ReportWire

Tag: Raising Capital

  • My Startup Couldn’t Raise VC Funding, So We Became Profitable. Here’s How We Did It — And How You Can Too. | Entrepreneur

    My Startup Couldn’t Raise VC Funding, So We Became Profitable. Here’s How We Did It — And How You Can Too. | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    It’s no secret that the startup world is hardcore. Half of startups fail before year five, and only one in ten survive in the long run. Recent economic trends aren’t too encouraging either. Last year saw a 38% drop in global startup investment and a 30% decrease in the U.S., specifically. Moreover, of the available funds, a significant amount was gobbled up by trendy artificial intelligence startups. So, if you’re not in AI, the picture may appear even more grim.

    Today’s founders have to come to terms with the fact that the VC funding round they’ve been working toward might not materialize. Though this has always been the case, the bar is now so high that a plan B is essential — how will your business survive if it doesn’t receive funding?

    Alternative startup funding is one increasingly popular option, e.g., taking out a loan with a traditional credit institution. But this isn’t for everyone and definitely not for pre-revenue startups because the bank needs to see how you will repay the loan. Plus, collateral — or the lack thereof — may disqualify any software or other startups up front, as, unlike VCs, banks don’t operate on faith.

    So, if nobody’s giving you funds and you don’t have the runway to hold out until the ecosystem picks up again, there’s only one way your startup can grow — become profitable.

    Related: The Entrepreneur’s Guide to Building a Successful Business

    Why profitability needs to be top-of-mind even if you’re doing well

    I have been actively fundraising for my on-demand Consumer Packaged Goods (CPG) startup since its inception three years ago. First, we raised $1.9 million in pre-seed capital for building out our business core, which we did — securing the necessary partnerships, putting together a base of operations, developing our software and growing the team.

    With a solid foundation and proven business model, it was time to scale, and we sought VC partners to help us ramp up our operations. What I expected to be three to six months of active fundraising turned into a year that bled into the next and, to this day, is ongoing.

    Despite demonstrably positive business results and a slew of warm contacts and cold pitches, investor response was tepid. Interest came with conditions and homework — “Let’s reconnect when you achieve these figures.” But when we did, the goalposts shifted. Fundraising started to feel like a goose chase, and the increasingly turbulent economic environment didn’t do us any favors either.

    Right now, competition is intense and startups that investors would swarm just a few years ago might not get a second look today. With that in mind, founders should avoid placing all their eggs in one basket and hedge their bets by approaching growth in a profit-oriented direction.

    Because if you don’t, you have two equally unappealing options: going bust or getting chained to an opportunist investor who will pay pennies on the dollar.

    Three things a founder must do to be profitable

    Four months ago, my startup reached profitability for the first time. It came after more than a year of active work and planning, and here’s what it took.

    1. Change your mindset

    The main job of a startup founder is to raise funds — this is something that gets drilled in at incubators, accelerators and other mentorship programs. Accordingly, a founder’s focus often lies in beautifying their startup for investors, i.e. finding ways to boost KPIs even if it’s unsustainable, focusing on design over functionality, and spending big in marketing to demonstrate growth.

    When pursuing profitability, this must be unlearned. Growth cannot be cosmetic, and for many, that demands a change in mindset. Goals and priorities must be redefined. Forget maximizing sign-ups; focus on paying customers; forget vanity metrics; focus on conversions; forget your personal wants; focus on business needs.

    Note that this doesn’t mean you should stop fundraising, but you probably will have to revise your pitch deck.

    Related: How to Fund Your Business With Venture Capital

    2. Optimize your business

    A changed mindset is not enough—you need to get in the trenches and optimize, optimize, optimize. For a regular business, your runway is limited, and if you don’t bring your balance sheet into the green, then it’s game over.

    Here’s one specific area to pay attention to: startups often hyperfocus on client acquisition and neglect user retention. They’ll pay through their nose to get a signup but invest little in ensuring clients stick around, leading to a profitability-killer combo of high CPA (cost per acquisition) and a high churn rate.

    As my co-founder always tells our clients: “All you need is 100 loyal customers for a successful full-time business.” We adopted the same mentality, going for quality over quantity.

    Tackling this was a cornerstone of our journey to profitability. We went to great lengths to understand specifically when and where our clients churn and put all our effort into answering their pain points to ensure people keep using our services. This way, you’ll get more bang for every buck you’ve invested in acquisition.

    3. Expand your offering

    Unless you’ve been striving for profitability since day one, chances are it’s going to take you a very long time to reach it. In fact, it may be impossible to reorient your business quickly enough. For this reason, it’s wise to look into additional revenue streams that can support your business while it turns over a new leaf. This can be anything from additional services to new products. For example, my CPG startup allows anyone to start a side hustle or full-blown business selling on-demand supplements, cosmetics, and packaged foods. However, to start selling, our customers need to set up an online store where they can direct their customers.

    While our customers found our platform easy to use, they struggled to set up a store – so we began offering assistance with this as a separate service. Essentially, we leveraged our existing expertise to offer ecommerce development services, which was critical in extending our runway.

    Martins Lasmanis

    Source link

  • When Is The Right Time to Raise Institutional Capital For Your Business? Here’s What You Need to Know. | Entrepreneur

    When Is The Right Time to Raise Institutional Capital For Your Business? Here’s What You Need to Know. | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    As the founder of Viirtue, my entrepreneurial journey was a rollercoaster of decisions, risks and strategic turns. But one of the most critical turning points was knowing when to seek institutional capital for my business. This is a decision that can make or break a startup, and understanding the correct timing was paramount for us.

    My company was bootstrapped for many years, and we maintained profitability throughout. This was a significant advantage, especially when the economy took a downturn in 2022. It was a moment when investors started valuing profitability more than unicorn potential, which put us in a favorable position.

    But even then, the decision to raise institutional capital wasn’t taken lightly. It came after we saw rising traction and rapid growth. Larger groups had access to more capital and strategic advisory than we did, which fueled our motivation to seek institutional funding.

    We ran a long process, vetting investors just as much as they vetted us. In our eyes, this was not just about finding a partner for financial growth, but also about securing strategic guidance. We were not looking for a mere check; we were in search of a partner who could offer advice and mentorship based on experience and industry insight.

    The process wasn’t without its pitfalls. One of the primary lessons we learned was about the importance of hiring investment bankers that specialize in your industry. Initially, we made the mistake of hiring inexperienced bankers. This decision cost us time, money and a long tail period when we decided to move on from them. If there’s one thing I wish we did right from the start, it would be interviewing many bankers who specialized in our vertical and meticulously checking references.

    Related: Kevin O’Leary Explains Why Institutional Capital Must Have a Role in Sustainability

    Investment bankers are not just intermediaries who connect you with potential investors. They represent you at the negotiation table. Many founders can receive Letters of Intent (LOIs), but the real challenge lies in navigating deals that don’t retrade and negotiating with future stakeholders, especially when emotions run high. These are the moments when a seasoned investment banker can make all the difference.

    Ultimately, we decided to raise capital for a multitude of reasons. The business was growing exponentially, and we needed the development and sales funding to help us scale from a $20 to $30 million company to a company worth over $100 million. We had long-time minority investors who were looking to exit and needed liquidity. And most importantly, we were in search of strategic partners who could fuel our growth thoughtfully as well as financially. Raising capital was the silver bullet that enabled us to accomplish all of these goals in one fell swoop.

    Are you ready to take on institutional capital?

    Firstly, are you ready to commit to the robust reporting requirements of investors? Institutional investors will need regular and detailed reports on business performance, financials and strategic updates. This requires a significant time commitment and a level of transparency that some business owners may find uncomfortable. We had always operated Viirtue with candor and transparency. This made the transition so much more frictionless.

    Secondly, do you truly need the capital to reach a milestone, or are you just taking money? Money for the sake of money can lead to wasteful spending and a lack of focus. It’s crucial to have a clear understanding of what you need the capital for, such as reaching a particular business milestone or achieving a specific growth target.

    Thirdly, do you have a thoughtful growth plan of how you will deploy the capital? It’s not enough just to have money; you need a strategic plan for how that money will be used to grow your business. This includes identifying key areas for investment, understanding how these investments will drive growth and having a clear timeline for when you expect to see returns. Detailed financial modeling is an incredible asset for any founder. We never had a full-time finance leader, yet still were able to create detailed models with our CPAs and bankers. Additionally, when it comes time to pitch to investors, they will want to see these models coupled with market research and other evidence to support your assumptions.

    Finally, have you set the stage to significantly scale your team? Fundraising is a pivotal step, but it’s just a piece of the puzzle. The real task is putting the capital to good use, which often implies expanding your team. This demands not only a well-crafted recruitment strategy but also the capacity to house a growing workforce.

    At Viirtue, we have always held our people in the highest regard. Our human capital, which comprises industry experts and genuinely wonderful individuals, has been our greatest asset, our superpower. The team’s dedication and expertise have been instrumental in shaping my company’s identity and will continue to give us a competitive edge as we move forward.

    The unique culture we have cultivated at my company has been a magnet for new talent, making our scaling efforts more seamless than we could have ever anticipated. But, let me assure you, a strong culture doesn’t materialize overnight. It’s a product of time, open dialogues with your team, investing in their growth and success, and co-creating a vision that resonates with their sense of purpose.

    I have often emphasized the transformative power of finding purpose in work. When you can align a group of uniquely talented individuals towards a shared mission and imbue their roles with purpose, the result is nothing short of magical. A purpose-driven team is not just a group of employees; it’s a community of dedicated contributors who are invested in the company’s journey and its ultimate success.

    Related: 4 Passive Income Investment Strategies That’ll Free Your Time and Peace of Mind

    The quest for institutional capital is more than just a funding round. It’s a strategic move that can catapult a business to new heights if done correctly. But it’s crucial to remember that timing is everything. Raising capital should be considered when the business shows promising growth and needs an additional boost to reach its full potential. It should also be considered when partners are looking for an exit, and the company requires strategic guidance to navigate future growth.

    One more point to consider is the importance of maintaining profitability. It’s not just about creating an appealing proposition for investors. It’s about ensuring that your business can weather economic downturns and still come out on top.

    I hope you find success and the answers you are searching for in your entrepreneurial journey. Whether or not it is the right time to raise capital is ultimately up to you as a founder.

    Daniel Rosenrauch

    Source link

  • 3 Ways to Raise Capital as a Small Business | Entrepreneur

    3 Ways to Raise Capital as a Small Business | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Raising capital can be a challenge for anyone, but particularly for small businesses. Oftentimes, investors are looking to put their money into something with multinational growth potential rather than something more local. In many cases, you may need to raise smaller amounts, possibly in the thousands of dollars or the tens of thousands. Therefore, to raise money as a small business requires a different approach.

    As a multimillionaire real estate investor and trainer, I often teach my students how to raise capital for their first property deal. Many of my students are new to real estate and are looking to purchase a relatively cheap property in the North of England. This is unlikely to be of interest to a seasoned angel investor, but there are lots of people that this type of investment would suit very well. In many ways, this is a similar situation to raising capital as a small businessperson.

    I have found that there are many ways to raise capital for a small enterprise, whether as a joint venture or in the form of debt. Once you have mastered these skills, you will have a world of opportunity in front of you. But first a note of caution: Each jurisdiction has different rules regarding raising capital, so seek independent legal advice to make sure your chosen approach is compliant.

    Related: 3 Ways to Raise Capital and Take Your Business to the Next Level

    1. Talk to people you know

    When I am training my students, they sometimes tell me that they don’t know anyone rich to approach. The reality is, however, that when raising smaller amounts, you don’t actually need to know anyone rich. Many ordinary people have savings in the bank that are sitting there being eaten away by inflation. These people are often willing to lend that money out for a much higher return than they would get from the bank.

    Of course, they will need to know that their money will be safe. In real estate, this often means the debt will be secured against the property. In other areas of business, it might mean securing the debt against product inventory or by other means. Alternatively, depending on the other party’s risk tolerance, you could consider a joint venture partnership where you share the profits.

    Asking people you know for an investment can put both parties in a difficult position, therefore it is important to phrase your request correctly. Rather than asking directly, simply talk about your project and ask if they know anyone who might be interested in investing. If they want to invest, they will let you know. If they don’t want to invest, they can pass on the deal without any awkwardness. In addition, even if they don’t want to invest, there is always the chance that they know someone who might.

    Related: 5 Innovative Ways for Entrepreneurs to Raise Capital in Today’s Market

    2. Connect at business networking events

    The next way to raise capital is to attend business networking events. Business networking events are a great way to get to know people who are potentially interested in investing in new projects. It is important to remember, however, that all the other business people attending the event are also looking to promote their business. You need to listen and learn about what they are doing and find ways for your project to solve their problems.

    There may be people who are looking to deploy capital either to get a fixed return or on the basis of a joint venture partnership. Of course, these people are highly unlikely to want to invest in your project on the basis of a single meeting at a networking event! Your job is to plant a seed.

    Explain what your business is and mention that one way you expand is to raise capital from business owners who want to put their money to work. Explain that they prefer not to keep their money in the bank where its purchasing power is being eaten away by inflation. Don’t suggest that they invest at this stage. Let them think about what you have said and come to you.

    Related: How Entrepreneurs Can Maximize Networking to Increase Funding

    3. Engage on social media

    Another way to get investors’ attention is to document your journey on social media. People invest with people that they know, like and trust — and social media is a great way to get people to know, like and trust you, so long as you’re authentic.

    If you let others see the human being behind the brand, you will find like-minded people who gravitate toward your personality and vision. These people are more likely to want to invest in your business or project. You don’t need millions of subscribers on YouTube or Instagram either, just a few highly targeted followers who care about your brand.

    When raising money from the public on social media, it is especially important to make sure you are following the law. Speak to a lawyer and understand what is and isn’t allowed in your jurisdiction. However, as long as you follow the applicable rules, social media is a great way to connect with investors.

    It’s time to take action

    It can be hard to raise capital for a small local business if you haven’t learned the right strategies. Ultimately, however, raising capital is possible at any level — if you employ the correct approach. If you know how to find and communicate with your target investors correctly, you can easily raise capital for your small business.

    You have just learned everything from how to correctly approach people you know to how to use social media to your advantage. Now that you have read this article, it is time to take action. Those who take little to no action will continue to find raising capital hard. On the other hand, those who apply the lessons above will find that raising capital for their small enterprise is a lot easier than they thought.

    Samuel Leeds

    Source link

  • 3 Essential Factors Your Startup Should Consider If You Want It to Bloom | Entrepreneur

    3 Essential Factors Your Startup Should Consider If You Want It to Bloom | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Venture capital funding has always been a complex and highly competitive landscape where startups and established businesses alike vie fiercely for investor attention and financial backing. And in recent times, this state of things has only grown progressively worse.

    Over the past two years, global markets have observed a continuous fall in venture capital funding. In Q1 2023, the figure reached $76 billion, less than half the amount recorded in 2022 ($162 billion). Funding into the fintech sector amounted to just $23 billion in the first half of 2023. At the same time, the number of funding rounds dropped by 64% compared to the same period in 2022.

    The investor sentiment is waning, and to survive in this grim climate, startups must be capable of rapidly adapting to changes and possess a sensible MVP capable of attracting investors and customers alike. These are the foundation upon which a business is built and from which it can improve based on evolving customer needs and emerging market trends.

    Let’s look at how companies can adapt their operations in a challenging environment where investors are becoming more cautious and their funding scarcer.

    Adapt your startup to the realities of the BANI world

    Before we get into the detailed recommendations on what parts of your business you should focus on when seeking investment opportunities, I believe it important to point your attention to a more overarching matter. Namely, the modern-day business landscape in which companies find themselves operating.

    In today’s rapidly changing global environment, any startup founder must know the BANI world and understand its nuances and rules. BANI stands for “Brittle, Anxious, Non-Linear, and Incomprehensible,” representing the key characteristics of the current business environment.

    Today’s world is prone to sudden disruptions and shocks that can significantly impact businesses and their activities. As such, leaders must learn to anticipate potential risks and build resilience within their organizations. To maintain an efficient business in times of uncertainty and volatility, leaders need to monitor market dynamics constantly, understand the ongoing trends and adapt their strategies accordingly.

    In short, understanding the modern realities is essential for heads of startups to successfully steer their companies towards growth and secure investments from stakeholders who value adaptability and foresight. It is particularly important for startup founders, as such businesses already tend to start their journeys in a financially vulnerable position. Failing to acknowledge the aspects of the BANI world may leave them ill-prepared to face disruptions, competition, market shifts and other threats.

    By taking care to keep an eye on these complexities, on the other hand, founders can make more informed decisions and adjust their business strategies accordingly. This can build their organizations more resiliently and attract investments by showcasing their ability to thrive in a rapidly changing and challenging environment.

    Now that we have cleared up the BANI world issue, let’s take a closer look at the actions that startup founders can take when fundraising. Based on personal experience, I recommend focusing on three main aspects of your business when you’re planning to engage with promising investors.

    Related: How to Adapt in a Rapidly Changing Economy

    1. Grow your revenue rather than your turnover

    When the market is going through a boom, investors tend to look at how rapidly a company can grow and capture its share in the market. But in today’s business landscape, it is more important for them to understand that a company can endure and survive in harsh circumstances. And survive for a long time, at that. If you have the capacity to be profitable on top of that, then all the better for you.

    Make sure to demonstrate this fact openly and proudly, as it would make a lot of sense for investors to invest in you to drive this success further and get their share of the profit from it.

    Related: We Can’t Rely on Venture Capital Funding to Build a Just and Thriving Entrepreneurial Economy. Here’s What to Do Instead

    2. Pay attention to your company’s data and analytics

    Showcase figures that would indicate to investors that your business is viable and that they can invest in it safely. In my own company, for example, we demonstrated how much we managed to reduce costs while boosting revenue simultaneously. Things like that give investors the information that you can operate effectively, which worked to great effect for us.

    3. Show that you can make responsible financial decisions

    If investors are to put their money into your startup, it would put their minds at ease to know that you can invest said money competently and precisely. More specifically, under the current market conditions, pouring funds into things that yield a quick result is necessary. You are required to be able to adapt to market trends and make quick decisions that provide quantifiable outcomes.

    Fundamentally, the most important thing is to demonstrate a set of skills and tools that would indicate to investors that your business can maintain itself regardless of the outside conditions in a market filled with uncertainty.

    Related: How to Think Outside the Box and Craft a Values-Aligned Investment Offering

    Data-driven decisions give businesses the power to grow

    By staying updated on industry developments, customer preferences and the competitive landscape, businesses can identify opportunities and adapt their strategies to stay ahead of the curve. This requires strategic thinking, flexible problem-solving skills and a willingness to take calculated risks. It falls to the company leadership to monitor performance and make informed decisions that would enable their business to maintain a level of success attractive to investors.

    Greg Waisman

    Source link

  • Optimizing The Capital Stack In Today’s Market

    Optimizing The Capital Stack In Today’s Market

    Once you’ve found a great real estate investment opportunity, it will be time to raise capital for the transaction. This step typically involves structuring the layers of equity and debt. In simple terms, equity refers to money that you’ll bring to the table and debt includes the different types of financing you’ll secure for the deal. You’ll likely be working with a partner for this step, along with other investors and lenders.

    For simplicity purposes, in this article we’ll look at two types of equity: common equity and preferred equity. In a future article, we’ll consider two forms of debt: senior debt and mezzanine debt. Let’s look at the equity portion of the capital stack in the following sections, along with the risks and rewards that each layer brings and how they play out in today’s market.

    Common Equity in a Real Estate Investment

    In a transaction, the common equity portion reflects basic ownership, and typically includes the individuals in the deal who have “skin in the game.” This could be you, your partner, and other investors on your team. Common equity could come from personal savings or a lump sum of income (such as a bonus or inheritance) that you receive and want to invest.

    There is often a general partner, or sponsor, who runs the day-to-day activities of the deal and raises money from limited partners. The sponsor may contribute anywhere from 5% to 50% of the common equity, depending on the size of the transaction. If you’re the general partner and are putting in your own funds, it can resonate well with your investor partners and show that you have confidence in a deal.

    Those who contribute common equity carry the highest amount of risk, as they hold the lowest priority in the capital stack. They’ll be paid last, after lenders receive their funds and those with preferred equity have been given their share. On the upside, those who contribute common equity have the greatest potential for reward too. Once a certain threshold is met, they’ll receive a share of the profits called promote, and there generally is no cap on how high of a return they can receive. If the investment yields a significant return, the extra funds will be theirs to keep.

    Preferred Equity in a Real Estate Investment

    Investors who contribute preferred equity have benefits which go above basic ownership. The rate of return for preferred equity is typically fixed, which makes it have less potential for reward than common equity. However, it also carries less risk, as those who contribute preferred equity will be paid before individuals who put in common equity.

    When the general partner seeks preferred equity, one of the first networks to tap is often friends and family. As Jordan Vogel, co-founder of Benchmark Real Estate Group, mentioned on my podcast, “The Insider’s Edge to Real Estate Investing,” when raising capital, he and his partner created a list of everyone they knew that they thought could write a $50,000 check. Some investors gave $25,000 and the higher amounts averaged $100,000.

    Before asking for an investment, it’s good practice to begin educating potential investors about the market and your business plan. You’ll want to cultivate the relationship and build an audience; once you have a deal to present, you’ll have established credibility with them. Most of the time when you’re raising capital, you’ll be interacting with accredited investors by using a private placement. Given this, you’ll definitely want to consult an attorney on how to approach them and make sure you’re raising money the correct way without violating any of the rules.

    There is typically an order for how preferred equity investors and common equity investors receive their funds and profit share. The sequence is usually that investors get their equity back and then the general partner gets their equity returned. Following this, investors receive their preferred return. Then the sponsor receives their return, and lastly the promote.

    Equity in Today’s Real Estate Market

    When building a capital stack, bear in mind that in recent times, the lending environment has grown more challenging. In previous years, it might have been possible to have a 65% or 70% loan to value in a deal. (Loan to value refers to the loan amount divided by the total value of the property.) However, those figures may now be in the rearview mirror. As a result, you may be asked to bring more equity to the table than in the past. This can be true even for a cash-flowing asset. Many of the transactions today may require 40%, 45%, or even 50% of equity.

    When gathering funds in today’s market, keep in mind that equity is typically more expensive than debt. Even with rising interest rates, the senior debt for a cash-flowing multifamily property might still be below 6%, whereas equity investors are usually looking for more. Depending on the risk profile of the transaction, preferred equity contributors might ask for a single high digit return. They’ll also usually be looking to benefit from the upside potential too. Many equity investors out there are ultimately aiming to solve for mid- to high-teens rates of return, which is not all that different than institutional investors.

    Given the need for more equity, along with the additional expense it carries in a transaction, it’s important to raise this portion of the capital stack in the right way. With that in mind, we’ll cover this topic in depth in an upcoming article, which will explain how to build your best investor presentation.

    We’ll also discuss the remaining layers of the capital stack—senior debt and mezzanine debt—in a future article. With a solid grasp of these concepts, you’ll be able to properly structure a transaction and move forward with the deal. Even in today’s market, there are plenty of opportunities for those who have the right team in place and the inside track needed to gain a competitive edge.

    James Nelson, Contributor

    Source link

  • How to Raise Funds for Your Business in an Economic Downturn | Entrepreneur

    How to Raise Funds for Your Business in an Economic Downturn | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Concerns that the U.S. is headed for a recession have been mounting for a while, especially among business owners. One survey found that eight out of 10 small business owners anticipate a recession will happen sometime this year.

    Recessions affect most businesses in two ways — first, revenue takes a hit as consumers start holding onto their cash instead of spending. Second, tightening credit conditions limit the number of financial resources available to help businesses weather economic challenges.

    Some businesses consider taking out a loan or line of credit when economic hardship is on the horizon, but is this the right move for your business?

    Related: How to Fund Your Budding Small Business During a Recession

    Should you get a loan during a recession?

    You may not like the idea of taking on additional debt and wonder if applying for a loan during a recession is a good plan, but there are situations where taking out a loan or line of credit is the smartest option.

    You should start by considering how much cash you have on hand. If you’re heading into an economic downturn with little cash, a business loan can provide a financial buffer. Access to cash will give you options for solving challenges, making staying profitable and committed to growth that much easier.

    This is especially true since no one knows how long a recession will last. You may have enough cash to get you through the next six months, but that won’t help if the downturn lasts two years or more.

    Waiting until you desperately need money can significantly reduce your options. As a downturn approaches, lenders tighten their guidelines, and you may be unable to meet their inflated eligibility requirements amid economic hardship. If you think you may need additional capital, it’s best to act sooner rather than later.

    Lending standards are starting to tighten

    Many companies struggle during recessions as demand falls and uncertainty about the future increases. They’ll start to look for ways to increase capital, like taking out a business loan or line of credit, but this becomes a challenge since most banks will tighten their lending standards during an economic downturn.

    As the economy worsens, banks face a higher risk when lending money. Most banks will only lend money to established businesses with strong credit histories and limited industry exposure to mitigate their risk of financial loss, which inflates eligibility criteria and makes it harder for entrepreneurs to qualify altogether.

    Fortunately, banks and credit unions aren’t the only lending institutions. Non-bank lenders don’t follow the same guidelines as traditional lenders, so they can extend credit to a wide range of businesses, even during a recession.

    Related: Worried About Raising Capital in a Recession? Give Your Company The Edge By Doing What Other Entrepreneurs Often Overlook.

    Consider using a non-bank lender

    A non-bank lender is a financial institution that isn’t a bank or credit union. They lend money like traditional lenders but don’t have a full banking license, and they don’t offer things like checking and savings accounts.

    There are advantages and disadvantages to going the non-bank route. While this type of lender tends to charge higher interest rates than banks or credit unions, they offer numerous quality-of-life improvements and specialized benefits, including online communications, streamlined underwriting processes, fast funding times, alternative financing solutions and more.

    What you lose in the cost of capital is gained through speed and efficiency. For example, you can complete the application in as little as 15 minutes at some institutions, and many lenders provide same-day or next-day funding.

    These loans also come with fewer stipulations about how you can spend the money, and the cost of capital can be offset with revenue-driving opportunities. For example, spending $10,000 on interest charges won’t matter as much if you increase your revenue by $50,000.

    Plus, as you continue to build a relationship with that lender and improve your business credit score, you’ll be eligible for better rates in the future.

    Start looking for business financing now

    After the Silicon Valley Bank collapse in March, some economists lowered their economic growth forecasts for the year. The lending environment was already starting to weaken following numerous prime rate hikes, but the SVB crisis caused many banks to tighten their lending standards even further.

    In particular, small banks have to be more cautious about lending money in an effort to preserve cash. Small to medium-sized banks account for roughly 50% of commercial and industrial lending, so this will impact a number of businesses.

    Federal Reserve documents predicted that the fallout from the banking crisis would likely lead to a recession later this year, and it’s unlikely that we’ll see any significant improvements for at least two years.

    If you anticipate needing funds in the coming year, you should start looking for business financing now. Although you might be apprehensive, a loan or line of credit can tide your business over until the economy improves and give you the capital you need to continue growing.

    Related: 5 Ways to Protect Your Business From a Recession

    Joseph Camberato

    Source link

  • Free Webinar | May 18: 7 Ways to Raise Money to Launch Your Business | Entrepreneur

    Free Webinar | May 18: 7 Ways to Raise Money to Launch Your Business | Entrepreneur

    Crowdfunding, equity financing, grants, or debt financing? Which do you choose to raise money for your business?

    Join our webinar, Bianca B. King, Entrepreneur & Marketing Strategist, teaches you 7 methods that you can use to raise money to launch their companies, including the advantages and disadvantages of each type of funding.

    7 Financing Options

    Equity Financing:

    Debt Financing:

    • Small Business Loans

    • Peer-to-Peer Lending

    Alternative Financing:

    Register now to secure your seat!

    About the Speaker:

    Bianca B. King is an entrepreneur and professional matchmaker on a mission to help women accelerate their success. As the CEO & Founder of the exclusive collective Pretty Damn Ambitious™, Bianca matches high-acheiving women with premier vetted and verified coaches so they can finally amplify their ambitions and achieve the personal growth and professional success they desire. Bianca is also the President and Creative Director of Seven5 Seven3 Marketing Group, a digital marketing agency that has served hundreds of entrepreneurs since 2008.

    Entrepreneur Staff

    Source link

  • How to Choose the Right Debt Provider for Your Business

    How to Choose the Right Debt Provider for Your Business

    Opinions expressed by Entrepreneur contributors are their own.

    When founders think of raising debt, they often imagine going to a bank. In my three years advising companies on debt financing options, I frequently remind founders that banks are certainly an option — but not the only one. Founders exploring debt should familiarize themselves with all of the options in the market, from traditional asset-based loans to more innovative venture debt and revenue-based financing solutions.

    These various lenders don’t just have distinctive structures and terms for their capital, they also each have a particular set of criteria to qualify for a loan. By acquainting yourself with the entire market upfront, you can focus on the lenders that suit your business the best, maximize the number of term sheets you receive and spend less time chasing dead ends.

    Related: Why Founders Should Embrace Debt Alongside Equity

    Banks

    Banks themselves come in various shapes and sizes. When it comes to business loans, you have your regional community banks, large multinational banks and specialized venture debt banks. Sometimes one large bank may roll up all of these divisions under one roof, providing a range of options from revolving lines of credit, term loans, warehouse lines and more.

    Oftentimes these banks have access to the cheapest available capital and therefore can offer you the lowest interest rate. But bear in mind that while this is usually the cheapest option, banks also have a high bar to qualify for their capital. They may include covenants or other performance requirements to ensure the business continues to meet their benchmarks throughout the duration of the loan.

    For many small businesses, taking a loan from a local community bank can be a simple low-cost option. But be aware that they may have minimum asset or cash flow requirements to qualify or even ask for a personal guarantee.

    Venture debt banks, on the other hand, specialize in VC-backed cash-burning businesses that show huge growth potential. Oftentimes, getting a loan from one of these banks requires several rounds of equity from brand-name venture capital funds, providing up to 25-35% of your most recent equity raise amount.

    Eventually, once your business is generating several millions of dollars in cash flow, an even wider spectrum of bank options opens up including some of the largest multinational banks.

    Venture debt funds

    More traditional venture debt offerings are very similar to those one would find at a bank. A three- to four-term loan structure is standard, though generally, rates are more expensive than banks with the flipside of a greater quantum of capital.

    Similarly, venture debt funds look for VC-backed companies or at least some form of institutional backing, rapid growth and high LTV/CAC. More bespoke options do exist as well, oftentimes branded as growth debt rather than venture debt, since they can provide capital to angel-backed or even fully bootstrapped businesses.

    Both of these options typically come at a cost of capital in the teens with interest-only periods and can be quite creative in structure. Founders should be aware that for both venture debt banks and funds, loan packages often come with warrants — effectively an option to purchase shares of the company in the future at a fixed price. Meaning, a small amount of dilution should be expected, though some lenders in this space pride themselves on being fully non-dilutive.

    Related: When is the Best Time to Raise Venture Debt – Here’s the Key

    Revenue-based financing (RBF)

    An increasingly popular non-dilutive financing solution for early-stage companies is technically not debt. Revenue-based financing functions more akin to a cash advance. Capital injections are repaid as a percentage of monthly revenues, as opposed to a fixed principal repayment schedule.

    If you’re looking for the fastest path to receiving capital, revenue-based financing is the solution. Many firms that use API integrations to your accounting and commerce data are able to aggregate that data through their underwriting systems and offer terms in 24-48 hours.

    While this capital tends to be on the more expensive side, speed and flexibility make up for it. Unlike other lenders, RBF facilities usually don’t require collateral or impose restrictive covenants that may limit your ability to grow.

    In terms of qualifying for an RBF, monthly revenue minimums can be as low as $10K with at least six months of operating history. The crucial requirement is to show evidence of recurring revenue. This usually means SaaS revenue with low churn, but can also be applied to most subscription-style businesses or even transactional ecommerce businesses that show a strong history of sticky customers.

    Non-bank cash flow lending

    Traditional private credit funds lend to established companies that have several years of traction under their belts. They generally are EBITDA or cash flow positive, some starting at as low as $3M annual EBITDA while others require $10M+. Businesses can be founder or sponsor-owned, and range from fast-growing later-stage tech companies to more traditional businesses and even turnaround financing for distressed situations.

    Use of capital covers a huge spectrum from funding leveraged buyouts or asset purchases to growth capital. Funding structures run the gamut, from senior secured to mezzanine debt (below senior lenders but above equity-holders) or even preferred equity in the capital stack. Rates are typically higher than banks from single digits to mid-teens, with three- to five-year terms. Closing fees and exit fees are common, as are covenants, and loan sizes are derived either holistically on the business fundamentals or as a function of cash flow.

    Non-bank asset-based lending (ABL)

    An ABL facility allows borrowers to use an asset as collateral for a line of credit or term loan. The asset can be as liquid as accounts receivable and inventory or as illiquid as real estate or a specific piece of equipment. Some of these loans can be secured with just one asset. For instance, a company needs a new warehouse and gets ABL financing for that, or it could be a combination like A/R and inventory.

    Asset-based lenders will often focus on a specific industry and require a minimum amount of whichever asset(s) they specialize in (accounts receivable, inventory, capital equipment, real estate or even intellectual property). Those assets can be held on the books as collateral or in some cases purchased outright at a discount (receivables factoring, for example).

    Unlike the other debt facilities covered, ABLs normally carve out a specific asset rather than taking a security interest on the entire company. This lowers the risk for borrowers and provides some flexibility to stack on additional debt, provided they can cover it. The advance rate (the amount of cash you get up-front) is usually between 50% and 90% of the value of the pledged assets.

    Related: The Old-School Solution to Cash Flow Problems Hiding in Your Receivables

    Questions to ask yourself

    As you consider which debt provider to approach, you need to think about the characteristics of the funding vehicle that will unlock the long-term potential of your business — while covering your short-term cash flow needs. Don’t forget that each lender has its own unique criteria. Fundraising without a clear plan of action can become a huge time suck for founders, pulling them away from operating the business. By strategizing upfront and learning the market, you can ensure that you only spend valuable time with lenders that can provide a real offer.

    Once the term sheets are in hand, you can now leverage them and pick the terms that are best for you. I’ll discuss that in my next article.

    Tim Makhauri

    Source link

  • How To Raise Money For Your Startup

    How To Raise Money For Your Startup

    Opinions expressed by Entrepreneur contributors are their own.

    Raising money for a brand-new startup idea can be challenging, especially in a tough economy. However, with the right approach and preparation, you can find the funding required to realize your vision. Let’s explore some of the most effective methods and tools available to entrepreneurs who want to raise money to create their own new businesses.

    Have an “investors pitch”

    An investor pitch is usually a PDF with around ten slides. It tells a story about who the company is, the service or product they offer, the problem in that market and the solution your company presents. It also shows your company traction and includes more information about your team, your staffing projections, and the potential revenue an investor can get if they back up your idea.

    I recommend the book “The Lean Startup,” by Eric Ries to anyone starting a new company. It is a great starting point to understand some essential terms you’ll need to know, such as “minimum viable product.”

    Related: 13 Tips on How to Deliver a Pitch Investors Simply Can’t Turn Down

    A business plan

    A strong business plan must be in place. Your business plan should concisely describe your concept, target market, sources of income, and projected financial results. A thorough explanation of how you intend to use the money you raise to expand your company should also be included. Potential investors will have an easier time comprehending your vision and developing confidence in your capacity to carry it out if you have a well-written business plan.

    I commonly get a question: “how many years of projections should my business plan include?”

    My recommendation is to include at least five years. I usually pay close attention to the first three, and year number four and five can be a little more ambiguous or focus on the bigger picture. Why? Because so many things are expected to happen within the first three years, years four and five are likely to include changes, evolutions, or pivots.

    Grow your network

    The next crucial step is to network and develop connections with potential investors. A wide variety of investors, including venture capitalists, angel investors and crowdfunding platforms, are likely available in any city. Even if they’re not, recur to virtual platforms to connect with them (think LinkedIn or Zoom meetings.)

    Get to know your connections and nurture those relationships. By establishing connections with potential investors, you can learn more about their investment preferences and modify your pitch to better suit their needs. Additionally, you can get insightful criticism and guidance on enhancing your business plan and raise the likelihood that you’ll get funding.

    When considering investors, I often tell them I’m looking for “strategic partnerships,” which means I’m looking for an investor who will not only provide capital but also leverage their knowledge in the matter or their connections to push our plans further.

    Related: Five Ways To Raise Money To Launch Your Own Startup

    Attend startup events

    Startup events and pitch competitions are excellent places to meet and develop relationships with potential investors. Attend as many events as possible where interactions with investors may occur. Get to know like-minded individuals who are also doing the same, and exchange ideas and what has worked for you.

    Platforms for crowdsourcing are another method of raising money. Through websites like Kickstarter, Indiegogo or GoFundMe, crowdfunding enables business owners to raise money from many contributors. Crowdfunding can be a great way to attract investors for your startup and create a network of people who share your vision.

    Related: 6 Steps to Planning a Free Startup Event and Making a Splash

    Think outside the box

    You can also request loans and grants from governmental or nonprofit organizations for a more conventional strategy. Chances are the city where you live offers opportunities or services that may help push your business forward.

    For example, the New York City Economic Development Corporation provides a range of services and tools for business owners looking to establish or expand their operations in the city. Additionally, they offer Small Business Services (SBS), which facilitates access to funding and other resources for small businesses.

    Consider all options available

    Consider equity crowdfunding, for instance, which enables you to raise money in exchange for company equity. Alternatively, think about bootstrapping your company, which entails self-financing your start-up by reinvesting profits and reducing expenses.

    Preparing for different outcomes and being open to new opportunities is important because raising capital is a process. Not all startups will raise the same amount or in the same way. My biggest advice is to approach meetings fully knowing and understanding your business plan. But most importantly, approach all meetings with enthusiasm and positive energy. More often than not, investors vest in a team or a person before they invest in an idea.

    Rodolfo Delgado

    Source link

  • Free On-Demand Webinar: How to Raise Capital & Scale A Business

    Free On-Demand Webinar: How to Raise Capital & Scale A Business

    As a groom in 2005, our next guest experienced first hand how difficult it was to find an online resource that would help him execute his wedding plans more efficiently. He vowed to build a tech-forward company that would make planning less stressful and frustrating for engaged couples. Since co-founding WeddingWire in 2007, Timothy Chi led the company from an internet start-up to a multimillion-dollar leader in the wedding planning industry. He also led the merger of WeddingWire with The Knot and its collective brands under one umbrella – The Knot Worldwide – the largest provider of wedding marketplaces, websites, planning tools and registry services in 16 countries across North America, Europe, Latin America and Asia.

    In the next Leadership Lessons episode, Chi will chat with series host Jason Nazar about the greatest lessons he learned from his 25+ year career. Topics include:

    • Entrepreneurship & co-founding companies

    • How to raise capital & scale a company

    • The future of work & workplace culture

    • Servant leadership

    Watch now!

    About The Speakers:

    Timothy Chi is co-founder of WeddingWire and CEO of The Knot Worldwide, a leading global wedding planning company comprised of over 1,900 employees worldwide. Previously, he co-founded Blackboard Inc. where he helped the company grow to over 600 employees, raised $100M in capital with a valuation of $750M, and took the company public in 2004. Chi holds a B.S. degree in Operations Research/Industrial Engineering from Cornell University and a M.S. degree in Engineering Management from Tufts University. He is a member of the Young President’s Organization in Washington, D.C.

    Jason Nazar is a serial tech entrepreneur, advisor, and investor with two successful exits. He was most recently co-founder/CEO of workplace culture review platform Comparably (acquired by ZoomInfo), and previously co-founder/CEO of Docstoc (acquired by Intuit). Jason was named LA Times’ Top 5 CEOs of Midsize Companies (2020), LA Business Journal’s Most Admired CEOs (2016), and appointed inaugural Entrepreneur in Residence for the city of Los Angeles (2016-2018). He holds a B.A. degree from the University of California Santa Barbara and his JD and MBA from Pepperdine University. He currently teaches Entrepreneurship as an adjunct professor at UCLA.

    Jason Nazar

    Source link

  • Free Webinar | January 31: How to Raise Capital & Scale A Business

    Free Webinar | January 31: How to Raise Capital & Scale A Business

    Opinions expressed by Entrepreneur contributors are their own.

    As a groom in 2005, our next guest experienced first hand how difficult it was to find an online resource that would help him execute his wedding plans more efficiently. He vowed to build a tech-forward company that would make planning less stressful and frustrating for engaged couples. Since co-founding WeddingWire in 2007, Timothy Chi led the company from an internet start-up to a multimillion-dollar leader in the wedding planning industry. He also led the merger of WeddingWire with The Knot and its collective brands under one umbrella – The Knot Worldwide – the largest provider of wedding marketplaces, websites, planning tools and registry services in 16 countries across North America, Europe, Latin America and Asia.

    In the next Leadership Lessons episode, Chi will chat with series host Jason Nazar about the greatest lessons he learned from his 25+ year career. Topics include:

    • Entrepreneurship & co-founding companies

    • How to raise capital & scale a company

    • The future of work & workplace culture

    • Servant leadership

    Don’t miss out—register now!

    About The Speakers

    Timothy Chi is co-founder of WeddingWire and CEO of The Knot Worldwide, a leading global wedding planning company comprised of over 1,900 employees worldwide. Previously, he co-founded Blackboard Inc. where he helped the company grow to over 600 employees, raised $100M in capital with a valuation of $750M, and took the company public in 2004. Chi holds a B.S. degree in Operations Research/Industrial Engineering from Cornell University and a M.S. degree in Engineering Management from Tufts University. He is a member of the Young President’s Organization in Washington, D.C.

    Jason Nazar is a serial tech entrepreneur, advisor, and investor with two successful exits. He was most recently co-founder/CEO of workplace culture review platform Comparably (acquired by ZoomInfo), and previously co-founder/CEO of Docstoc (acquired by Intuit). Jason was named LA Times’ Top 5 CEOs of Midsize Companies (2020), LA Business Journal’s Most Admired CEOs (2016), and appointed inaugural Entrepreneur in Residence for the city of Los Angeles (2016-2018). He holds a B.A. degree from the University of California Santa Barbara and his JD and MBA from Pepperdine University. He currently teaches Entrepreneurship as an adjunct professor at UCLA.

    Jason Nazar

    Source link

  • Free Webinar | January 31: How to Raise Capital & Scale A Business

    Free Webinar | January 31: How to Raise Capital & Scale A Business

    Opinions expressed by Entrepreneur contributors are their own.

    As a groom in 2005, our next guest experienced first hand how difficult it was to find an online resource that would help him execute his wedding plans more efficiently. He vowed to build a tech-forward company that would make planning less stressful and frustrating for engaged couples. Since co-founding WeddingWire in 2007, Timothy Chi led the company from an internet start-up to a multimillion-dollar leader in the wedding planning industry. He also led the merger of WeddingWire with The Knot and its collective brands under one umbrella – The Knot Worldwide – the largest provider of wedding marketplaces, websites, planning tools and registry services in 16 countries across North America, Europe, Latin America and Asia.

    In the next Leadership Lessons episode, Chi will chat with series host Jason Nazar about the greatest lessons he learned from his 25+ year career. Topics include:

    • Entrepreneurship & co-founding companies

    • How to raise capital & scale a company

    • The future of work & workplace culture

    • Servant leadership

    Don’t miss out—register now!

    About The Speakers

    Timothy Chi is co-founder of WeddingWire and CEO of The Knot Worldwide, a leading global wedding planning company comprised of over 1,900 employees worldwide. Previously, he co-founded Blackboard Inc. where he helped the company grow to over 600 employees, raised $100M in capital with a valuation of $750M, and took the company public in 2004. Chi holds a B.S. degree in Operations Research/Industrial Engineering from Cornell University and a M.S. degree in Engineering Management from Tufts University. He is a member of the Young President’s Organization in Washington, D.C.

    Jason Nazar is a serial tech entrepreneur, advisor, and investor with two successful exits. He was most recently co-founder/CEO of workplace culture review platform Comparably (acquired by ZoomInfo), and previously co-founder/CEO of Docstoc (acquired by Intuit). Jason was named LA Times’ Top 5 CEOs of Midsize Companies (2020), LA Business Journal’s Most Admired CEOs (2016), and appointed inaugural Entrepreneur in Residence for the city of Los Angeles (2016-2018). He holds a B.A. degree from the University of California Santa Barbara and his JD and MBA from Pepperdine University. He currently teaches Entrepreneurship as an adjunct professor at UCLA.

    Jason Nazar

    Source link

  • 4 Crucial Indicators When Raising Venture Capital Funding

    4 Crucial Indicators When Raising Venture Capital Funding

    Opinions expressed by Entrepreneur contributors are their own.

    In this day and age of shrinking VC funding for startups, you might think your business is the exception. You might think your business model is so ripe for growth with a little cash infusion that VCs should compete to see who can be your primary investor.

    Besides the fact that startup founders are rarely objective about their business prospects, it’s always good to get outside perspectives before heading down the potentially long, winding and soul-bruising road of VC pitches.

    Do you know who you might want to check with as a first step before you sink a bunch of time and energy into your pitch deck? Your marketing agency. (If you don’t have an agency, make a friend with an agency exec pronto.)

    If an agency isn’t your first choice as a sounding board — hear me out. I’ve worked with dozens and dozens of intelligent, ambitious startups since founding Playbook Media. Throughout those relationships, I’ve recognized a few significant indicators of whether your business is positioned to sprout unicorn wings with some extra resources — or whether you have some fundamental issues to address before you take your pitch to your version of Sand Hill Road.

    Related: The 10 Most Reliable Ways to Fund a Startup

    1. Burn threshold

    Also known as “burn multiple,” this metric takes a broad view of your business to calculate how much revenue you bring in for every dollar you spend. Divide your net burn by net new revenue for a given period, and you’ve got your number. (Anything over 2 these days, and you’ll have difficulty getting funding because your operational efficiency needs work.)

    Your agency partners won’t have all that data on hand to calculate your burn threshold, but there are plenty of ways they can help you improve it. They can reduce costs by lowering your average CAC (the cost of acquiring a customer). They can improve your customers’ average LTV (lifetime value) using lifecycle marketing, referral programs, upsell campaigns, etc. They can also run frequent forecasting models to ensure your strategic decisions are informed by current data and market conditions — which have been evolving rapidly.

    An agency can be beneficial in understanding your entire marketing picture and assessing where you can cut spending and suffer minimal revenue effects. Agencies proficient at MMM (media mix modeling, which I’ll touch on more in a bit) will be great partners in that endeavor.

    2. K Factor

    Your K Factor is your natural growth rate if you aren’t doing any marketing. It usually boils down to product-led growth and virality stemming from your existing customer base, site users, media outlets picking up on your momentum, etc. This isn’t specific to products, by the way; if you have a software service or platform, you can build tons of product-driven growth.

    Agencies can help you determine your K Factor if they’re proficient at understanding the impact of each of your advertising channels. Ideally, your agency is using media mix modeling to determine the incremental impact of each channel; when they analyze all of your channels and touchpoints and compare it to your overall growth, they’ll be able to isolate a baseline level of growth that isn’t explained by those channels. That’s your K Factor.

    The key to optimizing your K Factor is growth loops. Reforge defines growth loops as “closed systems where the inputs through some process generates more of an output that can be reinvested in the input.” This can go beyond organic loops, too — although K Factors are defined in the absence of ads, you can apply a little advertising budget to great effect if you’re working with growth loops. An example is taking a popular TikTok post from either your company’s or a relevant creator’s page and doing a Spark ad, which boosts the post and prompts more engagement that feeds the post’s organic momentum.

    Related: You Can’t Get VC Funding for Your Startup. Now, What?

    3. Channel reliance

    Despite recent setbacks (check out the last couple of quarterly earnings reports), Google and Facebook still dominate their competitors in gobbling advertising budgets, as we see time and time again with new clients coming to us to jump-start their growth.

    I think brands should almost never spend more than 50% of their budget on Google and Facebook (combined), which is easier said than done. There are several reasons for this, but the two most important are that Google and Facebook are getting increasingly expensive and that all companies should protect themselves against over-reliance on one channel that could get hit by, say, algorithm updates or outside influences like the iOS14 release.

    Beyond those reasons, there are clear warning signs that you should diversify your marketing channels ASAP:

    • Diminishing returns (CPAs keep climbing no matter what you try)
    • A lack of new users
    • Demographic trends shifting away from your core platforms (e.g., younger generations are now using TikTok instead of Google for their search engine of choice)
    • Business goals evolving out of alignment with your core channels

    If any of these sounds familiar, start carving out ideas and resources to reallocate the budget into new channels.

    Related: 9 Extremely Clever Startup Funding Stories

    4. Market penetration

    There are a few market-penetration scenarios that potential investors will hone in on right away (for better or for worse):

    • The market is small, and you’re dominating but might have a hard growth ceiling (example: Wild Earth)
    • The market is large but ripe for disruption, and you have one or more differentiators that will help you carve out market share (example: Dollar Shave Club)
    • The market is new, and you have the plan to build awareness for the market’s need and your solution (example: Fitbit, back in the early 2010s)

    Agencies can analyze and tell you what segment you might be in. For Wild Earth, an agency would help define the target market by segmenting data into silos (e.g., vegans, dog owners, owners who only feed their dogs dry food, owners who order online, and owners who will pay a premium for food and shipping). Cross-reference that relatively small audience that lives in the intersection of those segments with data like rising CACs and relatively high impression share. That company looks like a poor choice for investor funds unless you can leverage what you’re already doing well into other product categories.

    If things like search volume and available impression volume are curiously low, you may have a tremendous opportunity to build awareness for your product or service as the leader of a new market (or market segment). “Video rentals” probably had a ton of search volume when Netflix was in its early stages, but “online video rentals” or “video rentals by mail” were exponentially less popular queries that, when combined with the rising trends of online shopping and engagement, evidenced a market ripe for introduction. Brands like Peleton (spinning classes at home vs. spinning classes) and Rent the Runway (luxury fashion for rent vs. luxury fashion) represent similar scenarios that, when the story is told well, represent catnip for intelligent investors.

    The takeaway

    With startup funding relatively hard to come by, you should recognize that poor indicators in any of these areas put you out of position to leave a VC pitch with millions of dollars. But there’s hope yet. First, most issues in these areas are fixable. Second, fixing them now will mean you’ll be extraordinarily well-positioned to take full advantage of future VC investments when you have a better story.

    Bryan Karas

    Source link