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Got a ‘no’ from an investor? It’s not the end of the world.

The truth is, most people don’t like hearing the word “no.”

As beings of emotion, we typically associate it with refusal and rejection, which can make us feel anxious, distressed, depressed, and demotivated. 

As a founder, you’ve likely experienced this in one way or another. When you’ve worked tirelessly to build your company, fine-tune your growth plans, and design your pitch to the best standards, receiving an investor’s “no” (after a long series of presentations and exchanges) could be like a kick in the guts, leaving your spirits drained.

Don’t despair. Investors will reject you; it’s a vital part of the process and imperative to optimising your efforts. So you must realise that while rejection can not be eliminated, it can still hold great utility. This idea is what we’ll be exploring in this article and the accompanying video. 

First things first, refresh your perspective

An article published in Psychology Today, written by authors Andrew Newberg M.D. and Mark Waldman, presented this thought:

“If I were to put you into an MRI scanner—a huge donut-shaped magnet that can take a video of the neural changes in your brain—and flash the word “NO” for less than one second, you’d see a sudden release of dozens of stress-producing hormones and neurotransmitters.”

From our perspective, the scenario presented by these experts shows that we are indeed likely to have a negative response whenever we encounter the word, especially when we are amid events and circumstances that matter.

We do not discount these insights. 

However, consider this for a moment: can that “no” actually benefit you? 

Through the lens of a founder, how relevant do you think this mindset is when you are raising capital?

What if we told you, with certainty, that using that “no” to your advantage can give you access to exponential opportunities?

In this video, Wholesale Investor Co-Founder and Managing Director Steve Torso—someone who personally went through many investor rejections—sheds light on these ideas and shares three effortless actions that can enable you to spin that controversial word into gold.

Read on or watch the clip to get these valuable insights. Let’s begin!

1. Embrace lifelong learning. Treat the investors who have said “no” to you as mentors, and take every opportunity to get their feedback.

While it is initially tempting to distance yourself from investors who have not accepted your proposal or idea, Steve urges you to approach the situation differently and see them as mentors instead. 

In his experience, those who aren’t initially investing in your venture can give you some of the best lessons, mainly through unfiltered direct feedback. Proactively use the opportunity to probe their response further and ask the right “why” and “how” questions. 

By successfully securing their thoughts, considerations, and suggestions, you’ll be able to figure out how to address the gaps in your growing business.

Ultimately, responding well to that “no” is your ticket to finding out precisely what you need to improve in your offering or proposal. As an added benefit, you also send incredible signals to investors by seeking guidance from them, indicating how serious you are in pursuing your ambitions.

These are acts that inevitably open up more doors and possibilities.

2. Have your information ready, as spot-on as possible, and get to the fastest yes/no you can get.

When you’re in the thick of raising capital, you’d want to use your time and resources wisely to make sure you’re not losing momentum. According to Steve, you should aim for the fastest “yes” or “no” after your initial communication. 

The key to achieving this is to have all your information on hand, helping investors (who, in many cases, have super tight schedules) to make their decision in the shortest amount of time possible. Your information must be up-to-date, verifiable, and complete.

And make an effort to present these in an organised manner—always.

In the decade-long experience of Wholesale Investor, we’ve encountered many companies that have gone through months of capital raising, only to receive a “no” at the end. Sadly, not all of these companies responded well, and some founders felt defeated and deflated. 

Receiving the rejection damaged their confidence, which led to crippling effects across their business.

We encourage you to avoid falling into the same situation and ensure that you are prepared to respond well should you ever receive a “no.”

3. Treat (and respond to) negative feedback and questions as process or software glitches.

Whenever you get a “no” from investors or receive unexpected negative feedback, Steve says you have the opportunity to solve it via a process or software approach. 

These smart, modern, and sustainable tactics empower you to tackle the problems efficiently, giving you more time to focus on the more significant tasks at hand. 

So gather your best team members and decide to act. 

These needed improvements and fixes will prevent you from receiving the same question, again and again, saving you hundreds of hours of explaining the same thing to potential investors. 

In addition, you also strengthen the capabilities of your overall operations for the long term.

To remain on top of your game, master the art of inventing solutions.

Rise above the rejection

Yes, getting that “no” can be highly challenging—especially in the context of capital raising.

Because rejection, in any form, can either make you or break you. It constantly tests your resilience and pushes you to your limit, even when you’re sure that you’re already doing your best across the board.

Understand that hearing “no” is most certainly not the end game

Cognisant of the undesirable effects and how people usually respond, as founders, you can actively decide to use the situation to your advantage.

Use these valuable insights and action points from Steve to fine-tune your preparations, and bolster your response should you find yourself in these instances. See your investors as mentors and allies, seek feedback, and focus on creating solutions.

These actions, combined with best practices, will surely set you up for success.

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For more expert-backed tips and articles, check out https://media.criisp.io/

We also invite you to us on social media:

The Future of Wholesale Investor

Steve Torso talks about the future of Wholesale Investor, covering the latest updates and future ambitions of the firm. Steve discusses the solution in practice under the banner of AI-Driven Capital Raising. For founders, this means more efficient raises; for investors, it means faster decisions and relevant dealflow, and for industry, it leads to streamlined processes and increased capacity.

Head to the CRIISP dealroom for more information:

https://app.criisp.io/user/deal-rooms/7e6aca4c-e7b8-4470-b908-4bcb4462ada2/details

Small Caps Virtual Investor Showcase

CREATE A FREE CRIISP ACCOUNTREGISTER FOR NEXT EVENTSUBSCRIBE TO OUR CHANNEL

Event Agenda

PRE-SHOW COUNTDOWN & REGISTRATION

OPENING SESSION : WELCOME SPEECH

STEVE TORSO

Managing Director of Wholesale Investor and CRIISP

KEYNOTE SPEAKER

PAUL HOPPER

Executive Director & Founder
Radiopharm Theranostics, Chimeric Therapeutics, Imugene

PRESENTATIONS

09:26 - Genex Power (ASX: GNX) : Simon Kidston & James Harding
09:37 - White Rock Minerals (ASX:WRM) : Matt Gill
09:45 - Volt Resources (ASX:VRC) : Trevor Matthews
09:54 - Altech Chemicals (ASX:ATC) : Iggy Tan
10:04 - Range International (ASX:RAN) : Stephen Bowhill
10:11 - Australis Oil and Gas (ASX:ATS) : Ian Lusted
10:19 - Lion Energy (ASX:LIO) : Tom Soulsby
10:28 - Renu Energy (ASX:RNE) : Greg Watson

PANEL SESSION

YEAR 2021 IN REVIEW & WHAT IS COMING IN 2022

PAUL RAYSON

CEO

Hearts and Minds Investments Limited

NIV DAGAN

Founder Executive Director

Peak Asset Management

ROB GREGORY

Founder and CIO

Glenmore Asset Management

JUN BEI LIU

Lead Portfolio Manager

Tribeca Alpha Plus Fund

CATH WHITAKER

CEO

SelfWealth

PRESENTATIONS

11:41 - Chimeric Therapeutics (ASX:CHM) : Jennifer Chow
11:51 - Carly Holdings (ASX:CL8) : Chris Noone
12:01 - Netccentric (ASX:NCL) : Ganesh Bangah
12:10 - Cipherpoint (ASX:CPT) : Ted Pretty
12:15 - 8VI Holdings (ASX:8VI) : Ken Chee
12:24 - SelfWealth (ASX:SWF) : Cath Whitaker
12:32 - Pioneer Credit (ASX:PNC) : Keith John
12:38 - Primacy Co : Aga Manhao

CLOSING SESSION

STEVE TORSO

Managing Director of Wholesale Investor and CRIISP

Showcasing Companies

RENEWABLE ENERGY

GENEX POWER (ASX: GNX)

Genex Power Limited (GNX) is an Australian company listed on the ASX, focused on generation and storage of renewable energy. Genex has a portfolio of operating and development renewable assets. The flagship projects are located at the Company’s clean energy hub at Kidston in north Queensland, integrating large-scale solar with pumped storage hydro and wind energy. The Genex ‘Kidston Clean Energy Hub’ is a world first, innovative integration of intermittent solar with large scale energy storage creating “Renewable Energy On Tap”.

OPEN CRIISP DEAL ROOM   REGISTER INTEREST 

MINING

WHITE ROCK MINERALS (ASX:WRM)

White Rock Minerals Ltd is an Australian minerals exploration and development company with activities focussed on two projects: Red Mountain and Mt Carrington.

The 100% owned Red Mountain Project, covering 836km2, is located in central Alaska. The Company is exploring for Intrusion Related Gold System (IRGS) mineralisation and high-grade silver-rich zinc volcanogenic massive sulphide (VMS) deposits.

  OPEN CRIISP DEAL ROOM   REGISTER INTEREST 

MINING

VOLT RESOURCES (ASX:VRC)

Based in Perth, Western Australia, Volt Resources Limited (“Volt”) is focused on the exploration and development of its wholly-owned graphite and gold projects in Tanzania and Guinea, as well as its 70% interest in the ZG Group in Ukraine.

 REGISTER INTEREST 

ENERGY

ALTECH CHEMICALS (ASX:ATC)

Altech Chemicals Ltd has developed the technology to nano-coat particles of graphite and silicon, typical of those used in lithium-ion batteries, with a layer of high purity alumina. The use of alumina coated graphite and silicon particles within a lithium-ion battery anode are offered as a solution to increased battery life, energy capacity and a reduction of the first-cycle-loss capacity.

OPEN CRIISP DEAL ROOM   REGISTER INTEREST 

RECYCLE

RANGE INTERNATIONAL (ASX:RAN)

Re>Pal offers a unique combination of products meeting a emerging market need
Re>Pal offers interested parties an established infrastructure and opportunity to participate in a growth segment of the pallet market as evidence by MNCs using and trialing Re>Pal pallets to adopt a circular economy model.

  REGISTER INTEREST 

OIL & GAS

AUSTRALIS OIL AND GAS (ASX:ATS)

Australis Oil and Gas is a US unconventional oil shale-focused company whose management has a strong track record of creating and monetizing value for shareholders.

OPEN CRIISP DEAL ROOM   REGISTER INTEREST 

EXPLORATION I ENERGY

LION ENERGY (ASX:LIO)

Lion Energy has conventional oil and gas exploration, development and production skills. It applies those skills to its Indonesian portfolio which is characterised by existing oil production, an exciting 1.5Tcf Lofin gas discovery and look-alike exploration opportunities both onshore and offshore Seram Island, in East Indonesia.

REGISTER INTEREST 

ENERGY I RENEWABLE ENERGY

RENU ENERGY (ASX:RNE)

ReNu Energy Limited is a clean energy products and services company, delivering independent power solutions through the development of build, own, operate and maintain (BOOM) renewable energy projects in Australia.

REGISTER INTEREST 

BIOTECHNOLOGY I LIFE SCIENCES

CHIMERIC THERAPEUTICS (ASX:CHM)

CHM is the ASX leader in cell therapy with a Phase 1 CAR T platform technology in clinical trials for brain cancer developed at the prestigious City Of Hope Cancer Centre in Los Angeles. Additional clinical trial sites in the US will be brought on-line in the near future.

 OPEN CRIISP DEAL ROOM   REGISTER INTEREST 

E-COMMERCE I ONLINE MARKETPLACE I AUTOMOTIVE

CARLY HOLDINGS (ASX:CL8)

Carly Holdings (ASX:CL8) is an Australian online technology company that is leading the growth of the car subscription industry in Australia & New Zealand.

OPEN CRIISP DEAL ROOM   REGISTER INTEREST 

DIGITAL MARKETING

NETCCENTRIC (ASX:NCL)

Netccentric to generate value for communities and growth for businesses by empowering them with digital platforms and social media innovations.

REGISTER INTEREST 

ARTIFICIAL INTELLIGENCE I GOVERNANCE I TECHNOLOGY

CIPHERPOINT (ASX:CPT)

Cipherpoint protects enterprises’ most sensitive assets, being employee, customer, supplier and business data. Our unique capability is enabled by our three key products:

cp. Discover – an application that discovers sensitive data inside systems, which is then tagged so that it can be more easily controlled by the organisation.

 OPEN CRIISP DEAL ROOM   REGISTER INTEREST 

FINANCIAL SERVICES

8VI HOLDINGS (ASX:8VI)

8VI Holdings Limited (“8VI”) is a Singapore-based FinEduTech company operating under the brand name VI.

Established in 2008, VI is the representation of our beliefs and roots in Value Investing and empowers the average man-on-the-street to achieve sustainable wealth as part of their mission to make investments smarter, faster and easier.

 OPEN CRIISP DEAL ROOM   REGISTER INTEREST 

E-COMMERCE I FINANCIAL SERVICES I CRYPTOCURRENCY I TECHNOLOGY I FINTECH

SELFWEALTH (ASX:SWF)

SelfWealth is a fast-growing Australian fintech leading disruption in the retail online broking market. SelfWealth experienced exceptional growth in FY21, doubling Active Traders on its platform to over 100,000, taking the #4 position in the industry, behind three of the big banks. This growth has been driven by favourable external trends including a significant increase in the addressable market from 700K to 1.4 million over the past two years, low interest rates and the demand for investors to self-educate.

 OPEN CRIISP DEAL ROOM   REGISTER INTEREST 

FINANCIAL SERVICES

PIONEER CREDIT (ASX:PNC)

Pioneer Credit is an ASX-listed company, specialising in the acquisition of impaired or non-performing debt portfolios from various vendors, with the majority sourced from Australian banks, non-banks and regional lenders.

 OPEN CRIISP DEAL ROOM   REGISTER INTEREST 

TECHNOLOGY I BLOCKCHAIN I SOFTWARE-AS-A-SERVICE

PRIMACY CO

We help companies navigate heavily regulated operating environments by closing the gap between legislation and how companies apply this to their legal obligations. We do this through our patent pending technology that converts written legislation into data to create compliance driven solutions that allow companies to maintain their compliance and stay up to date.

 OPEN CRIISP DEAL ROOM   REGISTER INTEREST 

Aim for These 7 Goals to Attract Investors

Yes, we genuinely understand—raising capital is never an easy task. As a founder, much of your valuable and limited time should go into thinking, strategising, and executing initiatives that allow you to build your venture properly, alongside keeping scary risks at bay, especially those that could affect your long-term prospects and viability.

Along the way, though, doubts, uncertainties, and unforeseen problems can plague your journey, which can lead to a dangerous impasse if not resolved immediately and correctly.

You’re likely already considering several options at the early stage and asking yourself whether you should adopt a particular fundraising tactic. The struggle is indeed real, and we’re here to help you figure out what you can do today to WIN in your capital raise, so you can start focusing on the one thing that really matters: growing your business.

Learning from the Experts

To get credible and experience-backed advice, we look to the experts. Wholesale Investor’s own Steve Torso recently sat down with Andrew Whitten, Principal at Automic Legal and a Founding Partner of Whittens Lawyers, known for being instrumental in the success of many businesses.

Their virtual fireside chat yielded actionable thoughts and ideas, all of which you can use to score a winning capital raise. Today, as one of our readers and subscribers, you get special access to these learnings—goals, as we’d like to call them.

Work towards these, for starters, and set yourself and your company’s growth up for great results!

The 7 Goals

Goal # 1 – Be a good (or a GREAT) founder.

According to Andrew Whitten, one of the elements of a successful capital raise is a good founder—this is essential. Why? Investors typically go for companies run and steered in the right, sensible direction by people they can trust. Not just with their money but also with their time, attention, and resources.

Today, good founders and some of the best CEOs have three common traits: strategic entrepreneurial vision, attention to detail, and determination.

A strategic entrepreneurial vision means the founder fully understands the business and its direction, possesses profound industry knowledge, and knows how to disrupt properly and initiate lasting change.

On the other hand, being attentive to details empowers business operations for the long term. It assures investors that the leaders exert proper control in all development stages, stay in touch with customers’ needs and wants, and understand their performance numbers across the board.

Determination brings these elements together. In many cases, being determined is synonymous with being resilient. One must be unflinching in the pursuit of excellence and show unwavering bravery in the face of challenges.

Goal # 2 – Founders (and CEOs!), Back Off!

Your business journey is akin to a chess game, according to Andrew Whitten. People are always trying to get your attention, and your focus often gets channeled to a massive number of to-dos. To remain strong on all fronts, you must learn to trust and delegate to your management team.

Those who have mastered this “art” can go into deep details while knowing when to “back off” and leave their teams to do the necessary decision-making, empowering them and their departments to function interdependently in the process. In this regard, being disciplined not only frees up your time but also strengthens the capabilities of your internal champions.

Goal # 3 – People, People, People.

This goal is related to the previous one. You will only be able to “back off” if you have the right people in place. The ideal hires should be in the correct spots, and you should learn to trust them once they’re there.

According to Steve Torso, it all starts with purposeful hiring. Know what skills you need in your team, and go for candidates who show competence and the right attitude—those you can trust with your vision. Having these people will be critical in the early stage (and even beyond!), as you’ll have to demonstrate your capabilities constantly to investors who are watching you and your company’s every step like a hawk.

You can expect that being under the “microscope” will be challenging, but having the best people on your board and team will make it easier, especially as your business scales.

Goal # 4 – Always Say NO to Micromanagement.

Let’s face it. Micromanagement can kill the productivity and progress of your business. It also can steal trust, break down confidence, and produce low levels of engagement, both internally and externally. No matter which angle you choose to look at them, these are ultimately disadvantageous for a growing venture.

Manage your people by output instead. Great leaders and organisations develop workflows and systems that allow their people to grow, function, and produce work to the best of their abilities without someone breathing down their necks and causing them to feel uncertainty. Remember, apart from you, these individuals are front liners.

Your investors need to see that you’re treating your team with importance to establish that you are cultivating good leadership within and around your company.

Goal # 5 – Work on Your Culture; It’s the Most Important Thing

Experts like Andrew Whitten like working with companies with good people and a good mission instead of companies that don’t do the right thing. In an age where every organisation is called upon to go “beyond business,” it is imperative that you show how you’re collectively working towards a bigger, more meaningful purpose.

Culture grounds everything; it sets how you and your people behave even in the most challenging times, speaking volumes to investors about how you can make your business thrive despite adversity.

Goal # 6 – Define (and Refine) Your Strategy

Strategies can indeed turn the tide of battle. The most significant wins come from campaigns running with a solid plan throughout history—and your capital raise can surely take inspiration from these.

When he’s helping to define a strategy, Andrew Whitten says he typically starts with the budget. He analyses the numbers, tests the budget assumptions, and determines the right amount to raise. These elements are important, according to him, as some founders raise too little.

When refining the strategy further, he advises founders (and CEOs) to revisit the time spent on the capital raise. If you’re perpetually capital-raising, say, as a result of losing money fast in each round, you are misspending your time on a substantial scale.

As part of senior management, you should work on your raise with the proper focus and resources, then spend 6-12 months building your business before doing your next round. Develop your strategy well, so you’re not constantly worrying about your bank balance and losing valuable time to develop your business.

Goal # 7 – Be the One Who Asks the Right Questions

According to Andrew Whitten (through personal examples), and as reinforced by Steve Torso, investors look at particular things in the proposals, reports, and plans you provide to them.

These include how your budget gets spent, which should be directly related to creating uplift and value. You must demonstrate that you can raise money at a higher level and design your capital structure well, cognisant of possible future valuation.

So, Which Type of Raise is Best for Me?

During the virtual fireside chat, Andrew Whitten shared that he prefers to do straight equity for early-stage venture capital efforts.

Suppose you have “big value” on the way, as in the case of a major contract or distribution agreement. In these instances, he mentions that SAFE notes are pretty popular, allowing you to raise your capital with a deferred valuation until a further point. These work well when you’ve got value “upwards” coming in the company, and you’re not sure when you’re raising the next round of capital.

Investors typically like SAFE notes because they put in money, but the valuation is determined only upon value creation. Often, these have a coupon attached like a convertible note. There is, almost always, a definite discount until the market sees the next value point.

Venture debt is also an option. If you are pursuing this, the key is to have a regular and reliable cash flow, allowing you to pay the interest without any hiccups.

Final Advice – Don’t Aim for the Buzzer-beater

Scoring a winning capital raise ultimately starts by getting the basics right. And it also springs from being aware of the most effective tactics and strategies you can employ at the early stage, allowing you to focus on the tasks that matter.

Simply put, don’t aim to play your best game only when problems arise or when you’re already closing your round.

Steve Torso says that “your competition is every other thing that investors can put their money into.” With this, your goal is to get things right initially and make a positive, lasting impression with your potential investors—one that sets you apart in the best way.

Tell, show, and demonstrate WHY they should choose YOU.

With a bit of help (and a ton of valuable insights) from experts like Andrew and Steve, you’re well on your way to improving your undertakings. We wish you all the best!

For more insightful content, please visit our CRIISP Media website

To watch the virtual fireside chat between Steve Torso and Andrew Whitten, please visit YouTube.

 

 

Sector Spotlight: SaaS

The performance of the software-as-a-service (SaaS) industry over recent years has made it worthy of close examination. Alongside its value growth, the sector has hit saturation points bringing an added challenge of competition to new entrants. Statistica demonstrated the sector’s impressive performance—noting its estimated worth of 145.5 billion U.S. dollars in just 2021 alone. This existing and growing mass market of providers has led to a renewed focus on differentiation and the competitive edges needed to survive.

In order to give our readership a useful glimpse into the industry, we wanted to provide two top three lists; one centered around the top 3 metrics investors are now focused on, and the second, the top 3 trends in industry best practice/innovations.

The 3 Investor Metrics That Matter Most

  1. Churn Rates

    Investors are forever interested in the ability a company has to retain clients beyond their subscription term. Churn rates determine exactly that, a calculation revealing how many clients are not renewing upon expiry.
    SaaS is an industry, which is almost entirely reliant on subscriptions, meaning that monitoring the number of clients that drop off (customer churn) as a percentage of total clients is crucial. The more important churn rate though is revenue churn, which measures the amount of revenue drop off due to customers leaving as a percentage of overall revenue.

    SaaS companies sometimes make the mistake of striving for customer growth in a way to offset churn, however, this is unsustainable. When you have 100,000 clients paying $1000/year and a customer churn rate of 7%, we are dealing with $7,000,000 in revenue lost. If instead of analysing to bring down that churn, you strive to grow that client base to make up for the churn, that customer churn won’t change and the revenue loss will just continue to grow as more clients sign up.

    According to Recurly, who analysed hundreds of subscription based businesses amongst multiple industries the average churn rate is roughly 5%, with the upper and lower quartiles being 8.5% and 2.9%, respectively.

    Screenshot from Recurly Research

  2. Sales Cycle

    Having a clear and compelling sales cycle is important in every business. Founders should be able to establish a sales process that has an objective to potentially yield high revenues and customer satisfaction. From product pitching to retained subscription, a sales cycle will indicate and forecast a company’s success—thus helping investors gauge the best ones to be involved with.

    One key success that larger industry players have displayed is the ability to have multiple pathways when it comes to sales, that is, building a SaaS offering that is attractive to a CEO, CMO, CIO, and CTO as well as other key decision makers – thereby expanding the opportunities for a sale.

    When it comes to metrics, the time and conversion rate of the sales cycle in practice will be of most importance.

  3. Annual Recurring Rate (ARR)

    A good-looking ARR holistically captures the skills of those founders who are able to keep an impressive number of customers, both new and existing, engaged in their offered products or services. A well established ARR is a strong sign of self-sustenance, as well as an indication of the market demand for your product. Two things investors will need to see when it comes to any SaaS business.

    Investors look at ARRs to identify if the start-up is displaying an attractive projection, this attractive projection in-turn leads to a growing valuation, and ultimately a return on investment. With SaaS valuation multiples now sitting at an average of 12X revenue, you will want to show investors projections that demonstrate the valuation growth.

Graph by Sammy Abdullah – Image source: (Abdullah, 2020)

 

Top 3 Market Trends in the SaaS Industry

  1. Smart SaaS – Artificial Intelligence (AI)

    The innovations linked to AI have always been phenomenal, disrupting an array of sectors worldwide. In SaaS, the role of artificial intelligence remains vital as it has been tagged as a fundamental element in the industry since being introduced and established in mainstream areas of business. AI is a consistent trend in the SaaS market that has been actively delivering grand results ever since.

    According to research by Salesforce, we are in an era whereby 75% of B2B customers expect providers to predict and pre-empt their needs proactively. It is the power of pattern recognition and predictive analytics that will pave the way to this desired outcome – it is AI that holds the power to make this happen.

  2. Specialist Mindset with Vertical SaaS

    According to a Forrester research report Liz Hubert, principal analyst, writes of the growing customer demand for vertical SaaS/SaaS apps. Meaning software that is made for a particular vertical/industry. It is designed to cater to a particular niche so as to provide a more fitting set of functions to the intended industry. Vertical SaaS exhibits the characteristics of a highly flexible software because its solutions are targeted toward a customer base of shared perceived value, meaning one change would most likely fit the needs/wants of the majority of said users.

    Because of its customizable feature, the vertical SaaS is expected to be a continual trend in the field of business. We saw Salesforce take this approach with their customisable software which has spurred the expansive range of industry-specific CRM apps on their app exchange.

  3. An Appeal for Analytics

    Analytics delivered to users of SaaS have been a cornerstone of the industry and a constant area of focused innovation. Again, industry darling Salesforce has made this a focus with their einstein analytics, as well as Workday in the HR space constantly serving up relevant information to users based on activity. When it comes to analytics it is important that they are provided with actionable insights to ensure they are of value to your client and help drive/inform key business decisions.

 

It will be the metrics and trends above that determine the commercial success and viability of newer players on the market. To keep in mind, what is of importance to both investors and prospective clients, is to act with prudence in the face of growing competition.

For more sector updates, covering a variety of industries, as they are released, sign up here to the CRIISP Media newsletter.

 

Term Sheets, Their Importance & Intricacies

Upon generating interest from prospective investors during your capital raise, it is best to be armed with the necessary information/documentation to turn that interest into a transaction. The document that constitutes the first step in that direction is your term sheet.

What is a term sheet?

A term sheet is an informal non-legally binding document that outlines the terms and conditions between an investor and founder. The reason term sheets exist is so that both parties, investors, and founders, can grasp a high level understanding of the deal, serving as a precursor/blueprint for the more formal and legally binding shareholders agreement to be drafted.

What is the purpose of a term sheet?
  • Establishing a level of understanding to ensure an agreement between the investor and founder on most aspects, effectively reducing the chances of a dispute further into the negotiation process.
  • Ensuring founders do not prematurely incur the legal costs associated with drawing up a legally binding agreement, only to be changed or become redundant later.

It goes without saying, you want this sheet to attract not deter prospective investors, whilst also ensuring the deal is fair and structured in a way that protects your upside potential and downside risk.

We’ve outlined the main components of a term sheet below distinguishing between founder-friendly and investor-friendly options.

Parts of a term sheet

  • Valuation

The valuation of the company is how the investor can calculate what they will receive in return for funding your venture.

Valuations to be displayed include:

Pre-money – Company’s valuation before any new investment.

Post-money – Pre-money valuation plus any additional investments that come in.

Example: Company A is raising $250,000 at a $3,400,000 pre-money valuation. After a successful raise Company A has a post-money valuation of $3,650,000.

It is important to indicate to an investor whether the valuation is pre or post money in order for them to determine the equity they will be receiving in return.

  • Option Pool

Some term sheets will include the stipulation of an option pool or expanding an existing one. An option pool includes shares set aside for future hires of the business in the form of equity stock options.

Something investors may include in this section is the phrase “prior to the closing” or pre-money which means they want a percentage of shares from the existing cap table to be set aside for the option pool which would mean only the existing shareholders will experience dilution.

Founders, however, may calculate the option pool post-money which would mean the new investors also experience dilution whilst minimising the dilution of existing shareholders.

  • Liquidation Preferences

Liquidation preferences are a provision known as ‘preference shares’ that serve as a protection for investors in the event of the venture failing, leading to an earlier than expected liquidation. It basically determines the order and amount investors are paid out in this scenario.

There are different types of liquidation preferences to be offered, here are briefs on the main ones:

1xInvested Capital – this is the most common and ensures investors receive the exact amount they invested into a venture upon liquidation ahead of any junior classes of shareholders, if the liquidation results in a less than the invested amount, they will receive the entire payout.

Participating vs. Non Participating – Non-participating shares with a 1x Liquidation preference will mean that upon a liquidation event, the investor will have the option to either:

i) Cash in on their shares for the amount they invested in, or
ii) Convert their shares into common stock and then cash out.

For example, if a company sells for $1 million, and the investor initially invested $1 million for 20%, they can, using the option:

i) Exercise their liquidation preference and receive $1 million back, or
ii) Convert their equity to common stock, which would be 20% of the $1 million, which would amount to $200,000.

In this instance, it would make sense to go with option (i).

However, what if the company liquidated/sold at $10 million? Then the options would be to take $1 million, or to convert common stock of 20% equity which would convert to $2 million. As you can see, this is an investor – friendly option, and one many VC’s/Angel’s may include in the term sheet.

Participating shares with a liquidation preference are when an investor, upon a liquidation event, will not only be paid back their liquidation preference but also receive additional participation. This additional participation is a percentage directly proportional to their guaranteed liquidation preference.

So, an investor who had initially invested $1 million for 20%, with a liquidation preference of 1X, would, upon the company selling for $2 million, receive their guaranteed $1 million, as well as 20% of the $1 million, which would amount to $200,000. Making the total payout $1,200,000.

Both these preferences are investor-friendly with non-participating being the more common version. It is good to know what each entails when reviewing terms given to you by the investor.

  • Dividends

Dividends, which is any additional return paid over time to investors, can either take the form of cumulative or paid in kind (PIK).

Cumulative – is a guarantee of a specific level of return to investors, which must be paid by the issuer of stock either at the due date, or later date. If it’s not paid when it is due, they are still obliged to pay at a future date, possibly with an additional interest.

PIK – or paid in kind dividends, are when the value of a predetermined dividend is paid to the investor in the form of additional preferred stock. This can increase the liquidation for the preferred stock of the investor, but also may dilute the ownership of the founder’s stake.

  • Anti-dilution

Anti-dilution, another feature of preferred stocks, protecting investors from being diluted in the event of a down round. A down round refers to a round of raising capital at a lower valuation than previously set.

  • Board of Directors

The board of directors is an important consideration for founders as it is a body of crucial and controlling governance over any company. Term sheets include both the structure of the board and the allocation of critical board voting power. What you have to look out for as a founder is losing controlling votes. Typically, VC-backed businesses will attain board seats as a way to ensure oversight over their portfolio companies. Early stage founders may, at first, maintain control, but as they continue to raise capital, that control begins to disseminate amongst new investors that come on board. 

Therefore, it is in the best interest of the founder to ensure an equally representative board, investor-friendly members, founder-friendly members, and independents. Similar to that of a government. This way, both parties have advocates at the highest levels of decision making, and, in the case of a hung decision (equally opposing votes) the independents would ideally make an unbiased call. 

So you’re aware, the decisions that board members typically make include:

  • Hiring and firing of senior management
  • Dividend policies
  • Executive compensation and salary increases/key new hire decisions. 
  • Budget approval
  • Adherence to company goals/mission
  • Equity/debt financing decisions
  • Ownership Percentage of Share Classes

Sometimes business decisions lie outside the board, and instead the voting power is in the hands of shareholders. The level of control is usually determined by ownership percentage. Therefore, like that of the board, it is important to keep a watchful eye on the percentage ownership amongst investor-friendly and founder-friendly shareholders. 

Decisions made by shareholders require a shareholders resolution, meaning that 75% of shareholders must  agree for a resolution to be passed. 

Typical decisions made by shareholders include:

  • Changing the name of the company
  • Adopting, repealing, or modifying the constitution
  • Changing the type of company. For example, from a private to a public company
  • Approving a selective buy-back of shares by the company
  • Selectively reducing share capital
  • Transferring the company’s registration to another state or territory
  • Winding up the company
  • Converting ordinary shares to preferences shares and vice versa.

In conclusion, it is important to ensure that your term sheet, as a founder, is strategically drafted to protect your interest not only in the immediate future but also as the business grows. Ensuring these protective measures are in place will save you the headache and turmoil that comes with the inevitable less cohesive moments in the founder-investor relationship. 

If you’re new to the world of entrepreneurship, or, well on your journey, ensure you subscribe to the CRIISP Media newsletter whereby you’ll receive constant educational content and expert insights into the world of venture capital. Sign up here.

Founder Q&A with Aussie Success Story Shebah (All-Women Rideshare)

Founded in 2016, Shebah has taken the rideshare industry by storm. It has grown to become the biggest ever female based investment on a CSF platform. When it comes to valuable insights centered around exponential growth, strategic execution and market penetration, there is no better source than the trailblazers from Shebah – Australia’s leading all-women ride share with 130 B2B clients and growing and with the achievement of reaching number 1 in the app store several times.

Listed below is the Q&A CRIISP Media underwent with George McEnroe, CEO of Shebah, who has answered them in full, generously sharing her experience and advice to budding entrepreneurs. 

George to begin with, what made you decide this was a problem worth solving, and how do you justify the severity of this problem to the point that a solution is necessary?

There are two perspectives that made me realise there was a problem worth solving, as an all-women rideshare makes sense for both the women in the driver and the passenger seat.

  • From the rider’s perspective – I heard the stories, read the stats, lived the experience. Women are constantly at risk and that’s as true of rideshare as anywhere. My own teenage daughter was experiencing unwelcome looks and remarks in transport services and I wondered how I could possibly sit with that.
  • Then I experienced the driver’s perspective – as a recently divorced mum of four, I knew rideshare driving would be a flexible source of income however I didn’t feel safe picking up male passengers at night. Rideshare is such a great way to set your hours and earn or supplement an income, but there was a real lack of space for women in rideshare.

I really saw I had no choice but to create a solution. 

Shebah has completed over 11,000 trips per month, growing in an industry size of $693 million p.a. with an expected growth of 13%

You also now have the necessary approval to launch in New Zealand and plans to operate there soon. What do you attribute this fast growth to?

Our growth story is quite simple – we’re solving a real human problem. We’re not ideating and creating a product that we need to match to a consumer insight in order to keep it relevant. We’ve created a solution to a problem, nothing more. 

Word of mouth has been big for marketing the business, the team and I can only imagine how much further our footprint could stretch as we look to raise further capital and increase the marketing budget. We’ve come so far based on a strong sense of community. You know the product is strong when you see organic growth like this. 

In 2017, The Wade Institute of Entrepreneurship reported that while the startup ecosystem in Australia continues to grow, businesses founded by women are still underrepresented, with fewer female-led businesses starting, scaling, and securing finance. Statistics indicate that in 20 years, the number of female led businesses has increased by just 3%.

Current and previous generations of female entrepreneurs have a trove of valuable experience from which insights are derived, as a member of this group what would you identify as actionable insights to pass on down to the next wave of females taking on the commercial world?

Two things come to mind here:

  1. Jargon is a gatekeeper – Don’t let jargon and industry practices in new worlds like tech or finance be a barrier to entry. Everyone who operates in emerging technology spaces had to learn them at some point.
  2. Women are not a ‘niche’ audience – In the early days of pitching for investment, I was challenged quite seriously on my ‘niche’ product. It’s just not the case. Women are half the population and what’s more, Shebah services families including dads. We’re here for the girls on their night out and the families who need help with logistics. In 2021 when we have more access than ever to details on our target audiences including breakdowns of demographics and psychographics, dismissing half the population as ‘niche’ is just incorrect. If I’d listened to people tell me Shebah was a niche market we would be in a very different place.

130 B2B Clients, and over 11,000 trips, what was your go-to-market strategy against the bigger players in the space, how did you get creative with market penetration?

Rideshare was a booming market when we entered and most of the players are competing on price. We have a crystal clear value proposition and knew to penetrate strong competition, we couldn’t stray from it. 

I’m sure you’ve faced criticism with the idea that there is a need for a female-only ride sharing app, so can you highlight the criticisms you had to face and how you handled it, as it’s a testament to your communicative abilities and how others should speak to the market.

We are an all-women rideshare. We operate with exemptions and exceptions to anti discrimination acts because we’re recognised to be serving a real need. What’s more, we’re able to say with confidence we aren’t stopping men from accessing rideshare. Simply, we are offering a chance for women (particularly those who have experienced trauma) to feel safe in the passenger seat, and families an option to transporttheir kids with someone who is legally able to do so. 

 Lastly, for those who are keeping track of your progress, what should we be looking forward to over the next 6-12 months, and what is the end goal for Shebah?

Our big hairy audacious goal is to provide a safe passage home for women all over Australia and eventually, the world. In the short term, we are currently seeking capital for our next phase of scale. This will fund growth projects within our tech and marketing teams.

Shebah is currently undergoing a capital raise of $5million AUD to take their venture to the next level, they are open to speaking to potential investors via their deal room which can be found here.

 

 

 

Hatcher+ and Wholesale Investor join forces to launch $10M fund targeting Australian/NZ startup’s

New joint venture enters the seed stage venture capital scene in Australia/NZ. The partnership empowers the fund with unparalleled deal flow, access to deep learning/data and an extensive sophisticated investor network.

  • Hatcher+, a leading data-driven global VC, and Wholesale Investor, the leading platform for sophisticated and professional investors in ASEAN, are joining forces to raise $10 million to be invested into 50+ startups in Australia/NZ, with a portion reserved for International startups. Combined the 2 companies have visibility of 10,000+ startups per year.
  • The fund will utilise deep learning to invest in promising technology companies ranging from the formation stage through to the Series A round in partnership with leading incubators, accelerators, and research groups.
  • Portfolio companies will gain access to the Wholesale Investor, 31,000+ ecosystem of investors, dealmakers and professional services to access capital, expertise and scale their businesses through later-stage growth and exits.

AUSTRALIA, 1 June, 2021 – Wholesale Investor & Hatcher+ announced today that they have formed an Australian-based joint venture with the objective of raising AUD10M. The fund will focus on investing into innovative technology ranging from the formation stage to Series A. The partnership will make use of their existing connections, to include leading incubators, accelerators, and research groups all in an effort to build strong deal flow and exclusive access to pioneering technology.

Combined, Hatcher+ and Wholesale Investor have visibility to over both networks, amounting to nearly 10,000 startups per year, providing unparalleled access to deal flow. The fund will primarily follow the Hatcher+ research-backed data-driven approach to venture investing – a strategy designed by data scientists to deliver robust, predictable returns and one that has attracted investors such as Coca – Cola Amatil, Midis Group, and Mistletoe Group.

Successful portfolio investee companies will gain access to the extensive and active Wholesale Investor ecosystem of investors, dealmakers and professional services to scale their businesses through later-stage growth.

As a platform, Wholesale Investor has showcase over 50 companies who have gone on to exit via IPO, Merger or Acquisition, including companies like Booktopia, Aroa Biosurgery, MadPaws, Ai-Media Banxa, 4D Medical, MyDeal.com.au and Essential Queensland (now
ASX Listed Leaf Resources).

“Over the last decade, we have worked with many companies from seed stage through to exit. Observing this has taught us the power of founder-led startups and the role the ecosystem plays in helping companies navigate their way to scale and exit. If you combine our access to
deal flow, the scalability of the Hatcher+ data-driven approach and our ecosystem of investors, dealmakers and industry, you have a powerful combination for success.” says Wholesale Investor Managing Director, Steve Torso

John Sharp, Founding Partner of Hatcher+, added “The early-stage investment scene is going through a period of massive growth and investors are no longer looking to simply be passive participants – they want to add value in addition to capital, form groups with like-minded
individuals and family offices, and get direct access to meaningful data – this alliance will allow investors to find deals more easily, be better informed as to a company’s progress, and to engage more directly and successfully with the founders. We view this synergistic tie-up
as a potential win-win for everyone involved.”

Through Wholesale Investors’ proprietary CRIISP platform and the Hatcher+ VAAST™ (Venture As A Service Technology) platform, investee companies are expected to benefit from easier access to capital and potential international partnerships, expanded access to
ecosystem partners, and similar growth opportunities.

On a broader scale, the partners expect the joint venture will enable founders to instantly and easily upload and share data, including cap tables, pitch decks, investor documents, and KPI updates, with the combined global ecosystem, leading to greater standardisation of profiles
and a more quantitative approach to analysis by investors.

Securing allocations in a good early stage venture is a competitive feat. In order to invest well you must be able to attract many opportunities and then select only a few, you must extend beyond general data points of analysis to have an edge, and you must have the capacity to
assist your portfolio companies beyond just capital. The Hatcher+ and Wholesale Investor partnership ensure all 3 of those requirements are met giving the fund a distinct edge in the venture capital realm.

About H+WI

H&WI (dba H+WI) is incorporated in Australia as a managed investment trust

About Hatcher+

Headquartered in Singapore, Hatcher+ is a global data-driven early-stage venture firm. They have analysed over 600,000 VC transactions and constructed over 4 billion virtual VC portfolios to explore various strategies’ return profiles. The insights have led them to build a data-driven approach to venture investing that delivers robust, predictable returns, global deal flows and co-investment opportunities.

About Wholesale Investor

Headquartered in Sydney, Wholesale Investor is Australasia’s leading investment platform that connects innovative, emerging companies that are looking to raise capital with their active, engaged and growing ecosystem of over 31,000 high-net-worth investors, fund managers, family offices, PE and VC firms, government bodies and industry participants.

For media queries, please contact:

Hatcher+
Darren Thang
Head of Marketing & Communications,
+65 9699 1839
darren@hatcher.com

Wholesale Investor
Steve Torso
Managing Director, Wholesale Investor
+61416820001
s.torso@wholesaleinvestor.com.au

 

CRIISP Releases New Investor Relations Tool

When a business attracts external capital, along with new funds comes a new relationship. Executive team members have now established a relationship with the source of said capital, the investor. And like with any relationship there is an element of maintenance and nurture that needs to take place.

It is in a business’s best interest to maintain investor relations for three main reasons;

  • You may call upon this source of funding at a later stage, in consecutive funding rounds for instance. The last thing you want to be is the proverbial salesperson calling at the end of a clients subscription asking them to renew for 12 more months.
  • In addition to this, investors adopt a keen interest in your venture the moment they invest, and regular, consistent communication is owed to them to ensure they are aware of the progress of your venture.
  • Finally, investors may have something to offer. This is often the case whether it be in the form of networks, insights or promotion. If there is low visibility of the current challenges or opportunities your venture faces then there is never a chance to offer up such assistance.

This can be a timely, and sometimes costly process, as such it’s often forgotten in the mind of founders and subsequently so too are the investor relationships.

To solve this problem CRIISP has developed the Investor Relations tool, specifically designed to allow ease of mass, personalised communications.

The features include:
  • Send out direct communication email to prospects in your deal room
  • Import lists of potential investors and shareholders (up to 50 at a time)
  • Filtering option for recipients (Investors, Shareholders, Individual recipients)
  • Message preview and test send an email to selected editors
  • View the performance of a single message (Opted out, Opened, Bounced, Unopened)
  • View the performance from all communications sent out

With these features founders now have the ability to centralise all communications, ensure there regularity, and even track the performance of said communications for deeper insights and lead scoring.

This tool will drastically shrink the amount of time and cost it takes to maintain these crucial relationships, empowering startups and large businesses with their own investor relations arm at a fraction of the cost.

For those wanting a demonstration of CRIISP and the IR tool click on the button below to book a call.

Book a Demo Call