract on or before [DATE].

In order to secure timely delivery of the equipment [YOUR COMPANY NAME] has paid to [SELLER] the sum of [%] of the listed price as a deposit, which shall be promptly refunded in the event negotiations are terminated.

In the event that a contract is not signed on or before [DATE] for any reason whatsoever, [YOUR COMPANY NAME] or [SELLER] shall each have the right to terminate the negotiations without liability.

This document is a Letter of Intent only. It is not intended to be, and shall not constitute in any way, a binding or legal agreement, or impose any legal obligation or duty on either of us. If the foregoing reflects our mutual statement of intention, please sign and return the enclosed copy of this Letter of Intent.

Sincerely,

FOR [YOUR COMPANY NAME] FOR [SELLER]

Authorized Signature Authorized Signature

2. Purchase with Deposit/Escrow

This letter of intent is a great example even if your industry is not real estate. The timeline details as well as the deposit procedure details are included. It allows investors to visualize how the process is going to go. Even though the investors may be familiar with the industry standard deposits or escrow, it is always good to include the details in it so everyone is on the same page.

LETTER OF INTENT

This letter sets forth some of the basic terms under which Seller and Purchaser would be interested in entering into a Real Estate Purchase Agreement. It serves as a letter of intent (“Letter”) from _________________________ (“Purchaser”)through and dated ______________, 2010, in which Purchaser has set forth its interest in acquiring the subject Property. NEVERTHELESS, PLEASE BE ADVISED THAT THIS LETTER IS NOT CONTRACTUALLY BINDING ON THE PARTIES AND IS ONLY AN EXPRESSION OF THE BASIC TERMS AND CONDITIONS TO BE INCORPORATED IN A FORMAL WRITTEN AGREEMENT.

PROPERTY:

____________________

____________________

____________________

(hereinafter, the “Property”)

PURCHASER:

____________________

____________________

____________________

____________________

SELLER:

c/o Silo Group, LLC

7800 W Sand Lake Rd, Suite 210

Orlando, FL 32819

PURCHASE PRICE:

The Purchase Price shall be $___________

FINANCING:

EARNEST MONEY

DEPOSIT:

_________________ dollars ($_________) (“Earnest Money”) shall be placed in escrow with the Title Company upon the execution of the Purchase and Sale Agreement (defined below). Upon expiration of the Due Diligence Period (defined below) and provided Purchaser does not terminate the Purchase and Sale Agreement before expiration of the Due Diligence Period, the Earnest Money shall become non-refundable.

DUE DILIGENCE ITEMS:

Within five (5) days after the Effective Date. Seller, at its expense, shall provide Purchaser with the following items, if any, in Seller’s possession:

A copy of the most recent title commitment for the Property

Lease

Survey

Environmental Report

Items (a) through (d) above and the updated title commitment and updated survey, if applicable, are hereinafter referred to as the “Due Diligence Items”.

DUE DILIGENCE PERIOD:

Purchaser shall have up to ____________ (__) days from the Effective Date (the “Due Diligence Period”), to review the Due Diligence Items and to enter upon the Property to inspect the physical condition of the same, as it shall deem necessary. On or before expiration of the Due Diligence Period, Purchaser shall determine whether it is feasible to purchase the Property based on Purchaser’s review of the Due Diligence Items and its physical inspection of the Property. If it is not feasible for Purchaser to purchase the Property, Purchaser may terminate the Purchase and Sale Agreement. If Purchaser so terminates, the Earnest Money shall be returned to Purchaser, and the Due Diligence Items shall be returned to Seller.

CONTRACT:

Upon the mutual execution of this Letter, Seller will promptly prepare a Purchase and Sale Agreement and Seller shall make a good faith effort to deliver said Purchase and Sale Agreement to Purchaser within five (5) days from the effective date of the LOI.

TRANSFER:

Special Warranty Deed or the equivalent thereof in the State where the Property is located.

CLOSING:

Closing shall occur on a date mutually acceptable to purchaser and seller, no later than ________ (__) days after the effective date.

CLOSING COSTS:

Closing Costs shall be paid according to local custom, further detailed in the Purchase and Sale Agreement.

SALES COMMISSION:

Purchaser and Seller each represent that no real estate broker, finder or intermediary has been consulted or used in connection with the purchase and sale of the Property except Silo Group, LLC. Silo Group, LLC shall be compensated upon Closing by Seller pursuant to a separate agreement with Seller.

CONFIDENTIALITY:

Seller, Purchaser, and their agents shall maintain the confidentiality of the parties, terms, and conditions of this letter and the negotiations that may follow, if any, from this date forth.

The above items are the general business terms and conditions to be covered in the Purchase and Sale Agreement, which would be submitted to the Seller. Additional remaining terms of the Purchase and Sale Agreement will be negotiated and must be acceptable to both Purchaser and Seller.

This Letter is not intended to be a binding contract.

If this Letter accurately reflects the general business terms and conditions which may form the basis of a separate written agreement, please confirm in writing no later than ______________, 2010.

Buyer hereby agrees to the terms and conditions of the Letter.

By: ________________________________ ____________________

Date

Name: _____________________________ ____________________

Title

Seller hereby agrees to the terms and conditions of the Letter.

By: ________________________________ ____________________

Date

Name: _____________________________ ____________________

Title

3. Purchase Upon Due Diligence and Shipping Details

This example gives details about how the inspection or due diligence will take place. These details are good to give assurance to investors because depending on the situation, investors may also offer a second round of due diligence. If the inspection/due diligence is being serviced by a trusted third party, that is even better. The delivery details also gives an overview of the timeline when things will take place. This transparency in the letter increased trust level between the parties.

AIRCRAFT PURCHASE OFFER

Ref: _________________ S/N ___________ Registration: _________ (the “Aircraft”)

Subject to ratification of a mutually agreeable Aircraft Sales Agreement within 5 business days, Purchaser offers to purchase and Seller agrees to sell the above referenced Aircraft subject to the following:

1. Purchase Price: The purchase price shall be $ _____________________________________ USD

2. Deposit: Upon ratification of this Offer, Purchaser shall make an immediate refundable escrow deposit in the amount of $ ________________USD to _______________________________ (“Escrow Agent”) within 1 business day. Purchaser and Seller shall share escrow fees equally. Time shall be of the essence.

3. Inspection: This Offer is subject to Purchaser’s satisfaction with a visual inspection of the Aircraft and records to be completed within 3 business days followed by a technical inspection (hereafter “Inspection”) of the Aircraft, engines, avionics, logbooks and records including a test flight of one hour, to be commenced within 5 days at _______________________________ or other mutually agreed upon facility to determine the Aircraft is in compliance with Paragraph 5 below. Purchaser expressly agrees that all costs of the visual or technical Inspection and the movement expenses shall be for Purchaser’s account and pre-paid in advance. The Aircraft shall not be flown, except for delivery, following the Inspection.

4. Acceptance: Prior to rectification of any discrepancies found during the technical Inspection, Purchaser shall accept (“Acceptance”) or reject the Aircraft in writing within 2 days following completion of the technical Inspection. Upon Acceptance, the deposit shall become non-refundable, subject only to Seller’s performance hereunder.

5. Condition: Aircraft shall be delivered at the Seller‘s expense:

(1) With all airworthy systems and avionics functioning normally

(2) Current on it’s maintenance program with no deferments or extensions;

(3) With all AD’s and mandatory SB’s accomplished

(4) With all records, logbooks, flight manuals, and accessories in owners possession;

(5) Free and clear of all liens or other encumbrances.

6. Delivery & Closing: Final payment & Delivery for the aircraft shall occur simultaneously at ___________________________________ within 3 business days following Sellers compliance with Paragraph 5 above through the Escrow Agent. Prior to delivery, Seller shall execute and place a Bill of Sale with the Escrow Agent. This contract and all negotiations shall remain strictly confidential.

7. Additional Terms:___________________________________________________________

_____________________________________________________________________________

SELLER: PURCHASER:

_________________________________ ___________________________________

(Company name) (Company name)

_________________________________ ___________________________________

(Signature) (Signature)

Title: _____________________________ Title: _______________________________

Date: _____________________________ Date: _______________________________

The examples show that there are different styles for letters of intent. It highly depends on what industry the business is in. When reviewing it, make sure to include all the details mentioned in this article and your business will be one step closer to your funding goal.

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3 Reasons Why Every SaaS Startup Need to be Consultants!

3 Reasons Why Every SaaS Startup Need to be Consultants!

As a super busy startup in today’s world, it seems impossible to be doing anything extra. Today, we want to tell you why that extra added service will go miles for your new SaaS (Software as a Service) business.

1. Research on Your Customer’s Needs

Customer-centric companies win. Getting there, however, requires getting to know customers so well that there’s not only understanding of what they do, but why they do it. This is the mentality that Founder of Apple, Steve Jobs, always understood.

An excellent way to do it is to simply ask. Work with them on the solutions directly. Help your target market to achieve their goals so you can benefit from key takeaways to that will benefit your technological solutions. Find out what not only what the solution should be but how customers want to use it and any other extra features that would make it more valuable.

When startups are close with the customers, that relationship will act as an insightful competitive advantage. (This rings true if the target market for your SaaS is the same as your consultant clients.) For us for example, it would startups who are first time business owners looking for their first round of funding (Pre-Seed — Series A). If you are very specific with your target, the more you will benefit in the long run.

2. Use it as Your Side Hustle

Get some revenue coming in from the side hustle. Depending on how much you charged, your startup can still reinvest that money into things such as Facebook or Instagram ads like we did. If your consultancy packages enough for you to invest in automation softwares or salaries, even better!

This would also be play a helpful hand when you are applying for government grants where they require you to show some form of revenue.

3. Use It to Build Your Startup Brand

To utilize the customer feedback and questions to build your brand will show community engagement as well as branding your company as an expert in this industry. It is always hard for startups with no money to build a brand so utilizing as much content in a consistent format as possible is a big step in the right direction.

For example, VenturX, has free monthly Health Checks for subscriber users. This takes place on Skype. Because I have a close friend who is a startup on our platform, I asked if our Health Checks can be recorded. This recording would show her asking questions about our VenturX metrics, why these metrics are important to investors and what other considerations she needs to think about before submitting to investors. She agreed it was a good idea. So starting March 4th at 8PM EST, we will have our first Health Check session. This is ideal for branding because her questions may be the same as others in our target market when it comes to investing and it gives a sneak preview of what to expect as a VenturX user. If you want to catch the video, please follow us on FacebookTwitterInstagram, and Youtube.

In addition, we will be writing a Medium blog and Youtube debrief on how the first session went. We expect there to be at least 2 sessions so you would be able to see a typical startup user’s improvements and added value.

Resources on how to get started on branching out your consultancy services

  1. Post your services on your website

2. You will need a consultancy package to send to potential clients so the understand what your field of expertise is and the price.

Here is a sample of how ours look like:

Pricing Package

Pricing Package

3. Other places to post your consultancy services:

a) ME University

We put ours under Raising Capital and Funding. You can see ours as an example of a typical description of the services:

ME University

ME University

b) Freelance Service Sites: FiverrUpwork, and Guru.

c) Post it on your social media as announcements of your new services

d) If you have a newsletter, make sure your audience is aware.

The main thing startups should beware of is contributing too much too little time. If your SaaS company is your main operation, be sure to devote the necessary care and time to it. When startups do not have the history of clients and built up a reputation yet, a lot of clients may have a lot of questions in order to feel more trusting and secure about taking that next step with you. This could take a lot of time to “nurture” new leads. From our experience, we help answer some of those questions on our website and our latest blog post to explain the pros and cons of hiring startup consultants here!

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