Tag: Venture Capitalists

Venture Capital 101: A Comprehensive Guide for Startups Seeking Investment | Entrepreneur

Opinions expressed by Entrepreneur contributors are their own.

Every day, dozens of startups go through the Vibranium.VC funnel; some don’t pass the first scoring, while others move to the next stage towards potential investment. Drawing from my entrepreneurial background, I can confidently say that advice I received in the past from professionals in specific fields helped me be well-prepared and aware of the nuances that come along with the entrepreneurial journey.

Advice for startup founders is crucial at the beginning of their journey as it provides invaluable insights and guidance from experienced individuals who have navigated similar paths. This advice can help founders avoid common pitfalls, refine their strategies, and make informed decisions, ultimately increasing their chances of success. The early-stage startup founders are often filled with uncertainties, and seeking advice from business role models can offer clarity and direction to set a solid foundation for the entrepreneurial journey.

Related: Why Investors With an Entrepreneurial Past Are Crucial to Startup Success

Secure your runway

Begin your search for investments at least six months before your funds run out, ensuring your runway remains at 6-8 months. If you are raising seed, anticipate that this funding will sustain your runway for two years. Approximately a year or 1,5 years, you can move towards the Series A fundraising process. This timeline implies that you should attain Series A metrics within one and a half years, providing a six-month buffer while concluding the round with the next-level investors.

Series A financing refers to an investment in a startup after it has shown progress in building its business model and demonstrates the potential to grow and generate revenue. It often refers to the first round of venture money a firm raises after seed round and angel investors.

A healthy runway, representing the number of months a startup can operate before running out of cash, demonstrates financial stability and responsible financial management. Investors are more likely to be interested in companies that clearly understand their financial standing and can sustain operations over the mid to long term.

A longer runway enhances your negotiating position: It reduces the urgency for immediate funding, giving the startup more negotiating power when discussing valuation, terms, and other aspects of the investment deal. This can result in more favorable terms for the startup.

Additionally, a sufficient runway provides the startup with ample time during fundraising. This time is essential for due diligence procedures, negotiations, and other steps involved in securing investment. It allows both the startup and investors to thoroughly evaluate the opportunity without the pressure of an imminent cash shortage.

Be prepared for a lengthy fundraising process

As you initiate active fundraising, the second point is to prepare for an extended fundraising process from 3 to 6 months at best (sometimes even more). This is particularly crucial in the early stages, considering all due diligence procedures, negotiation processes, and other factors. The size of the funding round can influence the timeline: larger funding rounds often involve more extensive due diligence, negotiations, and legal processes, potentially extending the duration. For example, one of our longer deals took almost five months, while the shortest one was sealed after one month.

Negotiating the terms of the investment, including valuation and other deal terms, can take time. The back-and-forth negotiations between the startup and investors contribute to the overall duration. And don’t forget about legal processes: finalizing legal agreements and paperwork can add time to the timeline.

Related: 3 Alternatives to Venture Capital Funding for Startups

Create a database of investors

Build a database of 100 or more warm contacts with investors. Initiate conversations with them and strive to convert these interactions into closed deals. Have as many contacts as necessary to achieve the crucial milestones for the next round.

Having a database of investors is a strategic asset for startups. It streamlines communication, facilitates relationship-building, and allows startups to make informed decisions throughout the fundraising process and beyond.

The database is also crucial when it comes to your pitch. By understanding different investors’ preferences and investment histories, startups can tailor their pitches more effectively. This personalized approach increases the likelihood of capturing investor interest and aligning with their investment thesis.

Related: Why Strategic Venture Capital is Thriving in a Founder’s Market

Transparency is everything

Be transparent, avoid fabrications, and don’t lie. We all know “Fake it till you make it ” cases, which have made investors more cautious about startups. Transparency is a way for startups to demonstrate accountability and lower the risk of investment for VCs. By providing clear and accurate information, startups show they take responsibility for their actions and decisions, reinforcing a sense of trust. Be truthful because, trust me, distorted information will surface during the Due Diligence process and can become a deal breaker. This could lead to losing investors, and more importantly, it will discourage them from engaging with you.

Always remember that transparency is not just about sharing information; it’s about fostering a culture of openness, trust, and accountability.

Zamir Shukho

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December 26, 2023
How Small Business Owners Can Level Up Their Negotiation Tactics With Venture Capitalists | Entrepreneur

Opinions expressed by Entrepreneur contributors are their own.

When small business owners are looking to secure investment from venture capitalists (VCs), they have to understand the accurate valuation of their business before they enter into negotiations. Otherwise, they end up asking for too much, and investors won’t buy in, or they give away too much as a concession for getting financial backing. You don’t need to let either of those unfortunate scenarios happen to you.

Instead of guessing and hoping, you must be prepared to negotiate based on honest and accurate information. Even if your business is very small or you’re new to the business world, you don’t need to be intimidated when working with venture capitalists. Understanding your company’s strengths and knowing how to address its weaknesses can take you a long way toward success.

Choosing the right venture capital opportunities

One important negotiating tip is to make sure you’re choosing negotiations with the right people. In other words, be selective about your opportunities. You don’t want to send a mass email to many VCs, hoping someone will take interest. If you do that and get replies, it could be that they’re trying to take advantage and think that you’re desperate. Instead, target only a handful of venture capitalists who are a good fit for your needs and have helped companies like yours before.

Study your options for venture capital and the people who typically support businesses like yours. Look for VCs who work within your industry or who are focused on helping small businesses that are similar in size to what you have. When you find the right people, negotiating with them becomes much easier because you understand one another and have more common interests and goals. Then, you can both see the value of working with one another.

Related: 8 Key Factors VCs Consider When Evaluating Startup Opportunities

Options for venture capital you should consider

It’s essential to consider more than one option or offer if you can. It’s not just the VCs you work with that matters, but also what they give you. Getting additional money to grow your business is essential, but there are other aspects of business development. There are many different ways that a venture capitalist could bring further and ongoing value to your company.

If there are other areas where your business needs support, don’t be afraid to ask. Some VCs may have connections, offer mentorship or provide additional value beyond cash. Consider these options and if they can help your business succeed. If they’re better than an influx of money only, they might be suitable for your needs. Ideally, you can get cash and other perks, but that depends on the person you’re working with and what they’re willing to offer.

Focus on post-investment processes

Before making any deal for venture capital, make sure you’re clear on the decision-making processes that will occur post-investment and what level of control you’ll retain. In other words, you only want to agree to work with a VC that will buy your business out and take it over if that’s what you’re specifically looking for. Getting your questions answered in this area is extremely important.

You should negotiate this area carefully because too many small business owners get caught up in the idea of earning money to help their business, and they agree to conditions that only benefit them in the short run. Some need to read the contract carefully, or they aren’t willing to ask for more because they fear losing what’s offered. That is your business, so make sure you know what trade-offs you’re agreeing to.

Remember that value-add is part of the equation

While the financial backing venture capitalists can bring is highly important, there is a value-added beyond that capital. Working with the right venture capitalists brings you additional opportunities that could be even more significant than the money they’ll invest. When negotiating with a VC, ensure you know what matters to you and why your business is worth investing in. That can help you get a “yes” from the right investor.

Avi Weisfogel

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December 21, 2023
Serial Entrepreneur Turned VC Reveals 4 Numbers You Need to Know to Scale Your Company | Entrepreneur
Opinions expressed by Entrepreneur contributors are their own.
As a serial successful entrepreneur turned angel investor and venture capitalist and one of the top female seed-stage investors in the world, I see dozens of pitches from entrepreneurs every single day – some through the form on our company site, others in email and loads of them via LinkedIn. Often, though, entrepreneurs reach out to me for advice rather than funding. As a former entrepreneur who once struggled to raise capital myself, I’m sympathetic to their pleas for help.

One of those requests came from Emma. Her passion for her stationery business was undeniable. She’d spent years perfecting her craft and had a small but fiercely loyal following of customers who adored her exquisite, custom-made stationery. Now, she was ready to take her business to the next level and sought funding from venture capitalists to scale it up.

Unfortunately, her fundraising efforts were a complete disaster, with investor after investor turning her down. Discouraged, she reached out to me for assistance.

I had Emma send me her pitch deck, and the problem was immediately clear. She had a good vision but lacked an understanding of what investors look for. Her deck and pitch didn’t align with what investors needed to see, overlooking four key numbers – I call them BFHL – that are most fundamental to scale.

B. Big market numbers

The foundation of any scalable business is the market it serves. For investors, the bigger the better. To understand why, it’s essential to understand VC math.

Assume my fund invests in 15 companies. Ten of them will fail, and I’ll lose my money. Three or four will do okay – I’ll get my money back or make a bit (1 to 5 times my money). That means the remaining one or two companies need to generate enough returns to make up for everything else (i.e., 100 times my money). Otherwise, my fund won’t do better than other far less risky things my investors could have put their money into.

VCs look at every company through this homerun lens. What is the maximum revenue your business could generate if it captured 100% of the available market (Total Addressable Market, or TAM)? While no business can realistically achieve that, TAM provides a sense of the market’s overall size.

For some industries, a market size in the billions of dollars might be considered large. In others, it could be in the trillions. Either way, a substantial market size offers massive potential for growth and a high ceiling for revenue and profitability.

Related article: What Nobody Tells You About Taking VC Money

F. Fast growth rate

The market’s growth rate is also vital. VCs favor rapidly expanding markets because they enable a company to scale more quickly.

Again, let’s turn to VC math to understand why rapid growth is crucial. Remember, VCs back the most risky companies (startups are unproven; most of them fail), so they and their investors expect extremely high returns. VC funds are also time-bound. They have eight to ten years to scout for startups, make their bets, help portfolio companies grow and achieve “exits” to get their returns. As a result, they want to know:
1. How quickly can your business grow? How long until you can sell your company or take it public so they can sell their shares and get a return?
2. How big can your company get? How much could it be worth (“valuation”) at the point they sell our shares?
To deliver homerun-level returns, you need to grow from a startup to $100 to 500 million in revenue in the five to eight years your investor has left in its fund life. Why? We determine what a company is worth based on “multiples of revenue.” On the high end, SaaS companies can be valued at ten times or more of revenues. E-commerce firms come in around 2 to 3 times. Others can be as low as 1 to 2 times. So, to build a company that is a “unicorn” ($1 billion valuation), you need to quickly grow enough to generate $100 million to $500 million in revenue. Growing that big is hard to do, and do quickly, in a stagnant, crowded market.

Related article: 4 Crucial Indicators To Know Before Seeking Venture Capital Funding

H. High revenue numbers from each customer

VCs want businesses that can generate high levels of revenue from each customer — from the initial sale and subsequent purchases, upsells, cross-sales, and retention (aka, keeping them for the long term). This is called the Lifetime Value (LTV) of a customer, and it’s a critical indicator of scalability.

Investors prefer businesses with recurring revenue over those relying on one-time purchases because they provide predictable and continuous streams of income. Sell once; earn revenue indefinitely. Even better if that recurring revenue grows through upsells and new offerings. Better still if customers become advocates and bring in more new customers. It’s all about demonstrating to investors that your business is a revenue growth machine.

Relevant article: 8 Things You Need to Know About Raising Venture Capital

L. Low cost to get customers signed up

VCs also prefer businesses that can find, sell to and secure customers efficiently. This includes your marketing and sales tactics (and budget) and the rate at which you convert prospects into paying customers. A low cost of acquiring a customer (CAC) means your business is efficient, which is vital for scalability.

CAC is also a critical metric because it directly affects a company’s profitability. VCs favor businesses that can scale their customer acquisition efforts without proportionally increasing their costs. And a scalable customer acquisition strategy is crucial for achieving rapid growth.

So, where did that leave Emma? After our talk, she could see how essential it was to have a business (and a deck) that aligns with investor preferences:
- A massive market with high growth rates and an open landscape to disrupt and capture market share.
- Subscription models and recurring revenue streams that increase over time, with customers that drive virality.
- And a combination of high customer lifetime value and low customer acquisition cost ensures that the business can grow quickly and efficiently without eroding profits.
The BFHL framework gave her what she needed to rethink her pitch and her approach to growing her business. Whether you’re an entrepreneur like Emma trying to attract investment or you’re simply seeking to scale your business, these four key numbers — market size and growth rate, lifetime value and cost of acquisition — should be your guiding lights. By focusing on these crucial metrics, you can set your business on a path to scalable success. Understanding these numbers and optimizing them is the key to unlocking the full potential of your venture.
Donna Harris

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December 1, 2023
3 Secrets to Scaling Your Startup Effectively | Entrepreneur
Opinions expressed by Entrepreneur contributors are their own.
Having worked as a corporate executive, entrepreneur and now venture capitalist, I’m often asked about the secrets behind scaling a startup. Ideally, every startup starts with innovative ideas resulting in unique products or services that customers are willing to pay for. Founders typically kick off with their funds, later relying on family, friends or angel investors to grow.

But what’s next? Let’s review some of the secrets I share with entrepreneurs to help them grow their startups effectively.

1. Start with a strong foundation

First of all, I recommend that startup founders test their ideas with potential customers. This could be through an interview, survey or by simply asking people what they think. Does it meet a critical need that customers have? Does it offer something unique that competitors do not? Are customers willing to pay for it?

During this process, entrepreneurs must be flexible in hearing feedback and adjusting their offerings to address it. In my experience, most startups start with fundamentally good ideas, but they need to listen to customers and adjust the product, service or price structure along the way.

Related: 4 Keys to Grow and Scale Your Startup

2. Seek out diverse partners

It’s challenging for startups to grow beyond their initial phase because it requires additional fundraising. Seeking investment forces entrepreneurs to fine-tune their business plans and articulate their startup’s value proposition. What is your unique selling proposition? How does your product or service set itself apart? How much are customers willing to pay? Making a compelling pitch deck is difficult, but ultimately it makes any entrepreneur improve their business plan.

I believe that diversity is critical in startup fundraising. Different types of investors offer different perspectives. Traditional VCs are proven investors, but in challenging economic times – such as now – they reduce the amount they invest. They don’t always conduct thorough due diligence and sometimes invest based on trends rather than research. Remember Theranos? Some startups aren’t as promising as they sound, and some turn out to be complete frauds. Other examples of poor investments or outright scandals include Ozy Media, Outcome Health, WeWork and Uber.

Corporate investors are smart for startups to consider. Corporations typically do not reduce investments during challenging macroeconomic times because they invest strategically. They want to make money, yet they also look for startups that align with their business and technology vision. Investing helps corporations become more innovative while offering startups rapid growth.

Related: 10 Things You Must Do Before Connecting With Investors

3. Working together results in success

Corporate investors offer unique benefits to startups and doing so helps improve their results. Let’s look at how this happens.
- Corporate Innovation: Startups make corporations more innovative. By investing, corporations find the most innovative ideas around the world without having to come up with them internally. It’s hard to drive internal innovation, but investing offers an effective alternative. Companies seek out the best entrepreneurs from around the globe, investing in their innovative ideas.
- Technology and business alignment: Due to their strategic alignment, corporate investors and startups can work together to develop products together and sell them to the same customers. A startup’s technology drives the corporation’s product or service growth, and vice-versa. I typically find this results in faster revenue growth for both parties.
- Unique advice: Corporate investors offer individual advice to startups since corporate managers and executives are sharing knowledge from their own first-hand experience. They have failed, succeeded, and discovered ways to grow. By offering this experience to the entrepreneurs they invest in, the startup founders get a shortcut to success.
- Valuable networking: Another way that corporations accelerate startup growth is to leverage their networks and offer introductions to partners and customers. This is typically more efficient than startups developing their networks. A corporation’s contacts have already proven themselves, so startups can often start working with these contacts immediately.
Related: How Startups and Investors Can Thrive in the Current Economic Environment

I anticipate that corporate investors will play a bigger role in startup investment. Traditional VCs may come and go, but corporate investors are in it for long-term, strategic reasons. Corporations increasingly rely on the Venture Capital-as-a-Service model instead of developing their own investment organizations. This outsources investing to an experienced VC partner, allowing the corporation to invest strategically at whatever financial level they choose. Doing so helps increase startup investments worldwide, ultimately benefiting the world through innovation.
Anis Uzzaman

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July 3, 2023
Why a Good Venture Capitalist Has a Personal Brand | Entrepreneur

Opinions expressed by Entrepreneur contributors are their own.

The presence and significance of venture capitalists in businesses cannot be emphasized enough. This piece is an opportunity to delve into the relationship between venture capitalists (VCs) and personal or business branding services.

As you may already know, VCs invest in companies with high potential for returns and sustainable growth prospects. They are investors who provide companies with capital and guidance. VCs typically look for companies that offer a high potential for returns and, as such, will invest in firms that can demonstrate a competitive advantage and sustainable growth prospects.

However, they may have reservations about investing in personal brand leadership services, as they may not perceive their value. They worry that they won’t be able to see a clear return on their investment as it’s an ‘intangible” and emotional “soft” value versus the logical “hard” value of money and finance.

Related: How Great Branding and a Stellar Pitch Deck Can Help You Gain a Venture Capital Edge

But here’s the thing: personal and business brand leadership services can be incredibly beneficial for the companies that VCs invest in. Once they understand the potential of personal branding service as a leadership trust-building exercise (as most human decisions are first emotional before they’re backed by logic) and see the positive results for the firms they represent, they can become enthusiastic proponents. But first, the benefits, especially the financial possibilities, need to be presented to them. In fact, with the right approach, VCs can reap boundless benefits by supporting the investment in these services.

This article aims to explore the tangible benefits of personal and business brand leadership services and examine how they fit into the venture capital operations and model. By doing so, we hope to shed light on why it’s not unusual for VCs to initially harbor aversion towards these services and later grow to love them for the benefit of the companies they invest in.

Related: 6 Important Factors Venture Capitalists Consider Before Investing

How venture capitalists benefit from personal and leadership business branding services

Venture capitalists (VCs) are professional investors that are an integral part of the startup ecosystem and play a key role in helping companies get off the ground. VCs typically invest in companies with high growth potential, but are too early-stage or risky for traditional lenders. What this means is that venture capitalists are typically interested in companies that have the potential to become market leaders.

Let’s explore some ways venture capitalists benefit from personal and business brand leadership services.

1. Create a memorable brand identity

VCs can benefit from personal and professional brand leadership services to develop a distinctive brand identity that distinguishes them from the competition. These services can assist VCs in developing a unique storyline that accurately represents their values, purpose, and objectives. They can also assist VCs in developing smart messaging and content that appeals to potential investors.

2. Differentiate from the crowd

With so many VCs competing for the same investments, standing out from the crowd is important. It’s critical to differentiate yourself from the pack, given the fierce competition for similar investments. Personal and business leadership branding services can assist VCs in developing a special value proposition, establishing connections with investors, and forging a distinctive brand identity.

3. Build trust

It’s crucial for VCs to establish trust with other potential investors. By developing a strong brand identity that communicates integrity and dependability, personal and corporate brand leadership services can aid VCs in gaining the trust of potential investors. They can assist in producing premium content that informs potential investors of the benefits of investing in such businesses. Strong relationships are developed by interacting with potential investors with timely, pertinent content.

4. Increased visibility

VCs can benefit from personal and professional brand leadership services to improve their marketability. They can assist VCs in producing material that is sharable and accessible through a variety of digital media, including mainstream. VCs are able to build a powerful social media presence and use influencers to connect with potential investors.

5. Establish thought leadership

Services for elevating one’s brand and becoming a thought leader is ever-growing. They assist in producing premium content that showcases know-how and other benefits beyond past tactics and campaigns.

Related: 4 Ways Market Leaders Use Innovation to Foster Business Growth

How CEO personal brand leadership adds value to the company.

The potential value a CEO’s company may create is significantly influenced by their personal brand. Enhancing employee and customer trust, enhancing the company’s reputation, and luring top talent are all benefits of having a strong CEO personal brand. Additionally, it can boost customer retention, revenue growth and the value of the company’s stock. In a nutshell, a CEO’s personal brand leadership may become a priceless asset for any company.

A CEO shows their dedication to the company’s mission and values by using their personal brand to lead. This dedication may contribute to developing a cooperative, respectful and trustworthy workplace environment. Additionally, it demonstrates to current and potential customers that the business is dedicated to providing a high-quality good or service. Talented employees may also be drawn to the company with a strong CEO personal brand.

When a CEO is seen as an authentic leader in their field, their business will be viewed as a dependable and trustworthy supplier of goods and services. Increased client loyalty and increased customer attraction may result from this trust and dependability. Additionally, by giving investors more faith in the company’s success, a strong personal brand leadership positioning can help to raise the value and share price of the business. This could spur an increase in income through several strategies, such as speaking engagements, networking occasions and collaborations with other organizations.

In conclusion, my lived experience demonstrates that CEOs and venture capitalists have a special chance to gain from services for both personal and business leadership branding. It can improve consumer and employee trust, boost the company’s brand, and draw in top-performing employees. Additionally, a strong personal brand sets up superior long and short-term organizational performance due to the boost in the company’s revenue and customer loyalty.

Jon Michail

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May 15, 2023
How Startups Can Manage Their Cash Better, According to a VC | Entrepreneur

Opinions expressed by Entrepreneur contributors are their own.

The bankruptcy of Silicon Valley Bank caused a great deal of stress for many startup founders. Although U.S. financial regulators intervened and took charge of customer deposits, the incident has shown that financial markets remain unstable.

Amidst a banking panic, Signature Bank has suffered bankruptcy, while Credit Suisse is being acquired by its competitor UBS; First Republic Bank’s customers have recently withdrawn over $100 billion.

To avoid being swept up in a bank run like this, startups should concentrate on getting better at cash management and fostering strong relationships with banks. That’s something VCs are going to pay more and more attention to when deciding to invest in a startup.

Here are four tips that startups could take to minimize their financial exposure.

Tip #1 — Put money in multiple banks

When the economy is unstable, the likelihood of bank failures rises due to factors such as higher interest rates, increased risk of loan defaults, investment losses, large customer withdrawals and stricter regulations by the government.

But even in steady economic conditions, banks may decide to freeze or close accounts for security or other reasons. That’s why relying on a single bank account is never a safe option.

Businesses should distribute their funds across two-four non-affiliated banks, preferably in different countries, while closely monitoring the activity of each account. I’d recommend keeping two checking accounts with sufficient cash to cover 2-3 months of expenses in each one and a third account for investing any surplus cash in safe and liquid assets.

Those who find managing more than three accounts challenging should have at least two. One account can be designated for regular business operations such as payroll and supplier payments, while the other can be used for holding the remaining funds.

For startups with a balance sheet exceeding $3 million, it is advisable to open a savings account with a reputable and stable A-level bank such as JPMorgan Chase & Co or Bank of America in the United States, Deutsche Bank or Crédit Agricole in Europe.

Consider buying Treasury Bills (or T-Bills), U.S. government bonds issued in U.S. dollars with a maturity period from one month to one year, which also have an annual yield of up to 5%. If a bank goes belly-up, T-bills won’t be impacted by the bank’s financial position because they are kept independently from the bank’s finances.

A clever idea would be to create an investment plan that prioritizes capital preservation rather than aiming solely to profit. Never hold the money of your VCs in cryptocurrency — it’s too risky.

Related: What Is A Cash Management Account?

Tip #2 — Research countries, not just banks

When you choose a bank for your startup, don’t just look at how secure it is. Think about other factors that could make it stable or unstable in a particular country, especially if there were times when banks went bust there.

To find a bank in the right place, learn about the local rules and laws that control banks there. Evaluate economic and political climate, including inflation rates, the amount of interest banks charge and the stability of the currency and banks in that location.

Related: Choosing A Bank For Your Startup: Here’s Some Things To Consider

Tip #3 — Learn about deposit insurance provided by regulators, institutions

Different countries have their regulators that manage their financial systems. For instance, the United States has the Federal Deposit Insurance Corporation, and the United Kingdom has the Financial Services Compensation Scheme.

These regulators are intended to safeguard bank deposits to a certain extent by providing insurance in case of bank failure.

The U.S. The FDIC insurance typically covers up to $250,000 per depositor per bank for individuals and businesses. Nonetheless, certain financial companies may provide additional deposit insurance options.

In the wake of SVB’s collapse, U.S.-based financial platform Brex has upped its FDIC insurance limit for companies to $2.25 million. Meanwhile, neobank Mercury has increased deposit insurance for its customers to up to $3 million.

Other ways to increase deposit insurance coverage are using certificates of deposit accounts (CDARS), credit unions, or the MaxSafe program, allowing to increase FDIC insurance to $3.75 million.

The U.K. U.K.-based startups can obtain up to £85,000 deposit insurance coverage per bank, per depositor, via the Financial Services Compensation Scheme (FSCS).

Private banks and building societies (a type of financial institution) offer deposit insurance above the FSCS limit by joining the FSCS Temporary High Balance Scheme (THBS). It may offer extra protection for deposits of up to £1 million for up to six months.

Europe. In the European Union (EU), all member countries must have a deposit guarantee scheme (DGS) to safeguard customers in case a bank fails. DGS usually offers coverage of up to €100,000 per depositor, per bank. However, non-EU banks may not offer deposit insurance for companies at all.

Some European countries — both EU and non-EU — have supplementary insurance opportunities beyond the DGS. In Norway, deposits of up to 2 million kroner per depositor, per bank are protected by Bankenes Sikringsfond. In Germany, many private banks are part of the Association of German Banks, which provides insurance coverage for deposits of up to €50 million.

Due to the lengthy process of opening an account with an A-level bank (6-18 months), many startups prefer e-money institutions such as Wise, Stripe or PayPal instead. In this case, the account opening process is faster (a few weeks) and offers a more seamless customer experience. But financial regulators don’t normally protect the funds kept there.

Related: Collapsed Silicon Valley Bank Finds a Buyer

Tip #4 — Warm banks up to you

By developing a rapport with your bank, you can benefit from more individualized updates on the status of your accounts and investments. One way to strengthen this relationship is by creating an investment account and buying shares or debt obligations through the bank.

To establish a favorable relationship with banks, consider entrusting them with the management of your funds. High Net Worth Individuals (HNWIs), who possess investable assets of at least $1 million, are the main source of profit for banks through their money management services. In CEE, the standard commission for investment management services averages around 1-1.5%.

In my experience as an investor, startups that adopt smart cash management strategies have the edge over their rivals when trying to raise funds.

Create a plan for how much money you will have/need for the upcoming month; check and update it every day. Keep track of when you have to pay bills and when you expect to receive funds. Make sure to have a process for approving money transfers to avoid fraud; try to use the “four eyes principle.”

If you anticipate any financial difficulties, notify your executive team and board, and reserve a credit line from one of your key banks to support the company’s operations for at least six months (but use it only if necessary).

Related: Beyond the Basics: 5 Surprising Qualities Investors Seek in a Winning Team

Vital Laptenok

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May 9, 2023
What Happened to All the Medtech Unicorns? | Entrepreneur

Opinions expressed by Entrepreneur contributors are their own.

Medical tech (medtech) startups found themselves flush with cash a couple of years ago for quite obvious reasons. Pandemic-fuelled investment pushed VC funding for medtech and health-focused companies to unforeseen heights, ensuring that exemplary companies creating innovative technology to boost our collective health got the backing they deserved.

But times have certainly changed. The tech industry now finds itself reckoning with a banking crisis and VCs shifting priorities (and funds) towards scorching hot generative AI projects. That shift has caused funding for early-stage medtech companies to decline significantly, with numbers sliding by the billions across the board for digital health projects.

Related: Areas in Medtech That Need Innovative Entrepreneurs

Why is this happening?

To clarify, the funding well has not completely dried up for medtech projects. But the industry has become far more competitive now that the pandemic has moved to the periphery of public consciousness. But it’s unfair to place the entire blame for VCs pivoting away from medtech solely on the world emerging from COVID; there are other contributing factors driving entrepreneurs and liquidity providers to consider other industries.

For one, medtech is not a trend-proof industry immune to wider economic conditions. And although the digital health industry has seen a huge boom in the past decade, macro-level trends do eventually shift to something newer and more enthralling. AI has become a scene-stealer in terms of tech funding, and while many medtech companies champion AI use to help upgrade multiple aspects of healthcare, other projects might feel like there’s no outside funding to turn to.

Another factor that could contribute to the slowdown of VC funding in medtech is the pace at which health developments move, particularly in testing and regulation. While blockchain and AI projects can enjoy building in a regulatory gray area (for now), any medtech device or solution has to undergo strict review to become widely available to consumers. This is where we often see a collision when revenue-driven startup ideologies and rigorous healthcare standards meet, whether it’s the FDA or another regulatory body.

With this in mind, it makes sense as to why the VC mentality doesn’t always mesh well with an industry that relies heavily on regulatory clearance to progress. A growth-minded VC familiar with the nimble pace of a spritely tech startup is probably in for a rude awakening when a medtech company can’t grow at the speed it wants it to.

But there are a few ways for medtech companies to adapt in a funding drought, whether it’s exploring different funding sources or reevaluating their value proposition.

Related: 3 Alternatives to Venture Capital Funding for Startups

What can medtech projects do?

In a way, the medtech industry is much better equipped to survive a downturn in outside funding because it was one of the first modern tech sectors to learn about the importance of flushing out bad actors. It’s a harsh lesson that nascent industries such as crypto now face and generative AI projects will likely face in the future as the moral and societal problems of its development are called into question, even by its industry peers.

And when a scandal involving generative AI eventually does happen, outside funding will inevitably turn back towards industries that could withstand it the first few times.

It’s never a good indicator when companies in burgeoning tech sectors make cuts to their ethics teams; this is another leg up that medtech companies have over other industries. The ghost of Theranos still looms large over any public-facing medtech development, which is shockingly effective at keeping most projects ethically in line. Medtech founders understand that you can’t build products that affect people’s health with an MBA and a dream; it is a field that requires some sort of background and experience to execute effectively.

That being said, there are also spaces in medtech development for entrepreneurs to explore that don’t directly impact consumers’ health but assist the medical sector in other ways.

Entrepreneurs and developers in medtech should shift their focus on projects that either address the most common pain points in healthcare or projects that bridge different industries to create innovative healthcare solutions. It requires more creativity, but repurposing technological facets of other industries can help address very real challenges in healthcare.

For instance, in 2022 alone, more than 40 million Americans had their medical records exposed through data breaches according to an analysis from USA Today. These breaches only build on a recurring critique of the barriers for patients to have access to their medical records across health systems, either for their safekeeping or to understand their own medical history and needs.

To help solve these issues, smart-document SaaS provider ShelterZoom developed one of its key products for use in healthcare to empower patients to have full access and control of their medical records. The idea is to help patients outmaneuver the crushing bureaucracy many people face when seeing multiple doctors or specialists.

This clearly illustrates how development that utilizes tech infrastructure from a completely unrelated industry can bolster medtech’s positive impacts through specific, clever reinterpretation. And these kinds of developments can often clear regulatory hoops much faster than medtech that directly impacts medical practices and procedures.

It’s understandably difficult for medtech companies to get the same amount of attention that they used to. But it’s not impossible to stand out to outside investors, even when the trends aren’t necessarily in an industry’s favor. Likewise, it’s important to look outside of the VC bubble to help drive growth-stage development, and part of that requires creating a product that can stand on its own merits.

Ariel Shapira

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April 13, 2023
3 Ways for Women Tech Founders to Secure Funding | Entrepreneur
Opinions expressed by Entrepreneur contributors are their own.
When I started fundraising in 2017, women were getting just over 2% of venture capital. Six years later, women continue to get just 2% of venture capital. For myself and many other women tech founders, the funding gap is personal. We’ve read enough headlines and gotten enough rejections to know that the systems governing grants, debt, and equity are not set up for us to succeed. So, what are we going to do about it?

With generous support from Tiger Global Impact Ventures, my company set out to research the best possible, most feasible actions that solve (or at least shrink) the funding gaps for women tech founders. This effort involved surveying nearly 20,000 women entrepreneurs and conducting 19 in-depth expert interviews with founders and field experts.

The resulting report, titled “Standing in the Gaps: A Roadmap to Redesign the Capital Continuum for Women Tech Founders,” presents an action plan for entrepreneurs, institutions and investors to work together and unlock the full potential of women tech founders.

Based on the report, here are three entrepreneur-focused steps to help women secure the funding they need to grow their startups. It’s our action plan to ensure the data six years from today looks different.

Related: 3 Ways Women Owners of Early-Stage Companies Can Fight Adversity

1. Find yourself a co-founder

Take it from someone who’s been a solo founder herself: Your journey will always be smoother (and more enjoyable) with a trusty copilot. The research agrees with me on this one, finding that co-founders offer additional skills, support and even improved fundraising prospects. One analysis found that 85% of venture and angel investment dollars go to companies with two or more founders.

It’s not always easy finding a co-founder you can trust, respect, and learn from, but it’s something I believe every entrepreneur should seek out. Here are a few methods identified in our report:
- Join local coworking spaces and networking groups: Meet the movers and shakers in your local startup community, share lunch with someone new and spread the word about what you’re building. Even if you don’t meet your co-founder, you’ll make valuable connections that could pay off.
- Use free co-founder matching platforms: Our report recommends several options, including YC Co-Founder Matching, CoFounders Lab, DigitalWell Ventures and StartHawk
- Attend conferences and industry events: These events are great places to meet individuals with technical backgrounds or deep experience in your field.
Related: 6 Steps to Finding the Right Investors for Your Business

2. Take advantage of every financial wellness and fundraising education resource you can

Once the novelty of starting your business wears off, you quickly learn that there is quite a learning curve when it comes to running your business. Not to mention the immense cost that it takes to keep it afloat, especially in those early proof-of-concept days. Systemic barriers make it more difficult for women and other underrepresented groups to access the capital we need, too, so it’s vital to know your stuff to impress bankers and potential investors.

Step one is making sure your business financials are in good shape. You don’t need a business degree, but there are some lessons every entrepreneur needs to learn to avoid expensive mistakes. Here are some good places to learn best practices:

For those further down the road and looking to fundraise, our report offers another batch of resources. The following tools can help you grasp common fundraising topics and prepare for conversations with VCs and angels:

Related: 3 Reasons Entrepreneurs Fail to Secure Funding

3. Approach opportunities through the lens of cost-benefit analysis

If women tech founders absorb nothing else from this report, I hope they listen to one simple yet powerful reminder: It’s OK to do less.

Entrepreneurs have extreme demands on their time as we’re overrun with opportunities and choices to make. When it comes to funding, there’s always another grant program to apply for, another investor to email, or a new credit opportunity to size up.

View every choice through the lens of cost-benefit analysis by asking yourself whether the time, energy, and willpower align with the potential outcome for the business. Be honest! If yes, move forward. But if not, be kind to yourself and move on.

Funding might be the lifeblood of a business, but you’re the beating heart keeping the dream alive. Take care of yourself, and the rest has a way of taking care of itself.
Carolyn Rodz

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March 24, 2023
SVB races to prevent bank run as funds advise pulling cash | Bank Automation News

Unease is spreading across the financial world as concerns about the stability of Silicon Valley Bank prompt prominent venture capitalists including Peter Thiel’s Founders Fund to advise startups to withdraw their money. The turmoil followed a surprise announcement from Santa Clara, California-based SVB that it was issuing $2.25 billion of shares to bolster its capital position after […]

Bloomberg News

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March 10, 2023
A Step-by-Step Guide to Venture Capital Due Diligence | Entrepreneur

Opinions expressed by Entrepreneur contributors are their own.

Venture capital firms typically follow a due diligence process when evaluating potential investment targets. That means founders and their businesses are carefully examined, so the startup team should be aware of how to deal with it. Usually, the process at Leta Capital involves seven steps. Here are those steps, along with what entrepreneurs should know about each one:

1. Initial screening

Initial screening is carried out to identify if the startup has the potential to even be under scrutiny. Once the connection between the founder and the investment analyst has been made, the first stage of due diligence typically begins right away. In many cases, the process starts informal, and the startup may not even realize the extent to which they’re being evaluated. During the first conversions with the founders, the VC firm makes a preliminary review of the company’s business plan, market opportunity and management team. From that point on, we can superficially assess the profile of the startup and make a decision regarding further observation.

Related: 4 Tips for Simplifying Due Diligence (and Why It’s Even Needed)

2. Market research

After the screening, the investment analyst investigates the market size, competition, trends and growth potential for the startup’s product. We observe the market share that the startup is targeting and determine if there is enough demand for the product being offered. That’s a truly crucial component of the due diligence process. Keep in mind that investors know well there is no “perfect market” to enter and thus look for markets with significant potential, where they can back startups eager to find a sweet spot. However, even high-growth markets come with their own set of risks, such as intense competition, rapid changes in technology and regulatory challenges.

3. Financial analysis

VCs also estimate performance by conducting financial analysis. It comprises a review of the company’s balance sheet, income and cash flow statement, assessment of revenue, expenses and projections along with capital structure, including debt-to-equity ratio, evaluation of its customer acquisition model and plans for how it will use the funds raised. In order to progress, founders should be prepared to provide accurate and complete statements, well-reasoned forecasts and proof of transparent accounting policies and practices.

4. Legal review

Next comes the process of reviewing a company’s legal and regulatory compliance status, as well as its potential legal risks. The purpose of legal due diligence is to identify and assess any legal or contractual issues that may impact the value of the investment or the ability of the company to operate effectively. The startup should demonstrate a clear understanding of its governance structure, contractual obligations and intellectual property, awareness of all legal requirements related to its business and readiness to resolve any pending or possible litigation/disputes.

Related: The 7 Due Diligence Basics for Investing in a Startup

5. Technology assessment and customer validation

The pivotal point of any due diligence process is the analysis of the company’s products. The purpose of product due diligence is to assess the quality, uniqueness and market appeal of a company’s products, as well as its ability to bring these products to market and scale its operations. The product shouldn’t be the only of its kind or cure-all for the entire market segment but needs to really meet the needs and preferences of its target customers. That’s what we try to confirm with the customer validation process aimed at gathering users’ feedback. Along with that, the VC firm proceeds with the investigation of the startup’s technology to assess its quality, capabilities, limitations and scalability. A technical examination may involve reviewing code, software architecture, hardware systems and technology platforms, as well as conducting user testing and evaluating the company’s ability to integrate with other systems.

6. Management evaluation and reputation check

VCs also draw particular attention to the experience, skills and track record of the startup’s management team to ensure that it has the expertise to execute its business plan. Moreover, analysts ask industry peers about their experience of working with the founder. And these days, it is not even about how productive or famous the founder is, but how one can lead the company through periods of growth and expansion, adapting to changes in the market and business environment — and here is where reputation matters.

7. Due diligence report

After conducting these evaluations, the VC analyst will write a due diligence report summarizing their findings and making a recommendation to the Investment Committee on whether to invest or not. As a result, the VC firm obtains a thorough understanding of the startup and its potential for success before making an investment decision.

It is essential for an entrepreneur to understand what is happening inside the VC world. They need to be aware of what the due diligence process looks like and be ready to cooperate. It’s likely that many have heard of the scandals involving top funds, and none of the VCs want to get into a similar situation. That is why a due diligence process is an absolute must, especially at growth stages. Remember that reverse due diligence is also important and makes you look professional: Check the VC’s background and reputation, as you will have a long road toward success together.

Related: What VCs Look for in a Startup Investment

Alexander Chachava

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March 3, 2023
Here’s What You Need to Know About the Changing Face of Venture Capital

Opinions expressed by Entrepreneur contributors are their own.

Picture a venture capitalist. You might imagine an older white man in a suit, maybe with a gray beard. But the reality is that the VC landscape is changing — rapidly. Today, VCs are getting younger and more diverse. The rise of Gen Z angel investors perfectly illustrates this shift.

There are more than 20,000 Gen Z angels investing in startups globally. And they’re putting their money into some of the most innovative companies around, from the Web3 space to clean energy. On a broader level, recent data shows that the average age of the typical VCT investor has dropped by 11 years since 2017.

Related: Getting In On The Act: A New Generation Of Investors Is Here

Young people are seeking higher returns

What’s driving this trend? For starters, everyone under 58 is seeing the highest inflation of their adult lives. At the same time, young people have never seen healthy bond yields or bank deposit rates. The stock market offers little in the way of safety or stability, either, with millennials experiencing three “once in a lifetime” crashes in the last 20 years: the dot-com bubble, the financial crisis and Covid-19. Today’s bear market, too, is at risk of turning into a worse crash.

With low public market returns and inflation still high, young people are searching for alternative investments that offer higher potential returns. And they’re willing to take on more risk to get them.

VCs are also getting more diverse. For example, Base10 Partners is a black-led VC fund that raised over $130 million to fund seed-stage startups with between $500,000 and $5 million. Further, Arlan Hamilton has built a $36 million fund dedicated exclusively to black women founders, called Backstage Capital.

This diversity is, in part, being driven by a desire to invest in companies that reflect the founders’ own experiences and backgrounds. This heterogeneity is set to increase the aperture of evaluation for startup opportunities and lead to novel value propositions being funded.

Digital natives are flocking to VC

Another driving force behind the changing face of VC is the fact that young people are digital natives. They grew up with the internet and are comfortable with digital tools and platforms. This makes them more open to new models of investing, like online VC funds.

What’s more, digital natives are used to seeing startups succeed. They’re familiar with the stories of companies like Facebook, Tinder and Robinhood — all of which were founded by young people. This makes them more likely to view investing in startups as a viable option.

Related: Here’s What’s Driving the Trend of Self-Made Gen Z and Millennial Millionaires

Purpose-driven investors

Finally, millennials and Gen Zers are purpose-driven investors. They’re interested in making a positive impact with their money and are drawn to companies that align with their values.

This is reflected in the increasing interest in impact investing and environmental, social and governance (ESG) factors. In 2020, 33% of total U.S. assets under professional management were sustainably invested. This trend is only going to continue as more young people enter the VC landscape.

Comfort level with risk is also leading young people to invest in new areas, like cryptocurrency and blockchain. These technologies are still in their early stages, but as digital natives, young investors are more comfortable with the risks involved. They’re also more likely to be interested in the potential rewards — which can be significant.

The future of investing

The face of venture capital is changing. And it’s being driven by a desire for higher returns, more risk tolerance and a focus on making a positive impact. Private market investing platforms have emerged to help individual investors more effectively deploy their capital, and more new offerings will come. Gridline, for instance, is a digital wealth platform that raised $9 million to provide access to top-quartile alternative investments with lower capital minimums, fees and liquidity.

We’re at the beginning of a generational shift in terms of how people invest. As Gen Z gains more buying power, expect to see an even wider array of impact and venture investment products emerge — all tailored for this new investor class.

Related: What You Can Learn From This 21-Year-Old VC Who Started A $60 Million Fund

Frederik Bussler

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February 2, 2023
Securing Venture Capital for Your Business Means Getting Back to Basics

Opinions expressed by Entrepreneur contributors are their own.

It’s tough out there for businesses looking to raise money. After several record-breaking years, startups saw funding cut in half in the third quarter of 2022, according to Crunchbase News. Even as many of us wonder if we’ve hit bottom, there’s reason to be hopeful that dollars in reserve could boost prospects in 2023. Whatever the market holds, venture capital funding will likely look different in the coming years, with VCs prioritizing evidence of focused, sustainable growth in the companies they back.

Simply put: In this environment, it’s about going back to basics.

Douglas Wilber

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January 8, 2023
9 Ways a Venture Capitalist Can (and Should) Help Startup Founders After Closing the Deal

Opinions expressed by Entrepreneur contributors are their own.

Most people think of a venture capitalist as an investor who provides capital to startups in exchange for equity. But that is only partly true. Venture capitalists are typically looking for a high return on investment. However, this high return will be difficult to attain without mentoring founders, sharing knowledge, resources and experience — and even providing mental support.

Below, I’ll highlight nine ways an early-stage venture capitalist should help startup founders after closing the deal, and these points are exactly what differentiates a great investor from a mediocre one:

Related: What I Learned From the World’s Greatest Venture Capitalist

1. Sharing mistakes

Those VCs who are entrepreneurs and experienced doers themselves bring in their valuable experiences and problem-solving skills possessed after overcoming hurdles in their own startups for years. But what is even more important is that while founders are only focused on one startup, venture investors have invested in dozens, so they are able to inform founders of the mistakes they’ve made in the past and the lessons they’ve learned from those mistakes. They can help founders avert similar situations. So, keep in mind that founders become stronger being surrounded by other entrepreneurs from the VC‘s portfolio.

2. Visibility and credibility

If you are a VC-backed startup, that means someone trusts you with their money. That’s a credibility criterion. Furthermore, if you are a VC-backed B2B software startup for your enterprise clients, the fact that you have already raised money will mean that you are sustainable enough to fulfill the contract, and you have enough runway. This is also a good sign for banks if founders want to take out a loan — and it goes without saying that founders appear on the radar of growth-stage VC firms. They often follow the successes of their peers’ portfolio companies. That’s exactly the kind of visibility entrepreneurs need.

3. Industry expertise

Most venture capital firms have their funds with an industry focus: B2B SaaS, MedTech, Creative Economy, etc. This means that the VC team has seen hundreds of tech companies, and they’ve most likely previously worked in the field in which any given founder is currently building their startup So, they have a wealth of knowledge to pass on to founders. At our venture capital firm, we have data-driven systems for monitoring industry benchmarks, for instance. Founders shouldn’t underestimate the benefits they can gain from such expertise.

Related: 9 Top Venture Capitalists Share Their Best Advice for Entrepreneurs

4. BoD meetings

Having a place on the Board of Directors of a startup is a common practice for early-stage VCs. Most BoD meetings are held once a quarter, where the founding team shares metrics, results and financial forecasts for the future. Those meetings help both with operational issues and with crafting strategic plans — and experienced VCs often give wise pieces of advice regarding all of them.

5. Evaluation

Venture capital team members, being outsiders, provide a third-party evaluation of startups. They often ask questions and critically examine your plans, work and execution. It’s important for founders to listen to people who are interested in their growth, but not involved in daily operations. The VC is waiting for the startup’s growth and thus thinks strategically, that’s why a VC might be the best advisor in opening the founder’s eyes to some major moves and not making small problems a big deal.

6. Financial modeling, PR and HR

Founders don’t always know how to get recommendations on their potential CMO or Chief of Sales. They can ask their VC firm’s partner if he or she has any honest reviews in their professional network about the candidate. Let’s say a founder has questions about building a financial model. Whom should they ask? I bet 99% of founders can go to their VC firm’s associate, and they’ll help. And when founders have a news peg, but are too small to hire a PR specialist — bingo! — the VC’s PR expert can help. That is what we call “an entrepreneur-friendly VC firm.”

Related: The How-To: Choosing The Right Venture Capitalist For Your Startup

7. Mentoring

In the initial stages of any startup, founders are in a vulnerable position and need mentoring in order to avoid fatal mistakes, not waste time on useless actions and scale their business. A VC will not teach you to do your business, but a VC can be a partner to brainstorm a strategic question or give some tips on decision-making or scaling, for example. Systematic peer-to-peer meetings with constructive feedback are crucial for most entrepreneurs, even serial ones. Investors provide this support and share insights by investing their time and resources during such sessions.

8. Mental support

It is always good to know that somebody believes in you. Sometimes a VC can operate like a therapist — if founders feel like they can’t be vulnerable with their clients or even with their colleagues, the investor who was once in the same boat might be the right person for the founder to shout SOS to when they need support. Most VCs are experienced managers and decision-makers, and they really know how to encourage entrepreneurs.

9. Contacts, networks and intros

By utilizing their contacts, an investor may be able to open more doors for building strategic partnerships. An investor’s network may help with collaborations with other startups, and they may be able to empower the user acquisition marketing strategy, for example, by the means of cross promotions, various referral programs, as well as guest blogging and integrations into partners’ newsletters. Moreover, early-stage VCs are always the ones who are interested in getting later rounds. They introduce founders to more investors and help with growth, expansion and funding.

Whether a VC will help founders along the road to becoming a unicorn or instead be an obstacle could not be evident after just two or three calls or meetings. Founders should always do reverse due diligence and talk to several portfolio companies to learn whether or not the VC they’re interested in is one who would do everything from the list above.

Alexander Chachava

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October 17, 2022