This article was inspired by Peter Adams blog post about the The Venture Capital Pitch – Team Slides. Here are few Angel Insights that you could consider discussing during a “deep dive” or other discussions with the start up under consideration. Read more
Finding capital is no easy task. Lots of start-ups struggle early on with where to find the capital they need to bring a great product (or service) to market or to tend to a broken technology in need of some work. Funding Your Dreams: Calling All Entrepreneurs, a panel at this year’s WILD Summit, covered just this. Once you’ve determined how much capital you need, how do you put together your fundraising strategy? Who do you ask for funding and are you offering something in return? What do you need to know before you start? Read more
Last week at the Angel Capital Summit, the Rockies Venture Club hosted the first-ever University Startup Challenge. It was the first pitch competition in Colorado specifically for students from across the state, and we were proud to host it! Since they presented to real investors at an investor conference, we were looking for the ‘most fundable companies’ instead of just business plan competition winners. These entrepreneurs are all actively working to build their company, and some have real traction in the market. They were also on equal footing with the rest of the companies at ACS for investor funding. 5 of the top universities in Colorado nominated students for the event – University of Denver, CU-Boulder, CU-Denver, University of Northern Colorado and Colorado State University. Read more
10.10.10 is an innovative program that combines 10 wicked problems, 10 prospective CEOs, and 10 days together in Denver. The bigger the problems the bigger the opportunities, and they’re intent on finding the most massive problems out there and empowering CEOs to create solutions. The first program launches in August, 2014 and is the first of its kind. Read more
Impact Investing is a term that has a wide range of interpretations. In order to have credibility, consistency and clear understanding about what constitutes success in impact investing it’s important to have a clear set of metrics to understand the social, environmental and economic impacts of impact investments.
Impact is Big Business
The impact investing industry is growing fast with over a trillion dollars of investment over the next decade according to JP Morgan research reported in Business Ethics magazine. Funds that are investing for others find more and more reasons that they need to have clear metrics to demonstrate that they are carrying out the mission of the investors. While each fund may develop their own metrics individually, there are huge benefits to utilizing an agreed upon set of metrics across the industry to allow for apples-to-apples comparisons among funds.
Using standardized metrics provides a framework in which larger and larger amounts of investment can be made by sophisticated funds. The result of this is that impact investing funds can eclipse philanthropic efforts in improving health, education, environment and quality of life for underserved markets. There will always be a place for philanthropy, but research has shown many for-profit organizations have been able to bring greater impact with greater long term sustainability than those non-profits that provide one-time support.
While individual impact investors don’t have concerns about accountability or credibility, they should also be using metrics to help them understand and evaluate the deals that they are considering and to be able to hone their investing strategies to balance financial and social/environmental outcomes. Individuals will want to understand their investing goals, but will also want to be able to select impact investments that match and support their own values.
Global Impact Investing Ratings
In 2011 B Labs worked with over 200 impact investing funds to create GIIRS (pronounced “gears”), the Global Impact Investing Ratings System and its IRIS Registry for impact funds. Since then, GIIRS has become the defacto standard for measuring social and environmental impact on investments that are clear and verifiable by third parties. Impact companies that want to know how they’re doing can take a free impact assessment provided by B Labs that will let them know how they are doing and to test their future strategies against industry benchmarks. The ability to compare each company’s results based on standardized measures opens up huge new opportunities for B Corporations and for funds alike. Just as having standardized GAAP accounting guidelines makes investment analysis for public companies efficient, having the GIIRS standard opens the door for large scale investment in impact companies.
Rockies Venture Club Impact Investing
To learn more about B corporations and hear pitches from active impact companies, , consider attending the RVC Impact Investing event Tuesday, December 10th 5:00-7:30PM at the Colorado State University Denver Center Event Atrium 475 17th Street, Suite 200 Denver, CO. Click Here to Register
Impact Investing is not new and has been around since the 1960’s, if not before. Since that time we’ve seen a lot of success stories coming from impact investments. With these successes we’re also seeing significant amounts of dollars under management by impact investing funds with returns of 25% and up PLUS social and environmental impact.
Given the lack of early stage startup funding for impact companies, uncertainties with cleantech technologies, lack of governance in developing countries, lack of structured capital markets and exit opportunities in third world countries and the need to provide social and/or environmental impact, it’s a wonder that impact companies can return anything at all to investors.
In our research we’ve found many funds and foundations that have achieved financial success in making impact investments, but it’s sometimes difficult to find specific impact investments that have hit it big. What is the next “Instagram” of Impact Investing?
Here is a story of a company that hit it big. The good news is that they are not alone and that impact companies are doing well all the time.
d.light (http://www.dlightdesign.com) has created a product line of solar powered lanterns that bring light and power to third world communities where community electricity is not available. D.light makes high quality, affordable solar lanterns that are distributed world-wide with over half a million units delivered each month, delivering light to over 20 million individuals and families. The users pay less for solar lighting than traditional kerosene lanterns, plus the lighting allows for greater productivity and income generation when people can work beyond daylight hours. Students benefit from better study environments and homes are safer and healthier without kerosene fumes. Finally, the reduction in carbon emissions is significant. The statistics below show the social and environmental impacts of this company that is turning a good profit at the same time.
25,315,130 lives empowered
6,328,782 school-aged children reached with solar lighting
$767,644,065 saved in energy-related expenses
7,219,013,138 productive hours created for working and studying
1,794,878 tons of CO2 offset
30,807,967 kWh generated from renewable energy source
d.light has won numerous certifications and awards and is backed by an impressive collection of venture funds and foundations – all expecting to turn a profit on their investments. D.light is a “B Corporation” which means that it is a for profit corporation, but that it must meet rigorous standards of social and environmental performance, accountability and transparency.
At Rockies Venture Club we hope to find companies like this each December at our Impact Investing Event and support local companies that are doing good all over the world.
To learn more about impact investing and to meet the founders of four great impact companies, consider attending the RVC Impact Investing event Tuesday, December 10th 5:00-7:30PM at the Colorado State University Denver Center Event Atrium 475 17th Street, Suite 200 Denver, CO. Click Here to Register
Investors don’t invest in ideas, products, or markets – they invest in people.
Ask any investor what their criteria are for choosing which companies they invest in and the answer will be that it’s the people. This is no secret among investors and the communities of entrepreneurs that they invest in, yet we see entrepreneurs ignore this principle every day.
I am continually amazed when entrepreneurs think that they can short-cut the process of forming relationships in this process. Entrepreneurs ask why we can’t just get angels to write them a check. These entrepreneurs will never receive funding.
Entrepreneurs who are successful become a part of the community. They get to know the people and they watch how investors respond to pitches. “What questions do they ask?” “Which companies do they invest in?” “How do good companies land the all- important lead investor?”
I don’t know many people who an attend one event and get to know all one hundred of the people who are there. It takes several events before you get to know the key players in the community. Entrepreneurs who are serious about raising money for their companies know that it takes time. They spend time doing the research for their company; they learn about the venture capital process; they create a great pitch and they spend three to six months or even up to a year getting to know the angels and VCs in the community.
Successful entrepreneurs also remain active in the community after their pitch. They realize that the pitch is not the end of the process, but that it is just the beginning. After the pitch, successful entrepreneurs continue attending events and work to develop a lead investor. They are active in the process rather than waiting for investors to come to them. Successful companies continue their involvement actively for an average of three to four months after the pitch in order to circle up their investors into a syndicate and close the deal.
The Rockies Venture Club offers the education and communities for those who are willing to learn and become a part of the community. Those who get involved are a part of the club that raised over $25 million in the past twelve months. The others are destined to keep waiting for someone to do the work for them.
How can you get involved?
1) Attend RVC events and other groups in the area.
2) Join RVC and become a member.
3) Take classes and workshops to build your knowledge of how venture capital works.
4) Take part in the free funding mastermind sessions offered by RVC to help you hone your strategy and learn from others.
5) Volunteer for events to get known in the community and contribute your share to the tremendous amount of work it takes to coordinate events.
6) Get to know the people you meet and ask them out for coffee, beer, etc.
7) Follow-up and stay connected even after your pitch.
Do these things and you will be more likely to find active investor interest in what you are pitching.
When we talk about Impact Investing, we’re talking about investments that make an impact on our communities. There are many ways that this can happen, but the two most common categories are social and environmental impact. My intuitive guess was that environmental impact investing would comprise the greatest portion of investment, but what The Global Impact Investing Network (GIIN) and, J.P. Morgan found in their study “Perspectives on Progress: Impact Investor Survey” January, 2013, was that environmental and social impact investing were almost equal, with slightly more investing going to social impacts.
It’s interesting to note that these two areas have typically NOT been addressed by business interests and therefore must be dealt with by governmental or philanthropic organizations. (In fact Rockies Venture Club gets a lot of applications for “Impact Companies” who “create jobs” or further economic development through their capitalistic activities. While it’s great that these companies do impact their communities, we’re looking for the companies that do something materially different than the normal day-to-day companies out there.
Environmental impact companies are often “clean tech” or “green tech” in their approach. They’re addressing environmental needs in many ways such as wind and solar, energy storage and delivery systems, biofuels, alternative energy sources such as generating energy from waste dumps. These companies are now becoming successful at both returning a profit to investors as well as reducing our carbon footprint, reducing energy costs, and furthering energy independence. That’s a big impact that our big oil and gas companies have not been able to effectively deliver in the past – primarily because there was so much money to be made in traditional energy delivery. Environmental impact companies are making a difference by making alternative energy sources economical, often without government subsidies.
Social impact investments are often more difficult to quantify the returns, yet they account for fully 50% of impact investments according to GIIN, J.P. Morgan. Social impact investments that can provide a return often take the form of jobs programs, education with immediate returns in productivity, water and sanitation systems that create jobs and health benefits for communities, healthcare delivery in remote areas and more. Rockies Venture Club has seen tremendous creativity and energy spent in addressing global community needs by companies that are innovating and finding lower costs of delivery and sustainable income that returns profits to investors while benefitting communities.
To learn more about Impact Investing and to hear speakers and pitches from Colorado Impact Companies, consider attending the RVC Impact Investing event Tuesday, December 10th 5:00-7:30PM at the Colorado State University Denver Center Event Atrium 475 17th Street, Suite 200 Denver, CO. Click Here to Register
It is awkward to ask people for money. Whether an entrepreneur or fundraising for charity– most people are not used to asking for cash from other people. They’re obviously not the same, though – investing in an entrepreneur (hopefully) produces a financial return. If you’re talking to an angel or VC and you feel like you’re just asking for charity, you need to get your head right. Your frame of mind determines much of your life and other people’s response to it, so feeling confident while raising money is obviously important.
If you feel like you’re asking for charity from investors because you’re not sure about your business, stop. Save everyone’s time and money and change something before you ask for money.
If you feel awkward fundraising but believe in your business, you have some room to work with. When raising money, your mindset should be closer to “This money will allow me to better grow my company and my investors will benefit”, than “I need this money so I don’t go out of business.” Both statements may be true, but focus on the positive. I’m not saying your business should only be chasing money – I believe the goal should be to create value for your customers, and if this is done well profit will follow.
Whether you’re nervous or not, here are five questions you need to be comfortable with. Think of them as “elevator answers” where you can get the main point across in 15-30 seconds, with the ability to expand on them as necessary.
1) How much is your company worth?
Simple question, not-so-simple answer for a startup.
There are a number of different ways to value your company, and the Angel Capital Association has a great post on methods here. The important thing is to use a few, because they take into account different factors and can demonstrate your ability to think from multiple perspectives. Be able to explain why you used the methods you did, as well as underlying risks, assumptions, and caveats in your models. It’s not as important to come up with the “correct” valuation (not a multiple choice test here) as your approach in finding it. You don’t really define your company’s value anyway; value here is determined by what investors are willing to pay for equity. Also keep in mind that valuation is not necessarily the most important thing on the term sheet, and that a high one means more growth necessary to generate the same return.
On a very basic note, know the valuation inherent in your ask. If you ask for $1 million for 20% equity, you’re valuing your business at $5 million pre/$6 million post. If you’ve taken the “college business plan” route so far and came to your valuation by “here’s what I think I need and how much equity I feel like giving up” go back to the drawing board.
2) What are you going to do with the money?
Be specific, and ready to explain each aspect of your plan. Whether it’s to fulfill a huge backlog of orders of widgets you’ve already been selling at a high margin (great!) or you need to hire programmers or a sales team, know the specific reasons and why they’re important.
3) Can you make this work with less?
Genentech is a great example – in 1976 they originally wanted about $3 million from Kleiner Perkins, and were persuaded to prove the concept first. A $250,000 investment helped accomplish this, with much less upfront risk for the entrepreneur and investors. Genentech had a $300 million IPO in 1980, and was fully acquired by Roche in 2009 for $46.8 billion.
Know all the finances. You should already have your current and projected numbers down pat, including revenue, EBITDA, margins, etc., as well as your hopes for an exit. Also, know as much as you can about your industry’s numbers and how other valuations were determined, such as with a financial multiplier or number of users. While many entrepreneurs like to think they’re the only startup in their space, even risk-prone investors like angels or VC’s get wary of moving into virgin territory. It’s useful to have industry comparisons, but be able to distinguish yourself and why you are more likely to succeed.
4) What does it cost to acquire a customer?
This is an important and often-overlooked metric but is increasing in popularity. What does it take to produce your product and get customers to pay you for it? Once you have a customer, do they stick around? Sticky customers lead to scalability.
5) What will this investment cost me?
Last, but perhaps the most important question: ask yourself – what will this investment cost me? For the investor, this is a straightforward answer: usually a check, or a check and time on a board. (On top of due diligence – your potential investors have to pay for that, too)
For the entrepreneur, it is not so easy to answer. Raising money is not making money, and it means you have more to build to generate the same return on value. As a startup ecosystem we have a tendency to celebrate dilution, but more funding is not always better. If you get a high valuation early and need more money before the company’s value has grown, you’ll be facing a painful “down round”, where the share price is lower on a subsequent round. Last quarter, (Q2 2013) 22% of the VC deals in Silicon were down rounds, while 14% were flat rounds – the un-sexy side of high valuations.
In the wisdom of Notorious B.I.G. – “Mo’ money, mo’ problems.”
Having excess cash in your pocket can lead to an unnecessary burn rate and not validating customer traction. Even successful entrepreneurs can fall into the over-funding trap, especially after exiting their first company with a windfall. If fundraising, diluting founder’s equity to the point where it impacts your motivation is dangerous as well.
Raise money only if you need to. If you do, start the process 6-12 months before you actually need it, and make sure you’re on top of your game.
Tim Harvey is a Master’s of Engineering Management student at CU-Boulder and a regular contributor to the Rockies Venture Club. He has started a few businesses (nothing big yet) and most recently worked as a Fortune 500 marketing consultant with a neuroscience-based startup. Prior to that he was an investment advisor for individuals and corporations, holding FINRA Series 7 and 66 licenses.
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