This is a Guest Post from CONNECTpreneur Coach and partner, Ines LeBow of Enterprise Transformation Solutons.
Every. Word. Counts.
So does every second during your funding pitch to potential investors. On average, you’ve got less than three minutes to make your case before your audience gives a mental thumbs-up or thumbs-down on your business idea.
Do the Math
If you’re looking to raise $1 million in seed funding, a pitch deck with 10 slides averaging 55 words per slide puts the value of each word at $1,818. For $10 million in Series A funding, each word is worth more than $18,000. For $55 million in funding, each word is worth $100,000.
Packing more words and details into your pitch isn’t going to make it more appealing or more valuable to your audience. The opposite occurs: it actually devalues the most important information. In essence, you end up burying the treasure.
Some of the most successful people have harnessed the power of words to vault themselves to prominence in their respective fields:
Rick Rubin, 8x Grammy Award Winner: “There’s a tremendous power in using the least amount of information to get a point across.”
Dianna Booher, Prolific Author and Communications Expert: “People aren’t likely to be influenced by a message they can’t remember. Be clear, concise, and clever.”
Frank Lloyd Wright, Renowned Architect: “Lack of clarity is the No. 1 time-waster.”
Rudyard Kipling, Nobel Prize-Winning Author: “Words are, of course, the most powerful drug used by mankind.”
Be Epically Focused
Investors want your presentation to be brief and on point, but they also want to hear an epic story. Remember, these are people who listen to dozens of pitches each week that are too long, too boring, and too scattershot in their approach. They want you to draw them in and dazzle them with a narrative that is clear, concise, and compelling. So inspire them, inform and educate them, and, most importantly, connect with them.
To start shaping your epic story, consider what prompted the idea for your product or service and what inspired you to start your company. Weave these concepts into a vivid movie trailer-like story that elicits excitement, emotion, and eagerness for what comes next, with the investor playing a starring role in the production.
Funding Pitch Opportunity
If you are an entrepreneur looking for funding and would like to present to potential investors through CONNECTpreneur, please reach out to me.
For more on funding success, here are links to some recent posts I’ve written on the topic:
This is Guest Blog post from CONNECTpreneur Coach and partner Ines LeBow.
Attracting investors to get your business funded is all about being unique, even if the product you’re presenting isn’t a new invention or innovation. Earlier this year, I highlighted 7 Factors for Startup Success based on the philosophies of Shark Tank star Mark Cuban.
He believes that you need to find a way to make at least one aspect of your product or service uniquely your own. You can do so by thinking about the special characteristics your product will have, to whom you will market it, and how you differentiate it from the entrenched competitors. Trying to be the same results in competition based on price, which is not how you want to compete.
In Mr. Cuban’s own words about being unique:
Creating opportunities means looking where others are not
When you’ve got 10,000 people trying to do the same thing, why would you want to be number 10,001?
Not Just Socks
Socks have been around for a long time. Even the athletic sock category has been pretty saturated, but that didn’t stop Bombas from their start-up business focused on making a better athletic sock. I covered the case of Bombas in an earlier article entitled 5 Keys to Convince Investors Your Product Can Make Money.
They invested a lot of time and effort into identifying what made athletes, fitness junkies, hikers, runners, speed walkers, and other heavy users of athletic hosiery disappointed, frustrated, and annoyed about their existing sock of choice. They designed and produced their socks to address those issues, conducting significant product testing to ensure the user feedback hit the bullseye.
If you are an early Shark Tank devotee, you’ll know that the founders of Bombas went on the show and left with $200,000 in funding. That’s right…$200,000 of someone else’s money to launch an athletic sock. So it wasn’t about an exciting new technology product but about a unique take on a product for which there was already a defined, established market with committed customers who are continually looking to improve the equipment and accessories they use to perform their activity.
So what is unique about your product? Perhaps you can approach real-life users who are enthusiasts and get their perspective on the unique benefits your product offers. Often, it’s the little things that make the biggest impact to your target audience, which translates to how you differentiate yourself to potential investors.
This is a Guest Blog post by Marty LeClerc, an experienced investor, portfolio manager, and investment adviser.
There is a mania hovering over the investment landscape. Bonds. Digital currencies. A large part of the stock market. Certain real estate sectors. All driven to bullish extremes. Priced for perfection. Priced for disappointment.
Someone tweeted. The only thing to fear in the financial markets is the lack of fear itself.
Bullishness seems the only option. Investors, prudent and otherwise, regret past cautiousness. A woulda, coulda, shoulda feeling…
In hindsight the past is obvious.
Regret can lead to fear-of-missing-out. Said fear leads to costly investment errors. Think Warren Buffett. What the wise do in the beginning, fools do in the end.
Big challenge for investors right now? Protect yourself. Avoid regret-induced foolishness. Avoid lasting errors.
Repeat a mantra. It is not how much money you make during a bull market, but how much money you keep once the tide turns. Make this your mantra.
Remember. No one regretted prudence going into last March. No fear-of-missing-out when liquidity dried-up and prices crashed. There was only fear itself.
That was last Spring. A time to be greedy. Today, warning signs abound. It is a time to be cautious.
Nearly everything indicates stock indices are overvalued. More so than even in 1999, the previous gold-standard for overvaluation. Only in relation to bonds is this not true. Interest rates were a lot higher then.
Speculation is rife. Take SPACs. Special purpose acquisition companies. These are blind pools of cash. Designed to take a company from private hands to a stock market listing. Call it an alternative to the traditional IPO, but with less investor protection.
SPACs ebb and flow with stock market sentiment. At tops they are enormously popular. During bear markets, no one wants them. Now they are the rage. Issuance uncontained. Setting all records. Everyone is involved. A-Rod. Colin Kaepernick. Billy Beane. Shaquille O’Neal. Some 300 companies. Raising over $100 billion. In real terms, on a par with both 1929 and 2007.
Maybe worse. One example. Churchill Capital Corp IV (NYSE: CCIV). It has cash worth a bit less than $10 a share. Only other asset some sexy plans from management. Nothing else. Currently costs $30 to own that $10. You would think paying $3 for $1 is self-evidently wacky. Not in this stock market.
Old thinking. Interest rates can only go to zero. Speculative bubbles do not happen during severe recessions. Prosperity equals a rising stock market.
New thinking. Everything is upside down.
Sobering thought-experiment by Horizon Kinetics. Assume the roaring ‘20s awaits us. Assume good times continue to roll through the ‘30s. Assume the economy expands 4% a year for 20 years.
Simple math. People will be twice as rich in 2040 as today.
Use the so-called Buffett Indicator. Assume the ratio contracts from today’s lofty levels. Down to a bit below its historic mean. By 2040.
Simple math. The S&P 500 Index experiences zero appreciation for 2-decades. Lesson. Prosperity might not translate into profits for passive investors after all.
Research Affiliates and GMO provide a public service. Excellent research for free. They follow the data. Do not trying to sell you anything. Both have arrived at the same conclusion for the S&P 500. Negative returns over the next 7 year period.
Bitcoin is not an investment. Does not generate income. Claims to be a store-of-value. Like the dollar. Except it relies on tokens. Professor Roubini says, “the Flintstones had a more sophisticated monetary system based on a benchmark: the cartoon cavemen used shells.”
No intrinsic value in a bitcoin. Only a promise of limited supply. One price-anchor. The cost of mining a coin. Runs into the several thousands of dollars. Depending on electricity rates.
Bitcoin is a haven for criminals. Tough luck if fraudsters steal it. Tough luck if you lose your key. Ledger erased. Bitcoin gone forever.
Bitcoin is bad for the environment. A rapacious energy user. BBC says mining it uses roughly the same amount of energy as Argentina, Norway or Switzerland.
Promoters say digital currencies are a medium-of-exchange.
Everyone wishes they bought bitcoin when. Up 9-fold in less than a year. Up 100-fold in just over 3 ½ years. Up 1,000-fold in 8 years.
Bitcoin is off-the-charts volatile. More than doubled since December 2017. To get that return, you needed patience. Bitcoin crashed 80%. Rallied. Crashed 50%. Rallied. Crashed 25%. Last month. Rallied. Now up 50% in 2-weeks.
The bible says there is nothing new under the sun. In 1630s Holland people were concerned with currency debasement. They sought alternative stores-of-value. They discovered tulip bulbs. The rest is history.
Tulip bulbs differ from bitcoin. A tulip bulb is edible. It has intrinsic value.
The fuel for speculation is liquidity. Money supply expanded by 25% last year. A Fed-induced liquidity-run.
Some fear an out-of-control printing press. Claim it will generate consumer price inflation. Only discernable inflation is asset price inflation. So far.
Liquidity-runs defy logic. Until they do not. Past runs ended badly. Think 1974, 1987 and 1999.
Repeat the mantra. It is not how much money you make during a bull market, but how much money you keep once the tide turns.
Bonds have never been more expensive. The cost of money never cheaper. Not for four millennia. Everyone had to pay higher interest rates. Babylonians. Egyptians. Athenians. Romans. Byzantines. Everyone paid higher rates during long deflationary periods. Think 19th Century. When money was backed by gold.
Are bonds in a bubble? Economics professors might say no. Capital is no longer scarce. Traditional premium for owning “risk-less” bonds is evaporated. Rejoice at the euthanasia of the rentier.
Common sense says otherwise. Something like $17 trillion in government guaranteed bonds are assured to lose money, if held to maturity. Investment grade corporate bonds provide nominal income. Will lose money in real terms. Junk bonds yield less than many blue-chip stocks. Will get crushed in the next downturn.
Everything is compared to what is on offer in the bond market. Interest rates determine what people pay for real estate and businesses. Works like a lever. Rates fall, everything is worth more. Rates rise, everything is worth less.
Fed says rates will be low for a long time. Too much debt. There is no other option. Wall Street assumes rates will be zero forever. Too much debt. Rising interest rates is too painful to contemplate.
Big faith in Central Banks. They walk on water. They have all the power. Masters of debasement. Servants of markets. Call it a maestro bubble. Everyone is following the yellow brick road. Wizards of Finance becoming the Wizards of Oz is too painful to contemplate. No one is ready.
Take a reality check. Repeat the mantra. It is not how much money you make during a bull market, but how much money you keep once the tide turns.
Live outside the bubble.
There is no income in fixed income. Ditch longer-term bonds. Stay within 5 years. Not a random number. Ditch junk bonds. Credit standards are beyond lax. Ditch bond funds.
Stay clear of digital currencies. Traditional stores-of-value, like gold, are better. Unlevered precious metals royalty trusts are best. They produce income.
Understand real estate’s true problem. Not COVID-19. Not Amazon AMZN+0.5%. Not eCommerce. It is the Capital Cycle. It will take years to absorb inventory.
Live outside the bubble.
Avoid compelling stories. Pay attention to cash yields. Adopt a curator’s mindset. Pick and choose securities that can prosper outside the bubble. Be idiosyncratic. Do not be a mindless price-taker!
Everyone is focused on how the world will change in the next decade. Very sexy. Very bubbly. Bezos says this is stupid. Focus instead on what will remain the same.
Outside the bubble, the playing field is surprisingly large. Quality companies on offer at reasonable prices. Companies that will be around. Priced to deliver adequate returns. Growing dividends of 3 – 4%. Probable earnings growth of 3 – 7%. No sexy narratives. No bubble required for a happy ending.
Non-stretch predictions for 2030. America and China will be adversaries. Humans will eat food. Get sick. Consume financial services. Keep a clean body. Use energy. Invest in these areas.
Defense stocks are exempt from the business cycle. They are reasonably valued in real terms. Dirt cheap in relative terms. Less than 15X earnings. Growing dividends. Own Lockheed Martin LMT-0.4%. Own General Dynamics GD+0.8%. Own Huntington Ingalls HII+3.3%. China is not our bosom buddy. Never will be.
Shares in venerable consumer brands are outside the bubble. Big powerful companies. Can weather harsh storms. Coca-Cola. Kellogg K+0.7%. Kimberly-Clark KMB0.0%. PepsiCo. If interest rates remain low, their well-covered dividends are too juicy to ignore. If interest rates rise, they will fall less.
Keep high cash reserves. Current risks in the system are ungaugeable. Be patient. The bubble will end. Some day.
The author owns shares in Coca-Cola, General Dynamics, Huntington Ingalls, Kimberly Clark, Lockheed Martin, and PepsiCo Marty Leclerc manages the Barrack Yard Global Core Portfolio. Identifying businesses of lasting value that will benefit from major long-term trends, but that are resilient enough to navigate an uncertain future, is my goal.I choose companies from the world’s stock markets; attempting to mitigate risk by relying on a robust investment process, by focusing on valuations, and by anchoring decision-making in “predictive factors.” I am a graduate of the College of William and Mary in Virginia and an Investment Advisory Representative of Barrack Yard Advisors llc., a Registered Investment Advisor in Washington, DC.
This is a Guest blog post frim Ines LeBow, a CONNECTpreneur strategic partner and Coach. She has prepped dozens of successful presenting companies who have successfully raised capital.
The year (2020) that will be forever defined as the year of the Covid pandemic brought about significant upheaval and change in many areas of private and professional life across the globe. It also sparked tremendous shifts in the start-up investment world. One class of investors emerging is what we call “Super Angels”.
What Are Super Angels?
Super Angels in the business investment world are best described as a hybrid between traditional angel investors and venture capitalists. They tend to invest early in the seed round of funding at startups at levels that are above what gets raised in the friends-and-family round but less than a typical venture round of funding. However, when it comes to how they raise funds, they approach the process much like a typical VC would.
Super Angels are not just serial start-up investors; they invest in businesses as their full-time gig and tend to have a large and growing portfolio in which they take an active interest. They don’t tend to be interested in long-term investments or board roles, thus they like to look for business investments in which the principals are experienced entrepreneurs.
Why Should I Consider Super Angels?
As a result of financial, economic, and market trends, institutional venture capital activity is still on the rebound. Some rode the wave of growth and allowed for a bloated infrastructure and high fees that are now preventing them from being nimble in the market. Others have their portfolio tied up in businesses that are still recovering from the pandemic, and they’re not yet willing to exit those investments.
These changes with traditional VCs open up opportunities with angel investors and super angels, especially as the investment model is changing to one of funding more startups but with less cash invested in each business. One added advantage of this investment approach is that super angels have a broad reach to the kind of talent, investment contacts, and potential M&A opportunities that can go beyond the access a traditional investor can provide.
How to Get Super Angels to Invest
Many of the top super angels don’t just take an appointment from anyone off the street. They require a referral from someone they trust, so cultivating a good network in the start-up world is going to be important. But don’t give up hope if you aren’t well networked. This isn’t just about who you know, although it helps. These are smart, experienced investors looking for good people and great ideas behind which to put their money. If you employ a sound strategy and disciplined approach, you can be successful in getting funded by a super angel. Here are a few articles you can review to ensure you’re prepared to engage with a super angel investor:
RIP Tony Hsieh. This article is dedicated to you and the inspiration you provided to me and so many entrepreneurs, helping us to put our passion and focus into the vision and values that led us to our start-up dreams. The investors and the funding are out there!
$69.1 billion! That’s how much has been raised by entrepreneurs in venture capital funding in the US so far in 2020 according to VC, PE and M&A news outlet PitchBook. This figure represents a new high, breaking the record set back in 2018.
And it’s not just in the US that businesses are getting funded. PitchBook also reports early-stage and late-stage venture investments in Europe are booming, riding a wave of optimism from both established VC firms and non-traditional investors who look to put their money into sectors that have thrived during the pandemic and into pandemic-proof technology innovations.
Here are some other key stats for 2020 that indicate a solid and growing foundation for investment in 2021:
Seed Pre-Money Valuation
Although there have been declines in deal valuations and a rise in equity ownership stakes with angel investors, the velocity of value creation for seed-stage companies has been very strong. Overall, pre-money valuations for seed-stage companies is strong compared with 2019, which was a strong year too. In addition, valuations for the smallest and largest seed deals have both increased over 2019, with the middle two quartiles holding steady.
Median seed-state pre-money valuation is consistent with 2019.
Top and bottom quartile seed pre-money valuations at historic highs.
44% annualized growth in seed-stage company valuations.
Early-Stage VC Activity
Pre-money valuations for the median early-stage venture capital investment set an all-time high in 2020, despite many believing that Covid would hinder the market. The one major impact that the pandemic has had in VC funding is an increase in the time between funding rounds for early-stage companies. There are some indicators that VC investment in early-stage companies is slowing a little, including the step-up multiple and the velocity of value creation, but the drops in those metrics are from the all-time highs set in 2019 and are consistent with performance in 2018.
Early-stage venture capital valuation is at a record high.
Median time between funding rounds for early-stage VC investments has increased to 1.2 years, meaning entrepreneurs are running leaner to extend their runway.
Late-Stage VC Activity
Late-stage venture capital investments continue to dominate the US market, with almost 69% of total deal value in 2020. The average deal size is up from 2019, driven largely by an increase in mega-deals.
Non-Traditional Investor Activity
Non-traditional investors have been highly active in the venture market throughout 2020, including their participation in mega-deals at a rate of 96%. When it comes to early-stage funding for non-traditional investors, the pre-money valuations have remained steady with 2019, which was a banner year in that regard.
One other area to keep an eye on when it comes to the funding environment is deal terms. Terms on deal sheets that are “founder-friendly” continue to proliferate, as cumulative dividend terms are at a 10-year low.
The bottom line is that now is the time to get your business funded. Exit values have recovered and are gaining strength, meaning investors will have more capital to invest throughout 2021.
Now that you are all caught up on the three steps needed to create achievable 2021 revenue targets, the next step will be to develop a reforecasting model for next year. I am sure many people will approach forecasting with hesitation, but one thing that owners and sales leaders need to keep in mind is whatever their 2021 business plan, budget, and sales forecast looks like now, they are likely to look completely different by the end of 2021. In other words, the key to a successful navigation in 2021 will be adaptability.
It is likely there will be volatility in the market as the economy gets settled into the “new normal.” Your team will need to understand changes in demand as they occur so you are able to react and keep an accurate forecast. Part of that is understanding what your customers’ plans are by having your sales team engage with them more frequently. The other part is having a strong forecasting and adjusting process to capture the changing trends.
A sales forecast is the foundation for updating your profit projection which then allows you to recognize if investment plans can be carried out or if they need to be pulled back to balance the budget. The forecast is a critical leading indicator of your business’ overall revenue health and the guiding line for where it is heading. If you think just “winging it” will work since there are so many unknowns in how the market will play out next year, you are wrong. If a business is committed to success and striving to come out on top, they cannot function without a well-planned, and frequently reviewed and adjusted forecast.
Here are three guiding principles to help you develop an effective reforecasting and adjusting process:
A business forecast in any year, not just in the midst of a pandemic, should be viewed as a living, breathing mechanism. There are things that affect it throughout the year that need to be evaluated. Given the market disruption over the past 8-months, at a minimum, owners and sales leaders need to revisit and rebuild their full year 2021 budget on a quarterly basis. This quarterly cadence means that after 2021 Q1 closes, a new full-year forecast should be created. This should be done again after month six and again after month nine.
This would result in having your original forecast that was used to build your initial budget, plus three reforecasting cycles. While this may seem like a lot to do, one thing that 2020 should have instilled in owners is to expect the unexpected and be prepared to appropriately react to market conditions and remain flexible in their plan.
NOTE: It is critical to be constantly monitoring your Sales Pipeline throughout the year, not just quarterly. While we’re recommending that a reforecast of your entire business waits until the end of each quarter, the Sales Pipeline requires ongoing focus to provide day-to-day sales visibility. This will also be helpful given that an accurate Sales Pipeline needs to be readily available to feed into the quarterly reforecasting process.
The 20,000-Foot View
While a quarterly review and reforecast is absolutely necessary, you will want to keep your original budget created in Q4 2020 as a point of reference and comparison as you reforecast throughout the new year. The original plan provides a “big picture” or “20,000-Foot View” for the year, giving you visibility into potential gaps in meeting your profit number during the quarterly reforecasting cycles.
In the event your sales are slower to ramp-up than projected, you may need to examine how you are positioning your resources, what you are doing for marketing, your head count, pending investments, etc. to reach your end of year profit goal. On the flipside, if your revenue recovery is being achieved more quickly than anticipated, you may positioned to make investments within your budget sooner to fuel momentum versus waiting to act.
Isolating Gaps through Team Accountability
Once you get through Q1 of the new year and produced the first reforecast, take a step back to inspect its reliability. This becomes difficult if your Sales Team is not tightly aligned to your sales process, or they are not trained properly on how to navigate it. The key to ensuring accurate reforecasting starts with accountability at the salesperson level. With a solid process that is fully understood and good controls that provide key areas of measurement, the sales team is equipped to record their results in your CRM. This will ensure an accurate and achievable reforecast is created while also helping you identify and isolate gaps to guide your sales team and business toward end of the year goal achievement.
Do I have a systematic way of generating certainty in the reforecast by taking YTD results and coupling them with future pipeline that I have confidence in?
Do I have a robust process and methodology to forecast?
How accurate have I been previously in achieving my forecast based on what my sales team has given me?
Do I have the ability to look into the pipeline and review deal probabilities to verify they look reasonable and not padded?
If you have gaps in your ability to accurately reforecast
Leveraging an experienced Outsourced VP of Sales may be the
answer to help build this heightened level of sales infrastructure.
While 2020 has dealt businesses a host of obstacles to overcome, owners should not let the uncertainty affect 2021 planning. Yes, there are many factors that will need to play into how next year is planned and forecasted but this level of diligence should be the same approach taken in prior years to ensure accurate projections. Given all of the outside factors playing into sales, creating a systematic approach to reforecasting and adjusting will ensure profit goals are met while also isolating sales performance issues early on so original revenue targets can also be realized. Flexibility, the ability to have a bird’s eye view of your sales performance, and team accountability are the keys to making next year a success.
Chris Tully is Founder of SALES GROWTH ADVISORS. He can be reached at (571) 329-4343 and email@example.com“For more than 25 years, I’ve led sales organizations in public and private technology companies, with teams as large as 400 people, and significant revenue responsibility.I founded Sales Growth Advisors to help mid-market CEOs execute proven strategies to accelerate their top line revenue. I have a great appreciation for how hard it is to start and grow a business, and it is gratifying to me to do what I am ‘best at’ to help companies grow faster and more effectively.Let’s get acquainted. I am certain I can offer you an experienced perspective to help you with your growth strategy.”
This is a Guest blog post from Pete Ryan, CPA and Michael Wetmore, CPA, founders of the accounting and consulting firm of Ryan & Wetmore.
The next six months will bring a period of uncertainty. Businesses and individuals must plan to react to the many changes in stimulus plans, Covid-19 disruptions, tax laws, estate laws, and other laws and regulations based on election results. This article should not serve as legal advice – companies should plan to consult with attorneys, CPAs, investment advisors, insurance advisors, and others. Regardless of the election results, there will be big changes. Sources of systemic change include:
Comparing Tax Proposals: Income and Capital Gains
Tax proposals are subject to change during the legislative process and may get watered down by the other party or moderate lawmakers.
Changes in control of government could still bring big changes and tax increases, expert tax planning by tax advisors and CPAs will be essential.
Some notes on the process of passing tax legislation:
There is precedent for retroactive tax proposals, so a tax bill passed in 2021 could be retroactive to the first day of the 2021 tax year.
Some of Biden’s tax proposals could be phased in over time rather than taking effect immediately.
Although it is common for Presidents to have tax proposals, all tax legislation must originate in the House, where Democrats are likely to keep their majority.
As changes make their way through congress, they are usually watered down somewhat – especially if control of government is divided.
If on party win a simple majority of both houses, they can avert a Senate filibuster by passing a tax bill in a process called budget reconciliation.
Many parts of the Tax Cuts and Jobs Act of 2017 (TCJA) are temporary and will expire in the next several years even without legislative action.
Biden’s tax proposal includes corporate tax increases and income tax increases for people making over $400,000. Trump’s plan is mainly to expand/extend the TCJA tax cuts, though he has issued few details about second-term tax plans. Both candidates have committed to not raise middle class taxes.
Biden’s proposal imposes a 12.4% Social Security Payroll tax on wages above $400,000, creating a payroll tax “donut hole,” where income between $137,700 and $400,000 does not incur the payroll tax. This also affects self-employment taxes for individuals. (It’s not clear when or how this will be implemented.)
Trump’s plan institutes a payroll tax holiday for the employee-side payroll tax deferral that is currently taking place.
Biden’s proposal increases the C-Corporation income tax rate from 21% to 28% (lower than the top rate of 35% in effect prior to the TCJA) and establishes a corporate minimum tax on book income.
It also doubles the tax rate on GILTI and imposes it country-by-country.
Individual Income Taxes
Biden’s plan would raise the top individual income tax rate from 37% to the pre-TCJA level of 39.6%.
It would cap itemized deductions at 28% of value for those earning over $400,000, temporarily increase the Child Tax Credit to a maximum of $3,000 and the Child and Dependent Care Tax Credit to a maximum of $8,000 from $2,100. Biden’s plan includes other middle class tax relief.
It would also bring back a first-time homebuyer tax credit of up to $15,000.
Biden’s plan would reduce 199A 20% deductions over 400k.
Trump’s plan would maintain and extend the tax cuts in the TCJA and possibly cut middle class income tax brackets.
Currently the top long-term capital gains bracket is taxed at 20%.
Trump has proposed lowering the top rate to 15% or indexing it to inflation.
He would also expand the TCJA “Opportunity Zones” program, which provides capital gains tax relief to encourage long-term investments in economically distressed areas.
Biden has proposed taxing long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6% on income above $1 million and eliminating the “step-up in basis” for inherited assets.
Many individuals and businesses will want to consider selling or donating appreciated assets (such as marketable securities) by December 31, 2020 or before new laws are enacted in 2021 – consult your advisors and CPAs.
The TCJA extended the estate tax exclusion from about $5.5 million to $11.4 million, but this is set to expire in 2026.
Biden has previously said he supports both lowering the exclusion to “historical norms” (which could mean the pre-TCJA level of $5.5 million) and returning estate taxes to “2009 levels” (which could mean a $3.5 million exclusion and an increase in the top rate to 45%).
Biden also supports ending the “step-up in basis,” which allows estates to realize capital gains without incurring capital gains tax upon the death of their owners.
Many individuals are rushing to their estate attorney before December to discuss making large gifts.
Grantor Retained Annuity Trusts (GRATs)
A GRAT is an irrevocable trust that is set up for a period (a tax is paid upon establishing the trust). An annuity is paid from the trust every year, and when the trust expires, the beneficiary receives the assets tax-free.
The TCJA increased the estate tax exemption to $11.4 million, but it would decrease if the provisions expire in 2026 or if it is repealed, making GRATs more attractive.
Also, GRATs are most effective when interest rates are low – as they are right now.
Neither candidate has proposed changes to GRATs, but the way they are treated for tax purposes could change in a new tax proposal.
Sales to Intentionally Defective Grantor Trusts (IDGTs)
IDGTs are irrevocable trusts where trust income is treated as the grantor’s for income taxes, but the assets are not treated as the grantor’s for estate taxes.
Just like with GRATs, the candidates have not talked about IDGTs specifically, but the way they are taxed could change in a new tax bill.
Accelerating or Deferring Income or Deductions
Given the potential for big changes to the tax system, accelerating or deferring income or expenses into a certain tax year can have big advantages (though the effectiveness depends on projections of the future).
These strategies are complex and depend on future conditions – talk to your advisors and CPAs about them.
Accelerating Income in 2020
Accelerating income in 2020 has three main advantages: (1) The TCJA cut the top income tax rate; (2) losses due to the economic downturn may push taxpayers into lower brackets this year; (3) accelerating income increases a taxpayer’s AGI limitation for charitable contributions.
If taxes are hiked in 2021, the changes could be retroactive to the first day of the 2021 tax year, so receiving income in 2020 could be preferable to 2021.
Some income acceleration strategies include: Converting an IRA to a Roth IRA, electing out of installment sales, triggering an inclusion event for opportunity zone investments, harvesting capital gains, foregoing like-kind exchanges, exercising stock options, and declaring and paying C corporation dividends.
Accelerating Deductions in 2020 or Deferring Deductions in 2021
Biden’s tax plan caps the tax benefit of itemized deductions to 28% of value for those earning over $400,000, potentially increasing the benefits of deduction acceleration.
On the other hand, income and payroll tax hikes in 2021 could increase the benefits of deduction deferral to 2021 (since they would have a greater tax benefit in 2021).
Most cash-basis businesses normally accelerate deductions at the end of year to reduce taxable income. In 2020, they may decide not to this.
The Wider Economy
The state of the economy is evolving day-by-day and new stimulus is likely to be the top priority after the election. Be sure to monitor email updates from Ryan & Wetmore.
After briefly ending negotiations on new stimulus, the Trump administration proposed $1.8 trillion in stimulus, but the proposal was immediately rebuked by House leadership (as not enough) and Senate leadership (as too expensive).
The Trump Administration also pushed for a bill repurposing $130 billion in unused funding from the Paycheck Protection Program for a second round of PPP, but House leadership rejected it.
The House originally passed the $3 trillion HEROES Act (which was rejected by the Senate) and then passed a reduced $2.2 trillion HEROES Act.
New stimulus after the election will be a top priority after the election no matter who wins. Make sure you get updates from your advisors.
Other New Bills
No matter who wins, stimulus will probably be the top priority after the election.
However, if Democrats do well, they will probably push for one or more other big initiatives (such as a big infrastructure package). Some of their priorities include:
Healthcare, green infrastructure/climate, police reform, immigration reform, and guns.
Two top priorities are expanded on below:
Healthcare reform: The House has already passed a bill to expand Obamacare subsidies and lower drug prices. Joe Biden’s plan also includes creating a public option.
Green infrastructure: The House has already passed a $1.5 trillion green infrastructure plan (similar to Biden’s $2 trillion plan) that includes money for roads, bridges, transit options, housing broadband coverage while emphasizing reduced emissions and transitioning the electricity grid and generation to renewables.
Long-Term Interest Rates
The Fed has cautioned that the pandemic will continue to weigh on growth, employment, and inflation in the near and medium terms.
As a result, “dot plots” from the Fed Open Market Committee show that most members do not expect to raise interest rates above 0-0.25% before 2024.
Similarly, bond markets imply that traders do not expect the Fed to substantially hike rates until late 2023 or early 2024.
In August, Fed Chair Jerome Powell said the fed will likely pursue an inflation target of “moderately above 2 percent for some time,” indicating plans for low rates.
Low rates mean that it is potentially a great time to talk to advisors to consider refinancing existing loans.
Banks and Deferred Loans
When states began locking down in March, banks rapidly implemented forbearance programs, allowing borrowers to defer loans and avoid default. Stimulus programs also allowed some people to keep making payments when they might otherwise default.
In the third quarter, JPMorgan reduced reserves for loan losses, indicating that it expects fewer nonperforming loans, but it also noted a lot of uncertainty.
There may be a real estate stimulus plan – all borrowers should monitor stimulus plans and review loans for refinancing opportunities, stimulus, and forbearance agreements.
Businesses should be in regular communication with their bankers about extending lines of credit, terms, etc.
State and Local Taxes (SALT)
The SALT Deduction
Prior to the TCJA, taxpayers could deduct all state/local property taxes and the greater of income or sales taxes from taxable income, but these deductions were capped at $10,000 annually by the TCJA.
In late 2019, the House passed a bill to eliminate the SALT deductions cap except for taxpayers with AGI above $100 million (which then died in the Senate).
The Biden campaign has confirmed that he supports repealing the $10,000 cap.
Paying your fourth quarter 2020 state income tax estimates between January 1, 2021 and January 15, 2021 may be a prudent planning move for most taxpayers – talk to your advisors and CPAs.
Tax revenues of states and localities are projected to fall a lot in fiscal year 2021 and beyond while spending on public health will soar – and many states have requirements that they balance their budgets.
This could lead to big revenue shortfalls and state and local tax hikes if the balanced budget provisions are not repealed and there is no federal government aid.
Sales tax is set by states and localities so elections to national government do not have a direct effect on them.
However, the original version of the HEROES Act passed by the House included over $1 trillion in state and local aid, which could reduce state budget shortfalls.
Employers expect about 4 to 5% benefit cost growth on average in 2021 compared to 2020, roughly in line with previous increases.
People may use more medical services in 2021 because they put off routine care and elective procedures for much of 2020 due to the pandemic, and treating COVID cases carries large healthcare costs (especially given the potential for a case spike in the winter).
Some likely trends in health insurance in 2021 include: Cost increases of around 4 to 5%, expanded options for virtual care, increased focus on mental health, more on-site clinics, greater access to “Centers of Excellence” (options that encourage employees to seek specialized care at hospitals known for high quality).
Employers and employees should monitor the costs of health insurance, changes in plans, self-insured plans by employers’ costs, changes in taxability in benefits to employees and meet with advisors and CPAs to plan for them.
The State of the ACA
On November 10 (a week after the election), the Supreme Court is scheduled to hear oral arguments for California v. Texas, a case that that could render some or most of the Affordable Care Act (ACA or Obamacare) unconstitutional.
The ACA could be struck down wholly or partially, and a series of provisions could go down with it, including:
Protections for people with pre-existing conditions, individual healthcare subsidies, expanded Medicaid eligibility, coverage of people up to age 26 under their parents’ insurance, coverage of preventative care with no patient cost-sharing, and the tax increases that fund these provisions.
Planning for Increased Economic Activity
Current pandemic conditions won’t last forever. Businesses should start preparing for the possibility of increased economic activity (possibly from a vaccine or treatment breakthrough).
Over 200 vaccines are in early development. Over 40 are in human clinical trials. At least 10 have reached the final stage of testing (Phase 3) worldwide. At least one vaccine will probably prove effective.
It will still take several months to distribute a vaccine widely to the public and significantly decrease risk of transmission.
Federal and state governments have already started planning rapid vaccine distribution.
Interest in rapid testing (where results are less accurate but can take as little as 15 min) is increasing. HHS has started sending rapid tests to states, and some states say they plan to use rapid tests at schools and nursing homes.
Businesses should be prepared to accelerate activity based on testing and vaccine conditions – this may require additional working capital.
PPP Loan Forgiveness
A PPP Loan recipient is eligible to have the entire amount of its loan forgiven if it was used for eligible payroll and nonpayroll costs, with at least 60% being used on payroll (subject to certain conditions).
Forgiveness will be reduced if full-time headcount or salaries / wages declined during the loan period.
Employers may be exempt from the penalty to loan forgiveness that is tied to pay, headcount, or hours reductions if they can show:
They restored pay and headcount to original levels.
They attempted to restore headcount / hours but were unable.
They were unable to operate at pre-pandemic levels due to COVID restrictions from HHS, CDC, or OSHA.
(This is not an exhaustive list.)
Loan forgiveness applications may be submitted any time before the maturity date of the loan, but loan payments are deferred only until 10 months after the last day of the loan forgiveness covered period.
The most important things for business owners and accountants to do now is to document everything to show compliance and use their best judgement. (Payroll reports and other records must corroborate loan / forgiveness application numbers.)
Participants in other relief programs (especially healthcare firms and government contractors) should take special care as they usually are not able to “double-dip” and include expenses in multiple programs – consult advisors and CPAs for guidance.
Talk to your advisors and CPAs about taxability of loan forgiveness in 2020 or 2021. A second round of PPP is possible – keep up with updates from Ryan and Wetmore. ersonal note: Ryan & Wetmore has been providing tax, accounting, financial analysis, due diligence and M&A services for our portfolio companies and investors since 1986. Great firm and I highly recommend!
Personal note: Ryan & Wetmore has been providing tax, accounting, financial analysis, due diligence and M&A services for our portfolio companies and investors since 1986. Great firm and I highly recommend!
Having CPAs and advisors you can trust is crucial heading into this historic period of uncertainty. Contact us here.
Even if you’re too young (or too old?) to know where the line “show me the money!” comes from, everyone knows the phrase “follow the money”. When it comes to attracting investors and getting them on board with your vision, it’s all about the money potential.
Many entrepreneurs, especially in the tech field, are under the mistaken impression that it’s all about the product. If the product is sexy, fresh, or disruptive, investors will be falling over themselves to put their money behind it. That couldn’t be further from the truth.
Consider the case of Bombas. What was their big idea? Socks. Hardly disruptive, right? Yet the co-founders of Bombas went onto the show Shark Tank and secured $200,000 in funding to launch their idea. Yes, they presented some nice ideas about making a better athletic sock, but they were still trying to pitch a sock. So what made Bombas so attractive to invest in?
The co-founders of Bombas had a laser-focus on their product and market. From personal experience and lots of interaction with potential consumers, they understood that people were generally unhappy with the comfort of socks, especially for athletic activities. After lots of product testing and user feedback, they identified several areas of improvement for their future products.
By the time Bombas reached Shark Tank, they had already been through two funding rounds. Before their official launch, they secured more than $140,000 through crowdfunding. In the year after their launch, they raised $1 million from friends and family. They also had a track record of sales to show to eventual investor Daymond John, offering a better understanding of the potential return on investment.
Unique Business Model
At the core of Bombas is a business model committed to giving back. It’s not a marketing gimmick but part of the guiding principles of the company and its founders. For every pair of Bombas socks sold, one pair is given to the homeless. Not only does this uplift the spirits of consumers who are willing to pay $12 for a comfortable pair of socks, but it addresses a real need in the community, as socks tend to be the single most requested item at homeless shelters.
Take a Punch
Bombas proved that they were ready to take a punch, from consumers and in the market. Their extensive work in market research before even creating a product provided them with a network of targeted consumers who were willing to give detailed opinions and feedback on a product and how it was delivered. When the Bombas team created their initial prototypes, they were applauded for creating a better sock, but willing to listen and make changes to the product. Their team of consumers didn’t disappoint, but came back punching hard. As a result of the critical market feedback, Bombas made two additional improvements to their products before a general market launch.
The co-founders of Bombas were able to convince investors of their ability and dedication to execute on the business vision. So while the product was “just socks”, the co-founders had a vision they were able to articulate to investors that made them consider “but look at what socks can do.”
Through these five areas, Bombas was able to convey who was driving the bus, who the competition was in the market, the investor’s potential for a financial return, and how consumers would relate to the product, their company, and their marketing model. As a result, Bombas grew from zero in 2013 to $4.6 million in 2015 to $46.6 million in 2017. In 2019, Bombas exceeded $100 million in revenue. By April 2020, they have donated 35 million pairs of socks.
What will your story be?
To learn more about creating an epic fundraising story for investors, contact me for a complimentary consultation by phone at 314-578-0958 or by email at firstname.lastname@example.org.
Ines LeBow is the CEO, Transformation Executive for ETS. She is a known catalyst for business operations, bringing 30+ years of hands-on experience. Ines has a long history of being recruited into senior executive roles to improve the execution of business operations and to drive revenue growth. You can see her LinkedIn Profile at www.linkedin.com/in/ineslebow, view the ETS website at www.transformationsolutions.pro, or email her directly at email@example.com.
It’s still happening. We hear about companies that are shutting down, laying off workers, or filing for bankruptcy because of Covid-19 or our sputtering economic re-launch. What we don’t often hear is that investors are still looking to put their money into action.
Even if your product or service isn’t targeting the “Covid economy”, this still may be the best time to get your business funded. Your competition for investor dollars may be back on their heels or simply waiting for what they perceive as a better environment to secure funding.
Prepare (and practice) your pitch using digital solutions.
Include information on the business and financial impacts of extended government mandates related to Covid (work or school shutdowns, travel restrictions, economic depression, unemployment, supply chain shortages, etc.).
Consider ways your product or service can disrupt the existing market.
Highlight members of the executive team or advisory board who have experience helping companies to navigate and thrive during tumultuous times.
Showcase the market opportunity presented by changes to the competitive landscape or potential changes from government or industry regulations.
Now is the time, because if not now, when? As the Nobel Prize-winning novelist Doris Lessing said, “Whatever you’re meant to do, do it now. The conditions are always impossible.” Or, as Napoleon Hill, the controversial self-help author on success, said, “Are you waiting for success to arrive, or are you going out to find where it is hiding?”
To learn more on how to create an epic fundraising story for digital presentations to investors, contact me for a complimentary consultation by phone at 314-578-0958 or by email at firstname.lastname@example.org.
Ines LeBow is the CEO, Transformation Executive for ETS. She is a known catalyst for business operations, bringing 30+ years of hands-on experience. Ines has a long history of being recruited into senior executive roles to improve the execution of business operations and to drive revenue growth. You can see her LinkedIn Profile at www.linkedin.com/in/ineslebow, view the ETS website at www.transformationsolutions.pro, or email her directly at email@example.com.
This is another awesome Guest blog post from Andre Averbug.
In a previous post, I covered the kinds of investors that support startups. In the last post, I discussed the different types of financial instruments available to startups. But how does an entrepreneur know which type of instrument is ideal for his or her business? Let’s now turn to the main questions one should ask when trying to decide between the two key instruments – equity and debt.
Whether raising capital through equity is right for you depends on how you answer the following questions:
Does your business have the potential to grow exponentially? Equity investors, such as angels and VC funds, will only buy equity in startups, i.e., companies that are working on scalable solutions and have the potential to increase the value of that equity substantially over the next several years. In other words, they will not invest in lifestyle businesses, which are businesses that may be successful and last decades, but without experiencing fast growth and giving investors an exit opportunity. Equity investors get their return when they sell their equity (exit) at a higher valuation to new investors, either private, such as a private equity (PE) fund or, if they are very lucky, through an initial public offering (IPO). Therefore, be realistic and ask yourself: Is my business a startup or a lifestyle business? By the way, there is nothing wrong with being a lifestyle business, and a friend or an uncle might even put some equity in it. However, professional equity investors will only invest in true startups.
How important is it for you to retain ownership? Some entrepreneurs are overly protective of their equity and want to maintain full ownership at all costs. This is usually not a good mindset, especially if you run a startup, given that sharing ownership with investors, management, and even staff might be key to the success of the business. You will need investors to help grow your business and more partners to align interests and have everyone onboard and working for the long-term success of the company. Remember, it is better to have smaller share of a highly successful business than 100% of nothing. So, if you feel you are the overly protective type, consider rethinking your approach – otherwise, equity may not be for you.
Do you work well with others and welcome mentorship and opinions? When you get equity partners you are embarking in a relationship that you don’t know how long is going to last and how smooth (or rough) it will be. Angels and VCs, particularly, will want to participate in key business decisions and often mentor you. They will likely want a seat at the Board. To maximize the chances of success for this relationship, be sure you can take opinions, you welcome feedback (constructive and sometimes not so much), and that you can share some of the decision making. Remember these investors are literally betting on you. They are putting money in the early stages of your venture, when risks are extremely high, and deserve – in fact, usually have the right – to have their voices heard. It doesn’t mean that they are always right and that you should avoid disagreements. Simply be open to healthy discussions.
How much support do you need, on top of the money? Equity investors usually bring a lot more than just money. They help you with corporate strategy and business development, open doors through their Rolodexes, provide industry knowledge, sit on your side of the table in major negotiations, such as sales, partnerships etc. If none of that seems important to you (really?!) and you strongly believe in your ability to grow the business on your own or with your current team, then perhaps taking a loan – if you can – would be the best approach. That is because, if your business is indeed successful, it means your equity will gain value over the years, and the cost of selling equity should be higher than taking debt.
When it comes to debt, these are some of the important questions to ask:
What is your current (and future) cash flow situation (projection)? You should not take a loan if you are not confident in your ability to commit to debt repayments, including interest and principal. If you are in the earlier stages of your company, have not broken-even yet, and don’t see it happening in the near future, perhaps debt is not for you. Debt requires some degree of predictability in your financial situation to ensure you can service it accordingly. For that reason, it is not a very popular instrument for early-stage startups (unless when offered in hybrid instruments such as convertibles), being more suited for later-stage companies and lifestyle businesses.
Do you have collateral (assets), credit history, or receivables? Banks and other lenders may still give you a loan if you don’t have enough cash flows. However, they are notoriously risk averse and will only provide you with a loan if they are comfortable with their ability to recover their loan, even if it means acquiring your assets to cover or minimize their loss. Therefore, even if you think debt is the right instrument for you, if you don’t have enough revenues, promising receivables, a credit history, or some collateral (machinery, building, inventory etc.) to borrow against, chances are you will not be able to get that credit.
Are you comfortable using collateral, including personal assets? When it comes to collateral, the question is actually deeper: It is not just whether you have it or not, but also if you are willing to borrow against it. Some entrepreneurs believe so much in their business that they literally bet their car or house on it! Even when the company itself does not have assets, the entrepreneur uses his or her own property as collateral providing personal guarantees to the bank. This is certainly not for the fainthearted and doesn’t make sense for everybody. Also, tragically, sometimes entrepreneurs expose personal assets without knowledge. Be sure to check the laws and regulations in your country to see whether your company provides you with limited liability or if creditors could go after your personal assets in case of debt default.
While this list of questions is certainly not exhaustive, it covers some of the key issues I had to ask myself during my fundraising experiences. If you have more ideas for questions, feel free to share them in the comments below!
Andre Averbug is an entrepreneur, economist, and writer. He has over two decades of international experience working in the intersection of economic development, entrepreneurship, and innovation. He has worked and lived in multiple countries across North and South America, Europe, Africa, and Central Asia.
Andre has started and run four startups, in Brazil and the US, and was awarded Global Innovator of the Year in 2009 by World Bank’s infoDev. He has extensive experience supporting companies as mentor and consultant, both independently and as part of incubators such as 1776 and the Kosmos Innovation Center, and programs like Shell LIVEWire, StartUp Weekend and WeXchange.
As an economist, Andre has worked in topics ranging from innovation ecosystems, entrepreneurship and MSME development policy, competitiveness, business climate, infrastructure finance, monitoring and evaluation (M&E), and country assistance strategy for the World Bank, the Inter-American Development Bank (IDB), and the Brazilian Development Bank (BNDES). He has also consulted for clients such as DAI Global, the Economist Intelligence Unit (EIU), TechnoServe, among many others. He holds a master’s degree in economics from the University of London (UK) and an MBA from McGill University (Canada). Andre lives in the Washington, DC area.