Ready for CONNECTpreneur RocketPitch? What I learn from a Virtual Pitchfest for future professional entrepreneurship

This is a Guest Blog Post from Phuong Le. She originally posted this on Medium in October, 2022.

Have you ever watched Shark Tank and wondered if a real pitch would be the same? Have you ever wished you were Mark Cuban or Lori Greiner to know how closing a deal would feel like? This is a sign for you to attend a real one! Let me, an amateur entrepreneur, show you what I found interesting in a real pitchfest.

Introduction

I recently participated in CONNECTpreneur’s Rocket Pitch + Power Networking, one of the world’s biggest pitchfests, with over 500 chief executives, including over 200 CEOs and founders, and approximately 200 angel investors and venture capitalists from all over the United States. The event includes not one but two online networking sessions and a “Rocket Pitch” segment with fascinating startups.

After the opening remarks, where I got to hear from the event’s host and founder, Tien Wong, there was the “Rocket Pitch” Showcase of 12 promising new tech companies. From the original group, I was particularly interested in two of them, Kinometrix and PetMetrics, based on the strength of their AI and technological involvement, the viability of their expansion plan, and the positive social impact they could have.

Kinometrix

The company focuses on the one million patients’ fall risks in hospitals — a niche accident that necessitates the attention of authorities. Since this issue has been looked down upon and lacks subjective assessment or accurate risk measurements:

• More than a third of the number results in severe injuries that lead to 11,000 deaths.
• Cost ~$7,000 per fall due to higher discharge rates and long-term care facilities.
• Cost ~$7B annually as total expenses to overcome these injuries.

“The very first requirement in a hospital is that it should do the sick no harm,” claimed Florence Nightingale, demonstrating one of the major outcome that Kinometrix is following to achieve.

What Kinometrics has to offer

Using 500,000 inpatient records, Kinometrix was invented as an automated AI-driven platform that can predict real-time patient falls with specific modules and machine learning algorithms.

The patent-pending system automatically extracts variables from EHR with the assistance of AI and delivers this data to EHR for further adapted recommendations and protocols. This bi-directional API allows for seamless workflow integration that reaches 98% accuracy.

Kinometrix’s application in practice.

The company aims to address pressure injuries and hospital-acquired infections in their future AI-driven applications, in which the market is projected to be $98B, including over 1 million licensed beds in US hospitals. The business profits from an annual fee of $480 per licensed bed with the upcoming separate potential new risk prediction modules updating with an additional fee.

Kinometrix’s prospective market.

While the company’s 2022 revenue is only over $50,000 with the current four investors, it is projected to reach $2.3M in 2023 and over $25M in 2025. It was seeking a financial fund of $750K in its Rocket Pitch series seed raise for enterprise readiness & integrations, sales support, and IP & regulatory.

Meet the Kinometrix Team.

PetMetrics

The company was founded by Dr. Gary Richter, the owner of award-winning Holistic Veterinary Care in Oakland, CA, and the founder of Ultimate Pet Nutrition supplements and food, which is currently holding over $50M in annual sales and over 400,000 loyal users.

What is PetMetrics?

PetMetrics is an broad-spectrum vital sign sensing platform using a wearable biometric sensor with a mobile app of AI data analytics licensed from NASA designed. The device’s AI/ML systems utilize the pet’s data while comparing it with other similar symptoms from other animals to provide an alert at the earliest signs of illness, protecting the pets and their parents from fatal transmitting diseases. It comes with a mission to:

• Serve the growing need for a technology that allows easier and non-invasive detection of all pet diseases.
• Lower the rate of late diagnosis, unqualified treatment options, and mortality rates.

A hardware device is expected to cost $100–200 with a SaaS subscription fee of $14.99 per month. Clipping this device on your pet’s collar and automatically receive all its needs.

Why PetMetrix is competitive.

Since pet parents are often willing to spend to protect their loved ones, the market for this product is extremely inelastic: the US pet industry exceeds $100B annually, with the pet wearables market holding 22% CAGR. The company further targets the market of working dogs (in police and military departments) and even large animals such as horses and cattle.

In the Rocket Pitch seed round, the company desired a $1M SAFE note of $8M valuation with an 80% discount rate. The financial support would help the company execute appropriate plans for growing fast, reaching its expected break-even in 2024.

My takeaways

• Twelve competitors presented their business, predominantly of which are related to technology and AI-driven. A rising trend in innovation and entrepreneurship is about using technology and digital tools to enhance the well-being of not only humans but also all the surrounding lives. I could expect that even the investors had a hard time deciding which company was the most promising because every single one was excellent.
• I found it greatly interesting because of the “meeting” feature, in which any attendees, including me, can directly get in touch with the entrepreneurs or CEOs I desire via the breakout rooms or published information of the registrants — even I can become an investor! So many people who are just individual investors claim to get a profit out of their investment.

• There is Investors’ Pollings to gather needs and wants from participated investors. It was pretty interesting as I could observe the current pattern and desires of investors when they declare their needs directly to the organization.
• PetMetrics and Kinometrics are both potential companies with ambitious plans. However, it is still a challenge to seek such a large amount of financial support, which will limit their investors to only large companies or VCs rather than small and individual investors who hold a significant percentage of the participants of the Rocket Pitch fest.
• This feels like Shark Tank in real life, in which I can be a Shark if I want to. I wish I had a chance to attend an in-person version of this monthly Pitchfest. So many lessons to learn and improve myself as an entrepreneur. Kudos to all the great work!

About CONNECTpreneurs:

CONNECTpreneur Forum is a global network including 25,000+ entrepreneurs, founders, CEO, venture capitalists and angel investors, CXOs, and many other business executives. The organization’s RocketPitch is the world’s biggest monthly pitchfest bringing together 800+ top founders, CEOs, investors, and business leaders for excellent networking through pitches of intriguing early-stage startups. The event is famous for the caliber of guests and participants and fascinating networking and programs, all of which combine to create unforgettable events and opportunities for our attendees and the value they receive from their sponsorship. Countless entrepreneurs, investors, and funders worldwide rely on the CONNECTpreneur team for guidance and assistance with capital raising, coaching, and other business needs.

Thank you for reading. Please show love!

10 Slides Every Pitch Deck Needs

This is a Guest blog post from Andre Averbug, an entrepreneur, economist, and writer who has been helping entrepreneurs prepare for their investor pitches for several years.

0. Title

Before the content slides, you need a slick title slide to catch people’s attention from the get-go. Include your company logo/name and perhaps a great picture that represents your mission or broader vision. I like it when companies also include a short sentence, such as a slogan or value proposition, that already gives the audience an idea of what the company is about. Mint’s title slide from its 2007 pitch is a great example.

1. Problem

Every startup should be focused on solving a particular problem – big or small. The first slide is the place where you explain what the problem is with facts and numbers. For ex, Breakthrough, a company that provides mental health services, laid out a clear problem statement that set the stage for why its business mattered. You can also focus the discussion of the problem on a typical customer or beneficiary, to make it more personable (“Mr. Smith has mental health problems, but he doesn’t feel comfortable sharing his illness with others and seeking help…”)

2. Solution

After the problem, of course, comes the solution. What is your company doing to solve the problem? This could be framed as a value proposition or the company’s broader vision but should also include specifics as to how your product or service is making people’s lives better. Gleamr, an app that provides professional auto detail on-the-go, laid out its solution very clearly.

3. Product / Service

Now is the time to describe in detail how your product or service works. Include screenshots, images, graphs, anything that helps the audience understand what is it that you’re offering. If the product is not ready yet, include pictures of the prototype or wireframes. If you provide a service, include a simple schematic showing how the service works. The example below is from Airbnb’s first pitch deck.

4. Business Model

Every investor will need to know how you plan to make money with your business. Explain how much you are charging your clients, for which offerings and, if other partners are involved, who takes how much of the profits. Gleamr makes it all very clear with a simple infographic.

5. Market Opportunity

How big is the potential market for your product or service? How many people in your country, region or even world could become paying customers? Talk about your target market, their overall characteristics and preferences. Learn about the concepts of TAM, SAM and SOM. Airbnb’s example below is good, but I personally prefer to present market size figures in dollars. Therefore, I would multiply the 84 million SOM (share of market) by the average amount charged for a trip (for ex, if the average trip is $100, total SOM would be $8.4 billion).

6. Marketing

You need to show investors you have a clear plan to attract and retain customers. What is your go-to-market strategy? How will you reach out to potential customers? Will you use social media, paid ads, attend conferences, blog etc.? Gleamr actually went beyond and included information on “staying competitive”, with insights about product development – however, in most cases, focusing on marketing and sales and saying a few words about keeping customers is enough.

7. Competition

Who are your (direct and indirect) competitors? Never say you don’t have any, it is simply not true! How do you differ from them? What is your competitive advantage? To convey the message in a clear way, many companies use graphs plotting down competition across different axes (e.g.: price, quality, speed, customer experience) or a table that compares specific features across products.

8. Traction (and/or Financials)

What have you accomplished so far? Let numbers tell the story. How many active users and paying customers do you have? How much revenue? Have you broken even yet? What is your EBITDA margin? If you’re very early stage, what partnerships have you developed? Have you won any relevant award (e.g.: innovation, product development)? Have you been selected to an accelerator/incubator? Do you have an MVP? Have you run a successful pilot and, if so, what were the results?

9. Team

Many investors bet more on the jockey (i.e., entrepreneurs) than the horse (i.e., company). But even if they don’t, you need to show them you are the best team out there to execute this wonderful business plan. Include up to 5 people maximum and be sure to use nice pictures and include short bios in bullets. This is a good time to share your passion for what you’re building and talk about how great you complement each other and work together.

10. Financial Projections and Ask

Finally, it is time to show what you plan to accomplish in the next few years and what you need to get there. Include a table or graph showing your financial projections (revenues and EBITDA or net income should suffice for a short pitch) for the next few years – I personally stop believing in year 3.  Explain how much money you need to reach your goals. Include a use-of-funds table or pie-chart, such as the one below, to show exactly how you plan to spend the funds you’re raising.

Finally, if you didn’t have your contacts and company website at the bottom of each slide, you might want to wrap up the presentation with a “Thank you!” slide including contact information.

The slides above and their order are of course suggestions only. The ultimate number and content of slides are dependent on the time available to present, whether you are presenting in an event with multiple companies and investors or to one investor only, if the audience already knows your business, among other factors. In any case, I consider these ten pieces of content to be the backbone of most investor pitches.

Good luck!

Image: freepik.com

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.

He writes an awesome Blog called Entrepreneurship Compass and you can sign up here: https://entrepreneurshipcompass.com

Building the Best Investment Pitch Deck

This is a Guest blog post by William E. Dyess, “Pitchmaster General” and Principal at TXN Advisors, a Washington, DC-region business consulting firm that provides corporate development, marketing and strategic advisory services.

This post is an analysis of the last 50 pitch decks we received at The Dyess Group’s deck review portal and our strategy on building a winning deck.

The Basics of Deck Building

At The Dyess Group (TDG) we generally follow the Sequoia Pitch Template when building decks for clients, but with our own spin. Whether you use the Sequoia template or not, it is important to follow a thoughtful narrative flow that induces and compels the reader to take the desired action. There are several effective, proven models and suggestions such as the Dale Carnegie Transactional Selling Steps from the 1950s:

1. Attention (What is the sizzle?)
2. Interest (Why does it matter? Why does the world need you? )
3. Desire (Are you better than a traditional solutions to the same problem?)
4. Conviction (How do you handle objections, what’s the traction?)
5. Action (Ask for the order, go for the close!)

The important practice here is to design a narrative flow that you believe fits your company the best and make it yours. Below we will present what we have found are the elements often forgotten, missed, or misunderstood when building an effective narrative flow. We do this using the first three slides of the Sequoia model.

Tip #1: Make sure people understand what you do, as quickly as possible (Don’t Waste Your Title Slide!)

We usually don’t hear about what the product or service does until the 5th slide.

The single most important thing you can do in your deck is to make sure people understand what you do. It needs to be in layman’s terms — meaning without using a lot of “marketing speak” and it needs to happen immediately.

When an investor, or any audience, clearly understands what you do, it provides much needed context to the rest of your story. The following is a front slide example from a deck The Dyess Group created for its client company Guac.

An example front slide from a Dyess Group deck

Here is another example illustrating how a very small amount of information immediately helps the reader (e.g., investor, partner, customer) orient themselves properly for the rest of the deck. This is for our customer, Socrates.

Tip #2: Find ways to combine key information into your narrative to make your deck more concise

Roughly 20% of the decks we review have the “Market Size” slide as the one of the first 3 slides.

And it almost always says one thing…the market is big. Unfortunately, putting this information so early is often disruptive to an effective narrative flow. Although Market Size is important and relevant, it is tangential information that can be a distraction at odds with understanding the opportunity. An alternative technique for getting attention with the size of the market is to combine the information with more important aspects of the narrative flow.

Tip #3: Combine traction and the solution to drive conviction to invest early

Only 15% of the decks we review feature customer referrals or actual market traction in the first three slides.

A solution without traction is really just an idea. You haven’t proven that you’ve solved anything. You want to eliminate as much risk from your offering as early as possible by enhancing the reader’s conviction. Introducing your product without any supporting traction in the same slide, or soon thereafter, doesn’t help the reader understand how far you’ve come in solving your problem. Inline with embedding statistics into the narrative, consider including some of the following along with your product:

• Customer Testimonials
• Success Rates
• Total Users
• Growth Rates

Applying lessons from User Experience (UX) research techniques to your pitch deck

UX research is the unsung hero of your favorite apps. A world leader in research-based UX consulting, Nielsen Norman Group have researched and documented the effectiveness of many UX techniques. We apply their forward-thinking UX methodologies to pitch decks we build for our clients.

UX Techniques

VCs only spend about three minutes reading your deck before a meeting. People can only keep seven things (plus or minus two) in their working memory. You have limited time and space to make your point, so raise the bar with respect to what information makes the cut. Key things to keep in mind through the body of your deck:

• Reduce the hard work for consuming key information (Rate of Gain)
• Don’t over-burden the reader with information (Cognitive Load)
• Be as succinct with your messaging as possible (“BLUF”)
• Organize information for max understanding (Progressive Disclosure)
• Give the deck some design basics for strong ethos (Halo Effect)

Each of these is discussed in greater detail below.

Rate of Gain

The Rate of Gain is the value a reader gets from new information divided by how much work that user needs to do to get it.

A measurement used in User Experience to measure ease of use and value to users

In the case of your pitch deck, the user is an investor, partner, or customer, and Rate of Gain measures how valuable the information on each page is divided by how many words are on the page.

This would mean that a good slide would have the most valuable information possible in the least amount of words.

How to have a high Rate of Gain in your content

One of our partners hired a highly coveted speech writer for a Series B raise and the main piece of advice — delete more words.

The best piece of free advice we can give you about your deck is to delete more words.

Cognitive Load

It’s well documented that there are limitations of one’s ability to remember things while doing a task, aka working memory. People have a very finite working memory to consume the content of your pitch. This is why you should use techniques to be as succinct as possible to convey the most value.

A reader may naturally try and determine what information they need to know in order to preserve their working memory. This means giving the reader the ability to triage a page to decide whether or not they need all of the information is a good technique for keeping a user’s memory free to remember the main points.

This really forces you to boil down the words on a page to the point where you keep track of the cost and benefit of each word. Each additional word adds additional cost to the reader to try and understand.

Bottom Line Up Front (“BLUF”)

There is a concept in journalism called the Bottom Line Up Front, you can also think of this as TL;DR (Too Long; Didn’t Read). It’s the same reason that we put an abstract at the beginning of a research paper, or an executive summary at the beginning of a business plan. Respect the reader’s time and tell them the main point up-front so they can triage the page and decide if they need to look at the details or not.

If you use a “headline” based approach you will allow readers to skim the page and decide if it’s something that they think they need to invest the effort to further investigate. If the reader avoids taking in more information than they need, they can arrive at the end of the deck quickly having only read the information they cared about. This will reduce frustration and increase retention and overall satisfaction.

Progressive Disclosure

The concept of progressive disclosure in apps defers advanced or rarely used features to a secondary screen, making the learning process easier and less error-prone. For applications, this means showing the most important features front-and-center and leaving the seldom used, or less important features to be shown later or at the users request. This removes added complexity of needing to understand more features than may be necessary.

Take Google for example. The home page is literally just a search box, and the ability to search (or click I’m Feeling Lucky like I always do).

Now you’ve given the user the option, should they want more information, to go find it. In deck-writing, progressive disclosure serves two ends: keeping the deck clean and succinct, but also allowing the user ready access to any information they would need — perhaps even in an appendix.

Halo Effect

The halo effect is a phenomenon that causes people to be biased in their judgments by transferring their feelings about one attribute of something to other, unrelated, attributes. In the case of decks, the overall aesthetic and cleanliness of the deck will set the sense of sophistication to your reader. The easiest way to create this is to be concise; use abundant white space and be consistent throughout.

• Consistent margins (white space is your friend)
• Consistent use of font sizes (we use 32pt and 18pt fonts for everything)
• Consistent messaging (Whatever you call it, call it that every time)

We’ll cover this topic in more depth later in the series.

Pulling It All Together

The slide design below does a good job implementing the UX techniques we just covered.

• Rate of Gain: With only two to three lines (tops!) for the main message, the value of the information is high, and the workload to obtain it is low.
• Cognitive Load: By using the headline approach, we allow readers to triage whether supporting information below the headline is worth further investigation.
• Progressive Design: Byincluding the path to more information, you let users know that there is a way to learn more. In doing this you also free their minds to focus on the slide at hand.

Fundraising is always hard. Fundraising in the current climate is harder. There has never been a better time to make sure your company can stand out, effectively deliver its message, and spark the interest of investors who will be more selective than ever before. Use the Sequoia Pitch Template and our techniques outlined here to make it easy for them to understand what you do and why your company deserves to be at the top of the stack.

William E. Dyess is “Pitchmaster General” and Principal at TXN Advisors, a Washington, DC-region business consulting firm that provides corporate development, marketing and strategic advisory services. We work in partnership with executive management to save them time and advance the corporate mission by helping them create killer pitch decks, management and investor presentations, board reports, corporate dashboards and the underlying business strategy and messaging to maximize growth and value. William can be reached at wdyess@thedyessgroup.com

Email your deck to deck@thedyessgroup.com for a free deck review.

2021: The Year to Get Funded

This is a Guest blog post from Ines LeBow.

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.

Deal Terms

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.

This year, I’ve published a group of articles to help you get out there in front of potential investors, including content on creating and delivering a digital investor pitch (“Now’s the Time to Get Your Business Funded: Coronavirus Edition”), on unique ways to attract potential investors (“How Far Will You Go to Get Your Business Funded?”), and on featuring the sustainability of your business in any market (“Pandemic-Proof Your Funding Pitch Deck”).

What are you waiting for?

To learn more on how to stand out with an epic fundraising story, contact Ines for a complimentary consultation by phone at 314-578-0958 or by email at ilebow@transformationsolutions.pro. You find Ines on LinkedIn Profile at http://www.linkedin.com/in/ineslebow or her ETS website at http://www.transformationsolutions.pro.

How Far Will You Go to Get Funded?

This is a Guest blog post from Ines LeBow.

Entrepreneurs are going to extremes to make themselves memorable to investors.

Earlier this spring, at the beginning of the pandemic in the US, I published articles on creating and delivering a digital investor pitch (“Now’s the Time to Get Your Business Funded: Coronavirus Edition”) and on featuring the sustainability of your business in any market (“Pandemic-Proof Your Funding Pitch Deck”). Some of my contacts have shared how great the advice in those articles was, but were struggling to get the opportunity to pitch or even engage with investors.

I read a Wall Street Journal article a few weeks ago called “Startups Turn to Remote Fundraising” (9/21/2020 print edition). It mentioned the lengths that many entrepreneurs are going to stand out with investors or even simply to get in front of investors. Here are a few examples:

• Elocution Lessons – A start-up CEO took voice lessons to improve his speech, tone, emotion, and inflection to be more compelling and effective on voice and video calls.
• Guitar Playing – A founder played his acoustic guitar to the Eagles song “Hotel California” during a fundraising meeting.
• Custom and Animated Backgrounds – One executive even built his own solution to create animated and custom backgrounds for video calls that turned into its own startup that got funded.
• Highway Billboards – An entrepreneur advertised his start-up idea on several miles of California highways frequently traveled by Silicon Valley investors using the Adopt-A-Highway program.

Initially, I got a really good chuckle. Then I thought about it more and realized that these were examples of people who inherently understood that they needed to stand out to the investor audience. To do so, they needed to do something different than all the other entrepreneurs. As Dr. Seuss famously said, “Why fit in when you were born to stand out?”

Investors are still investing. But, more than ever, entrepreneurs need to do something to capture and hold their attention and stick in their minds.

What are you going to do to stand out?

To learn more on how to stand out with an epic fundraising story, contact me for a complimentary consultation by phone at 314-578-0958 or by email at ilebow@transformationsolutions.pro.

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 ilebow@transformationsolutions.pro.

5 Keys to Convince Investors Your Product Can Make Money

This is a guest blog post by Ines Lebow.

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?

Laser Focus

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.

Sales Record

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.

Leadership Team

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 ilebow@transformationsolutions.pro.

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 ilebow@transformationsolutions.pro.

Getting Funded: Now is the Time

This is a Guest blog post from Ines LeBow

 

 

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.

In recent articles, I outlined a Blueprint on How to Open Doors to Start-Up and Next-Stage Growth Funding and a companion piece on Telling an Epic Fundraising Story, Starting with the Value Proposition. The basic principles to getting funded remain the same, but there are some additional considerations you’ll want to address in your fundraising pitch:

• 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 ilebow@transformationsolutions.pro.

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 ilebow@transformationsolutions.pro.

Equity or Debt: Questions Entrepreneurs Should Ask

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.

He writes an awesome Blog called Entrepreneurship Compass and you can sign up here: https://entrepreneurshipcompass.com

Overview of Financial Instruments for Startup Funding

 

This is another awesome Guest blog post from Andre Averbug.

In a previous post I discussed the different types of investors available to entrepreneurs. But choosing the right investor depends also on the types of financial commitment you are willing to take on. Therefore, in this post I will discuss the main financial instruments used to fund startups – equity, debt, grants, and convertibles – and their pros and cons.

EQUITY

Equity fundraising is when a firm raises capital through the sale of shares in the company. For example, a startup raises $50,000 by selling a 10% ownership to the equity investor (e.g.: angel investor, VC fund), representing a post-money valuation for the startup of $500,000. The investor gets the return on the investment through an exit event (e.g.: buyout from another investor at a higher valuation, IPO) and sometimes through dividend payments.

Pros:

– No obligation to pay back:  The equity investor becomes a partner and takes on the risk of the business. Differently from debt, you have no obligation to pay back. An equity investment, therefore, capitalizes your firm without limiting your future cash flow.

– Accessibility: Equity investors do not expect you to necessarily have revenues, creditworthiness, or collateral. They are betting on you and your business venture and their dollars should be accessible as long as you have an attractive and solid business proposition. For this reason, equity is often the ideal type of investment instrument for startups.

– Interests aligned: Because these investors become partners, their interests overall are aligned with yours. All parties want to see the business prosper in the medium to long term, differently from creditors, who might only be interested in your ability to pay back the debt regardless of the broader success of the business.

– Non-monetary support: Because incentives are aligned, equity investors often bring a lot more than money to the table. They may help you with mentoring, moral support, connections in the industry, introductions to strategic partners, and pulling in more investors in the future.

– Signaling: Receiving equity investment, especially from institutional investors such as VC funds, serves as seal of approval. It signals to the market that your business has been validated by a professional (and demanding) player. This brings status and opens doors when it comes to sales, negotiations, contracts, and further fundraising.

Cons:

– Loss of control: When you sell shares of your company you are also giving away part of your control. The extent varies according to how much the shares sold represent of the total equity, but first-round investors might typically ask for anywhere between 10-30% ownership. This normally comes with a sit at the Board and the right to participate in key business decisions.

– Share success: Well, this is more of a reminder than a “con” per se, but obviously, the more partners you have the more you will have to share the profits of the business and returns from a potential exit. This is normally not a problem, though, because hopefully investors help you “grow the pie”. As the saying goes, “it’s better to have 20% of the Empire State building than 80% of an old shack” (or maybe I just made this up?)

– Binding relationship: Equity investment is similar to a marriage. When entrepreneurs and investors become partners, they are tied in an open-ended relationship. The investors do want to exit at some point but, differently from a loan, which has clear terms and an end date, one never knows how long and how rough the partnership ride will be. If all goes well, this shouldn’t be a problem. But if the relationship becomes difficult, which is not uncommon given all the risks and stress involved, it can turn into a debilitating factor to the business.

DEBT

Debt is when a firm takes a loan from a backer (e.g.: bank, person, government institution) with the obligation of repaying principal and interest in a defined schedule. For example, a startup might take on a $50,000 loan from a commercial bank, at 10% annual interest to be paid monthly, with principal (i.e., the original $50,000 borrowed) to be repaid in 2 years, after a 6-month grace period (i.e., no interest payment is due in the first 6 months).

Pros:

– Ownership: With a loan you are not giving shares of your company to the creditors, you are simply borrowing money. This means that, differently from equity investors, creditors do not become your partners, do not dilute your ownership, and will not have a saying in how you run your business – you keep the control.

– Predictability: When you take a loan, you know all the terms of the relationship in advance. For example, you will have to pay X dollars every month, for 24 months, and then repay the principal after that. After repayment, the relationship with the lender ends. This makes it straightforward to incorporate the liability into your cash-flow plan and the broader corporate strategy and goals, without major uncertainties.

– Discipline: The obligation to pay back debt tends to make entrepreneurs more careful with the way they manage their resources. When you know you need to honor monthly payments and return the amount borrowed at the end of the period, you become more careful with the way you handle your expenses, procure suppliers, manage your costs, and go after your goals more broadly. This often brings positive lasting results in terms of financial management and corporate strategy.

– Cost: If your startup is successful, and the terms of the loan are aligned with market rates, debt is probably cheaper for you than selling equity. The value of early-stage startup shares can increase multiple-fold over just a couple of years. Therefore, if you believe in your startup and manage to get a loan instead of selling stocks, this will likely (hopefully!) cost less than selling equity prematurely.

Cons:

– Accessibility: Banks and other lenders are notoriously risk averse. This means that they will only lend to companies that can prove they can pay back. This is often a challenge for startups, which may not have steady revenues yet, little or no collateral to guarantee the loan, and limited receivables. Therefore, even if this seems like the best option, it might be hard to get.

– Obligation: With a loan, you either honor your payments “or else”… Depending on the laws of the country and what you used as guarantee, if you fail to pay back you may end up having issues liquidating the business, facing legal consequences, or even losing personal assets such as your house. The lender, differently from the equity investor, is not willing to share the risk of the business with you. Therefore, you must feel confident that you will be able to pay back the loan and understand the legal consequences before embracing this commitment.

– Discipline: The same discipline that can be an advantage can also be a limiting factor. For a startup, depending on how the business goes, servicing a loan monthly can mean that you need to tighten up your budget, cut your expenses, and even reduce investments to ensure you honor your obligations.

GRANTS

A grant is when a firm gets funds, normally to be used in particular functions, without the obligation to pay back or give shares of the company in exchange. For example, a company is awarded a $50,000 government grant as part of a program to support innovation and R&D. The startup’s only obligation is to use the funds as agreed and report on its progress.

Pros:

– Ownership and no obligation to pay back: A grant offers the best of both worlds in terms of the advantages of equity and debt. You don’t have to pay back and you don’t give away any control. Simply put, grant is free money!

– Accessibility: If a grant targets startups, much like equity, it usually does not require the company to prove creditworthiness, to have revenues, or collateral. It should be accessible to most startups that fit the profile the grant is meant to support.

– Signaling: Much like equity, receiving a grant also serves as seal of approval. Grants have highly competitive processes (who doesn’t want free money!) and winners are often praised publicly and receive good publicity. Winning a grant also places you favorably to win future ones from the same or complementary funders, as donors want to see you succeed to justify their programs.

Cons:

– Competitive: As mentioned, a grant attracts a lot of attention and normally gets thousands of applications. It is usually not something you can count on winning and incorporate into your business planning. At the end of the day, depending on the market, it might easier (or at least more predictable) to raise equity or get a loan. The grant would be seen as the icing on the cake.

– Time consuming: Well, nothing is really free. Applying for grants is very time consuming as the application processes are usually lengthy and bureaucratic. It requires a lot of time and focus and therefore it has a high opportunity cost. Also, if you win, usually there are thorough reporting commitments and you need to produce detailed periodic reports and show how every penny has been spent.

– Strings attached: Grant money is usually earmarked to certain types of investments or expenses. Therefore, you may not be able to spend the money as you wish. For example, even if you land a large grant of say $500,000, if it is part of an R&D program, you may not be able to spend a penny of it on what you might need the most at the time, say payroll or marketing and sales.

CONVERTIBLES

A convertible note (or debt, or bond) is a hybrid instrument, with debt and equity features. The firm borrows money from an investor (e.g.: angel investor, seed fund) and the intention of both parties is to convert the debt to equity at a later date. Typically, the note will be converted into equity in the subsequent round of equity investment, at a discounted valuation. For example, a company raises $50,000 in convertible debt, for 2 years, annual interest rate of 5%, and a 20% conversion discount. If a new round of investment (e.g.: VC fund) occurs within 2 years and shares are valued at $1, the convertible investor will purchase them for $0.80, buying 62,500 shares instead of 50,000. However, if after 2 years no new investment is made, the company needs to repay investors the $50,000.

Pros:

– Fairness: Convertibles solve a major problem in early-stage funding: valuation. It is very hard to come up with a sensible valuation for early-stage startups, especially those in ideation and pre-revenue stages. Convertibles solve this problem by pushing the valuation conversation forward in time, for only when/if the business is more developed and a professional investor is able to make a more educated assessment.

– Win-win: This is a financial instrument both entrepreneurs and investors are quite comfortable with, especially given the fairness argument above. Entrepreneurs are not giving out equity sooner than needed and investors are not running the full equity risk.

– Most equity pros: Most equity pros discussed above – except, before conversion, for the “no obligation to pay back” – apply here.

– Some debt pros: The debt pros of “predictability” and “discipline” also apply here.

Cons:

– “Worst” of both worlds: While grants get you the best of both worlds of equity and debt, convertibles, in a way, may get you the worst. This is because, if the business is being successful and you raise more funding, you will be selling your valued equity at a discounted rate. Alternatively, if the business is not going well, or even fails completely, you will still need to pay the investor back. The former scenario is certainly less of an issue because the investor surely deserves the discounted valuation for having backed you early in the process. But the latter might put you in the “or else” situation discussed above for debt, exactly in a moment your company might not be doing well.

– Equity cons: All equity cons apply here in case the note converts.

– Debt cons: All debt cons apply here, except for what regards principal repayment in case the note converts to equity.

Choosing the right financing instrument is a key strategic decision for any startup. Stay tuned because, in the next post, I will discuss the main questions entrepreneurs need to ask themselves when it comes to making this decision.

 

 

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.

He writes an awesome Blog called Entrepreneurship Compass and you can sign up here: https://entrepreneurshipcompass.com

8 Tips for Friends and Family Fundraising

This is a Guest blog post from Andre Averbug.

 

Startup fundraising is never easy and the current pandemic crisis makes it even harder. Typical early-stage investors, such as angel investors and venture capital funds, today might be more reluctant to take risks and bet on early-stage startups. In such situations, entrepreneurs often turn to friends and family (2F’s) to support their endeavors.

Asking people close to you for money, however, has its challenges and needs to be done in a planned, sensible way. Here are a few best practices to follow:

1. Select potential leads carefully – Make a list of potential investors among friends and family based on two key factors: net-worth and personality. In terms of the former, you should only consider people you know have the resources to support you. Don’t put people close to you on the spot if you don’t think they can afford to lose the investment. If the business fails, you don’t want to see them struggling financially, no matter the circumstances. Regarding the latter, only approach people you have a good relationship with and that you think have the right temperament. Make sure the person is reasonable and understanding. Remember they will become your partners (or lenders) and business partnerships are often hard to manage. Money comes at a very high cost if the person is difficult to deal with or might freak out at the first adversity and become a headache for you and your other partners.

2. Prioritize those who might help – From your list above, try to identify people who might be business savvy, well connected, and who can bring something else to the table besides money. For example, prioritize the uncle who is a corporate executive or entrepreneur, and might help you with mentoring and contacts in the industry, over a friend who might even be more well-off, but is a medical doctor or an artist with no business knowhow or networks.

3. Approach them professionally – Just because these are people close to you and that you know might be inclined to help, it doesn’t mean you shouldn’t be professional when approaching them. Quite the opposite. Show them you are serious about your business and that you are proposing a business partnership that runs parallel to your personal relationships. Only approach them when you know exactly how much money you need and for what: present them with a use of funds table. Make them a compelling presentation of your business case and bring (or send them) printouts of your business plan, Lean Canvas, or executive summary. They will appreciate your professionalism.

4. Think through instrument options – Make sure you understand all investment instrument options before you approach friends and family because you will need to explain it to them. For example, are you selling shares of your company (equity)? If so, at what valuation (make sure it is not overvalued to be fair to them)? Do you want a loan (debt) and, if so, under what terms, ideally? Are you considering convertible notes, where the investment starts as a loan and can be converted into equity at the next round of investment, at a discounted valuation? The latter, by the way, is likely the best option for early stage startups. [Note: I will be covering these instruments in a future post – stay tuned by signing up to receive notifications of new posts by email].

5. Make them comfortable to say “no” – Unlike professional investors like angels and VC funds, these people are listening to you specifically because they like you and want to help you personally. Therefore, you have the moral obligation to not take advantage of that (which you might do unconsciously) and you must put them in a comfortable spot. After presenting your pitch and explaining how much you need, for what, and under what terms, answer all the questions they have, and give them time to think. Don’t ask for an answer on the same day (unless of course it is a clear negative) and tell them to sleep on the offer and come back to you on a later day.

6. Consider a “2F club” – Depending on the amount of money you are asking and the number of people on your list, it might be a good idea to have more people invest smaller pieces. For example, instead of getting $50,000 from your big sister, get 5 x $10,000 from her and four other friends. This is good for diluting any one person’s risk and might also provide you with extra help. If you are going for equity, though, be mindful of having too many people as partners – i.e., too many voices at the table. Get help from a corporate lawyer or legal mentor to design an effective way for these people to become your partners, perhaps by having them all come in through a company of their own, with each owning 20% of it.

7. Tell what you expect (and don’t) from them – When friends and family invest, with their best intentions, they often want to help in many other ways too. They may want to opine on the business strategy, suggest hires, introduce you to this or that person, try the product before you launch it etc. If not managed properly, this situation can escalate to your aunt, who’s a dentist, wanting to participate in your biggest contract negotiation! Therefore, before the investment deal is closed, make sure you tell them the level of involvement you expect from them. You may simply not want them to get involved at all, which is fine, as long as this is part of the agreement and they are ok with it. In any case, keep in mind that, as partners, they do have the right to at least receive updates and participate in quarterly or biannual meetings.

8. Be 100% transparent about the risks! – Avoid problems in the future. These are people you care about and may know nothing about startup investing. They are doing this because they care about you too. Ensure they are aware that this is a risky endeavor and that they might lose their investment (equity) or that you may take a long time to pay them back (debt) if the business fails. Certify that they are ok with the risks and that they can afford losing their investment without major personal financial consequences.

Times of crisis call far stringent cost management measures and creative fundraising, including from friends and family. If you do it right, the 2F’s can be a good option to help you through these troubled waters.

 

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.

He writes an awesome Blog called Entrepreneurship Compass and you can sign up here: https://entrepreneurshipcompass.com