Startup

Planning is bringing the future into the present so that you can do something about it now - Alan Lakien

Without proper planning, a business is bound to fail. It becomes impossible to know if you are targeting the right audience, if the market is filled with similar solutions that you are offering or if you are way too early in the market. This is where the go-to-market strategy comes in. A go-to-market strategy is simply defined as how you bring your product to market. It includes target audience research, a marketing plan, and a sales strategy. 

Eric Vest, a serial entrepreneur and M&A advisor, specializing in laboratory informatics shared his insights on the ways to bring your product into the market and how creating a go-to-market strategy can help immensely. 

Let’s talk about go-to-market strategy in detail:

Go-to-market strategies anticipate the challenges of this competitive space by thoroughly identifying the target market, articulating the product’s value proposition, crafting a marketing plan, and developing a strategy for its sales and distribution channels. Some of the most common benefits of compiling an effective GTM strategy include: 

● Gaining a comprehensive understanding of the marketplace, the target market, and the proposed product’s place in it.

● Keeping marketing costs down by identifying promotional channels with the highest return on investment (ROI).  

● Troubleshooting product positioning and messaging before going to market.

● Concretely defining the logistics of distribution and sales channels before launch to ensure maximum market impact.

Go-to-market strategy benefits:

In addition to helping you launch a product successfully, compiling an effective GTM strategy can benefit your business in several ways, including: 

Clarifies the business mission 

Creating any sort of business strategy, including a GTM strategy, is a great opportunity to review your business’ mission and make sure your product efforts are in alignment. Why does this exist? What will it achieve for its employees and customers? What values drive this mission? How do new products support this mission? 

Understanding the market 

Compiling a GTM strategy involves gaining a comprehensive understanding of the marketplace, the target market, your competitors, and the proposed product’s place in it. With more insight into customers and the market conditions, your organization will have more tools to thrive in all areas of business, from product launches to introducing a new brand identity to the world.    

Reducing costs 

With a solid GTM strategy, you can keep marketing costs down by identifying promotional channels with the highest return on investment (ROI) and developing marketing messaging and content that will resonate with your target market.  

Reducing time to market

GTM strategies also help you launch products more quickly in the following ways: 

● Prioritizing tasks that are essential for a product to enter the market

● Troubleshooting product positioning and messaging before going to market 

● Concretely defining the logistics of distribution and sales channels before launch to ensure maximum market impact

Depending on the kind of product you are launching, you might consider the minimum viable product (MVP) approach: making sure the product has enough features to attract early adopters, validating the product, and learning what product updates or improvements could improve customer experience.

Building more brand awareness

With the launch and promotion of a new product, you have an opportunity to bring more attention to your brand as a whole, and even attract new niche markets, thereby expanding your customer base. 

Increasing growth potential 

Overall, a GTM strategy, when skillfully executed, can increase your organization’s growth potential. With access to new niche markets, organized market data, and an efficient process for launching products, you can seize growth opportunities more easily than without a GTM strategy. 

How to create a go-to-market strategy:

A go-to-market strategy compiles several other strategies and marketing methods to ensure a product enters the market with the best possible chance of success.  

To help you better understand what goes into compiling a GTM, the following guide includes key elements you should develop throughout the process. 

Identifying target market.

The customer is the centerpiece of any marketing strategy. 

As a result, whether you are bringing a new product to market or refreshing an existing one, it is imperative that you first research and identify the target market that will be most interested in purchasing it. 

As you identify your target market, answer these questions: 

● Is your product being sold to everyday consumers (B2C) or to other businesses (B2B)? 

● Will you use demographic, psychographic, or other types of segmentation to define your target market?

● What are the pain points of your target market? What problem are you solving with your product?

Clarifying value proposition.

A product’s value proposition is the benefit it provides consumers and the problems it solves. In other words, your product’s value proposition articulates why the target market should purchase the product. 

As you are preparing your go-to-market strategy, you should have a clear understanding of the value proposition that your product provides in order to direct your marketing efforts.

The exact value proposition that your product or service will provide is dependent on what it is and who its target market is. To define your product's value proposition, answer the following:

● What pain points does your product remedy?

● How does your product stand out from your competitors?

● What unique features or experience does your product or service provide potential customers?

Defining pricing strategy. 

Price is an important factor for any product. You don’t want to sell a product for too much or too little. If you do, you’ll risk either not moving enough product or eating too much into your profit margin. 

Now that you have an understanding of your target market and the value that your product offers, you have a better understanding of what price a consumer might be willing to pay for your product. 

A good price is one that fits your business objectives, matches your customer profile, and makes you competitive in the marketplace. 

Crafting promotion strategy.

Your promotion strategy is your action plan to promote your product to your target customers. Here, you should craft a marketing plan that outlines the exact steps you will take to reach your customer base. 

The techniques you use to promote your product will depend entirely on the product or service you are selling. For instance, while one business might use a sales team to pitch its product to other businesses, another might instead focus on social media marketing to raise brand awareness and draw in potential customers organically. 

Choosing sales and distribution channels.

Sales channels are where consumers can purchase your product, while distribution channels are the ways that your product actually gets to your customer.   

Often, sales channels and distribution channels can be the same, such as when a consumer buys directly from a manufacturer. In other instances, distribution channels can be much more complex, such as when a producer sells to a wholesaler, who in turn sells to a retailer who then finally sells their product to a consumer. 

Whether you decide to sell your product in-person or online, directly to a consumer or to a wholesaler, or some other variation, depends on the unique needs of your product. Whatever you pick, the buyer’s journey should be as seamless as possible to reduce friction and increase sales. 

Setting metrics to monitor performance.

The success of your go-to-market strategy is completely dependent on the goals that you set. In setting these goals, you are also identifying the metrics you will use to measure your success. 

As your GTM strategy goes from idea to reality, it is important to keep track of your metrics and to make any necessary adjustments as you go along. For example, if it turns out that you are paying more to acquire customers than they are paying for your product, then you will need to adjust your strategy to reach a better customer acquisition cost. 

About the speaker: 

Eric Vest is a strategic and M&A advisor, specializing in laboratory informatics and all technologies related to biotech, pharmaceuticals, clinical trials, public health, and healthcare. He works as an advisor or board member, mainly assisting private equity firms, their portfolio companies, and other growth-stage organizations who are trying to plan for an exit, raise capital, or make acquisitions. 

Failure among startups is disappointingly pretty common. According to Forbes, 9 out of 10 startups fail, which is a hard and bleak truth that an entrepreneur and investor must think upon. A lot of factors are responsible for a startup to not work and almost every other startup faces these issues. So, what can be done to overcome these things? Well, a lot of analyzing, reworking and planning is required.  

Gary Yamamura, a serial investor and entrepreneur with 20+ years of consulting experience shared his views on why startups fail and what can be done to overcome the challenges.  Let’s start discussing this in detail: 

Startup failure rate: 

 As mentioned earlier, 90% of startups fail in the first 5 years of their establishment. Out of these 90, around 10% are out of business in the first year itself, whereas the remaining 80% lose the battle between their 2nd and 5th year. Statistics like such are not meant to discourage entrepreneurs and investors but to encourage them to work smarter.  

Top reasons for startup failure: 

Product Market Fit: “A product that no one wants is bound to fail.” According to Fortune, 34% of startups fail to understand the needs of the market and create a product that is not needed. With companies like Uber and Lyft, commuting became easy, whereas Amazon changed how e-commerce works. Hence, it is crucial to understand if the product will actually help the people or not. 

Marketing: Despite the growth of digital marketing, a lot of startups keep it aside when it comes to their growth strategy. Even if they are doing marketing, it is not focused and lacks a marketing plan. No matter how great your product is, it is vital to leverage referrals, leads, and advertising. People will not know about your product if they aren’t aware that you exist and this is why marketing is vital for every startup.  

Team: Around 18% of startups claim that they failed because of a bad team. So, it can be rightly said that a team can make or break a startup. People management and running a team require a lot of continuous effort. A smooth and successful management requires proper understanding of team, leadership skills, and communication. Good ideas need execution and that’s where the team comes in. If the ideas are not communicated properly, then the team is bound to fail.  

Money: Finally, another important area where startups fall flat is running out of money. Cash flow is crucial for any company. A lot of startups begin with small amounts of money and as they grow, they need proper cost management. It’s easy to forget how much time it takes to pay back your initial expenses, let alone turn a profit. When it comes to cost management, it is also vital to have support when things are not going right.  

When you look at all the above-mentioned factors, everything leads back to a root cause and that is: Management.  Businesses are run through decisions made by the management/leadership team, but if they are not competent, then eventually problems like money, product strategy, and marketing are affected. Now the question arises - how to know if a startups management team is bad: 

Lack of experience: Things like leadership skills, client relations, basic business tactics and team management skills are four most basic and important things to have. If your management team lacks any of these, then the road to success can be a tough one. A lot of first-time entrepreneurs lack these skills, and it can affect their abilities to communicate.  

Lack of planning: It is often seen that companies with clear mission and vision find it easier to explain things to their team as well as customers. Not only this, the management team must also know clear answers to questions like what product or service will you provide? Is it adding value? What are your objectives, and how will you attain them? Having a clear plan and roadmap provides a better chance of success. 

Now that we have discussed the reasons for failure, let’s take a look at what can be done to avoid them: 

1. Proper documentation: This may sound cliche but having everything such as your plans, vision, financial forecast and mission documented can help sort a lot of issues. It helps in providing a clear path for your team to follow and also providing a reference. 
2. Spend like it's your money: Finance is a crucial aspect for running a business smoothly. Knowing the expenses, managing them and using them correctly are crucial. This can only be achieved if the team understands the value and outcome of investing each penny.  
3. Be honest: A pretty obvious thing a leader needs to follow is being honest. If you are honest, then you can discuss the issues with the team without any resistance and make better decisions.  
4. When things fail, take a step back: Often times moving forward is the only thing that’s on the mind of an entrepreneur. But when things are not going right, it is important to take a step back and assess if you are going in the right direction.  
5. Think, replan and pivot: At every stage of your startup journey, it is vital to look at things you are doing. If they need restructuring or replanning, then it must be carefully thought and executed.  

About the speaker:

Gary is a versatile senior advisor with superior communication skills and extensive knowledge and experience in developing, introducing, and ongoing management of advanced technology products and related services. He also has hands-on experience in program management, project management, operations management, training, and process streamlining through automation and re-engineering. 

The last couple of years have completely changed how we live our lives, not only that but it has also revolutionized how businesses function and evolve to get better. The increasing unpredictability has also boosted the need for organizational alignment more than ever.  

But what actually is organizational alignment? The primary goal of organizational alignment is to ensure that a company and its team work towards the strategic goals laid by the leadership team. It becomes more vital when a startup is in its early stage. Alignment covers several aspects such as setting goals for the organization, developing strategies for interacting with employees, realizing their potential, and integrating and leveraging their strengths. 

Patty Beach, author of The Art of Alignment, spoke to our investment community and explained how alignment in startups benefits founders, investors, and teams. She also touched on how effective alignment can positively impact the return on investment. 

Why Alignment Is Crucial for Startups? 

In a startup, alignment plays a major role to ensure mission, vision and values are understood and followed by everyone including team members, investors, suppliers (if any), and also customers. If an effective alignment strategy is not in place between the internal and external stakeholders, then the productivity is hugely impacted. 

Leaders of the organization play an important role in making sure things are in place for better growth. They consistently need to make sure that people are included and their voices are heard, which in turn creates a sense of belonging for all. A good alignment in the startup ensures decisions and crucial problems are solved together so that they move forward effectively at fast pace.  

The Art of Alignment: 

Patty Beach has codified the art of alignment as a skillset that involves: 

• 3 Principles 

• 4 Steps 

• 5 Cs (referring to process of getting feedback) 

These allow an entrepreneur to lead their organization more effectively at every step of their journey. She also points out that encouraging a different way of thinking improves ideation and leads to better conclusions. However, organizations need to commit to this ideology to transform ideas into reality. 

Let’s look at the 3 Principles of Organizational Alignment: 

The principles listed below are more or less the mindset that the leader adopts for better organizational alignment.  

1. Iterative Co-creation:

The primary goal of this principle is to let the leaders know that “full organizational alignment” is not a one-step process. It cannot be achieved by bringing people together and showing them a presentation.  

Alignment can be facilitated by including members to work together towards achieving a goal or idea. Leader must ensure that people’s opinions are noted. To practice inclusion, you need to accept that everyone gets a voice but not everyone gets a vote!  

This means that as the leader you need everyone to come together and voice their opinion and whenever a decision is made you take those into consideration. But at the end of the day, as the founder or lead investor, you retain the veto power to decide the future of the company. 

The iterative co-creation process allows leaders and investors to hear new train of thoughts from their team.  

2. SHUVA Principle: 

SHUVA stands of Seen Heard Understood Valued and Appreciated according to Patty. Here is a deeper understanding of this principle:  

Seen: This is the simple act of noticing people in organization. An entrepreneur should ensure that every member of their organization is invited to meetings and are fully focused on the discussion. In virtual environment, it can be ensured by turning on their cameras and responding via chat so that their attendance is registered across the team.  

Heard: Whenever an idea is presented, the leader must hear the feedback from every member. This can be difficult in a large organization but use of polls and online forms can be useful.  

Understood: A lot of times people in the organization just nod through the meetings whenever they are asked if they understood the idea or topic of discussion. However, this misalignment doesn’t mean that they were able to grasp everything; it’s done out of courtesy. As a leader the best way to measure this is by regular feedback.  

Valued: As a leader, it is crucial to value those who share their feedbacks or opinions. This not only encourages the person to speak their thought but also can help in making better decisions. And once the judgement takes place people know that their feedback or opinion is valued.  

Appreciated: Appreciating anyone for their good provides satisfaction and mental peace. This is why lauding the members for their positive work and opinion should be done.  

SHUVA is more practical principle than theory. It creates a psychological safety within the team for better alignment. 

3. Versatility Principle:   

As a leader, you need to have a healthy discussion of the issue and balance the male and female aspects of the meeting. This means that you balance these opposing energies equally. 

For example, in a business environment, we often want to keep everything objective, factual and evidence-based, without excluding people's feelings, doubts, reservations, and concerns. It is important to be able to help everyone meet their individual needs while catering to the wider collective. When we work in this multifaceted way, regardless of our gender or gender identity, we can balance the enormous male and female energy and find solutions that we not only think is good, but what we think is a good solution and get maximum volatility. 

4 Steps and 5 Cs: 

Both these processes are meant to achieve a singular goal i.e., moving from diverging mindset to converging. 

Step 1:  Propose – This is the polite way of suggesting ideas instead of declaring them. The idea here again is to include team to hear opinions and then making a decision.  

Step 2: Probe – This is where you explore the proposed ideas. This phase includes the 5Cs of organizational alignment: Clarifications, Compliments, Concerns, Changes & Commitment. Leaders are advised to follow the order above, shifting the conversation from divergent to convergent thinking.  

Step 3: Repropose – Once the discussions are done after hearing the opinions, the changes must be done (if needed) by the leader. Finally, the idea should be reproposed to the team.  

Step 4: Completion – At last the decision is made and the process is completed.  

5 Cs is a daily process that should be practiced for better team alignment. The 5Cs are Clarifications, Compliments, Concerns, Changes & Commitment. 

Clarification: Asking and clarifying things to team members whenever they have a doubt so that they are not in the dark in the meeting. Confirmation from the team lets you know if they got the message. 

Compliments: The best way to boost your team morale’s is by providing compliments on every small feat achieved. This creates a psychologically caring environment and improves team inclusion.  

Concerns: Sharing concerns with the team lets the leader get feedback and understanding stance of the team on the subject. Or if a leader has concerns related to a team or member, then they should be relayed properly. 

Changes: Once the concerns are known, it is the right time to make changes for better outcome on the idea or topic of discussion.  

Commitment: Finally, the leader needs to be committed to transparent participation so that they know what areas are aligning and what needs to be worked on.  

Following these fundamentals will not only help build a better team but also ensure that the organization is going forward in the right direction.  

About the speaker:  

Patty Beach is the author of The Art of Alignment: A Practical Guide for Inclusive Leadership and the Versatility Factor Profile, an assessment for gender intelligence and inclusive leadership. As the founder of LeadershipSmarts, she is known as an inclusive leadership evangelist who combines leadership best practices and coaching to transform managers into the best boss ever and executives into inspirational role models that can scale and grow the company. You can watch the complete keynote here.   

You may have heard many times about due diligence in the investment world. A good due diligence process ultimately becomes the deciding factor in whether or not to invest in a company. It also lays the foundation for smooth integration.

But what is personal due diligence? How is it different from Keiretsu Forum’s five-stage due diligence process? How is it done? And why is it absolutely necessary?

Keiretsu Forum member and investor Mark Kerschner sheds light on the topic. He has been investing since 2017 and has made 11 investments since then. Here is his 5-Step Due Diligence Process.

5-Step Personal Due Diligence Process

1) Understand your strengths and weaknesses

Mark says the first thing to consider when you start investing is understanding your strengths and weaknesses. He explained that his experience in different financial roles in various countries helped him see things from a different perspective.

If you're an investor in a company's due diligence team, and you have a solid understanding of its industry, use that knowledge to drive the discussion forward. Alternatively, if you're on a due diligence team and feel like your knowledge is not relevant to the sector, ask yourself who you can add to the team to better comprehend your questions and challenges.

Evaluating your position in the due diligence team is the first step. During due diligence, you should ask yourself: What am I bringing to the conversation? How can I use my strengths? How can I overcome my weaknesses?

2) Do you know why you want to be an early-stage investor?

Mark says there are many different reasons to invest, and every investment will put you down a different path. It's important to ask yourself, he continued, why are you investing in a certain type of business? Is it because you want to support environmental and social causes? Is it because you are rich and want to give something back? Is it because you are a capitalist and want to support young entrepreneurs?

Investing in early-stage companies can be extremely advantageous to investors. Investing in a start-up from the beginning benefits investors as in most cases it leads to significant returns. Investors can work alongside the higher-ups of the company, give their input, and make instrumental decisions for the success of the start-up. Investing in a start-up can also be very risky, but if successful, the rewards will exceed the initial capital provided. Knowing this and then starting your due diligence with a company that fits your investment appetite is a crucial step.

3) Determine how much you are willing to lose?

The hardest idea is that you have to accept that you can lose the amount you invested.

As an investor, you must accept the risk factors of investing in early-stage companies and know that the chances of a significant return on your investments are slim. Mark recalls getting the same advice from another member of the Keiretsu Forum: " Never forget that early-stage investments are very high risk."

Only invest in what you are willing to lose! Mainly because the risk is so high that it takes a lot of work to look at a company profile before investing, especially if you want to reduce and/or eliminate risk as much as possible.

4) Determine your time horizon

Are you planning for a liquidity event in 3, 5, or 10 years from now?

Time horizon is important because it is an important factor in determining whether an investment is suitable for an investor. It is also a crucial factor in determining the level of return on investment. The longer the investment period, the higher the potential return. As an investor, you need to consider your age, income, lifestyle, and risk tolerance before investing. Mark noted that he often finds that liquidity time frame expectations do not always match reality. Liquidity events are often delayed, and as an investor, you should always consider a delay in this process when investing.

5) Create a checklist to set yourself up for success

Join Multiple Angel Groups: Mark shared that if he could go back in time and start over, while also being part of other groups, he would make Keiretsu Forum his primary angel investor group. For example, he is currently part of Atlantic Bio Angels, as his investment interests continue to be drawn to therapeutics and medical devices. Joining multiple angel groups can be a great learning opportunity, especially when you notice the qualitative differences between groups, and learn from other investors’ insights, backgrounds, and perspectives.

Embrace the power of Mindshare: As an investor, it is important to be part of a diverse group and harness the power of mindshare. This is where you learn the most, especially about yourself.

Get to know fellow angel investors: Nothing beats some old-fashioned networking! Whether you're a seasoned angel investor or new to the game, there's always something to learn as you meet and build relationships with your fellow angels.

Invest with patience: Invest patiently! As an investor, you may be happy to invest in the first company you come across, but the truth is that rounds always come and they don't always end tomorrow. You need to spend several rounds of due diligence to really vet companies and understand them.

Participate in Due Diligence: Mark remembers that the best investments he made were when he was involved in the due diligence process. It gives you the opportunity to have professionals who understand the company or other parts of the industry, have a different perspective, and really study the company in depth. The due diligence process can also give you a complete picture of the company you are considering investing in.

Ask questions to the CEO: You can spend time with the CEO and get to know what they think. Do they stick to their cause, or are they willing to accept outside opinions? Will they listen to the board or advisory committee? If you are not on the due diligence team, he recommends that you still make sure to have multiple conversations with the CEO.

Speak to the Advisory Committee:

Meeting team members along with the CEO is also important. If a company has an advisory board, call them and ask to meet with them. Ask how involved they are and how often they are involved in what's happening at the company. Due diligence, while very time-consuming, creates the greatest chance for success.

Conduct a site visit: Visiting the site and really getting to know the company can be time-consuming, but it is a very important step before making any investment. 

Winners & Losers in Investing (With Examples!)

Mark shares some examples of companies he has invested in, and looking back at his past investments also gives him a chance to see where he's made the right decisions and where he's gone wrong.

Example 1: Company XYZ

Mark’s relationship with the company:

• A Keiretsu Member called about an opportunity
• Technology company, his bailiwick.  “Company has great technology”
• Spoke to CEO who seemed knowledgeable about the space
• Impressive deck
• No Due Diligence or Mindshare
• No site visits
• Invested the lowest amount

Mark said it was one of his biggest mistakes. Another Keiretsu member who brought him to the company reminded him that it takes 22 investments to get a 2X or 2.9X return. Mark regrets that he did not conduct a thorough personal due diligence with this company and he did not enjoy the benefits of participating in mindshare and a due diligence process with the team. As a precaution, it's one of his lowest investments, and it's one of two that are currently hanging by a thread. He said he would not have invested in the company if he had taken the time to research it further.

Example 2: FEMSelect

Mark’s relationship with the company:

• Watched a 60-minute clip on the plastic mesh disaster in surgery
• Witnessed FEMSelect in an Angel Investor Fair. Fellow BSA members explained how open the relevant markets are
• Multiple meetings/talks with CEO, with a final meeting in New York
• Reviewed all available materials about the company
• Reviewed Keiretsu Forum's Due Diligence report and saw an updated presentation
• Stayed in touch with management

FEMSelect is a company that Mark has invested in through Keiretsu Forum. He recalled watching a 60-minute presentation on the disaster of plastic mesh in surgery. He spoke to the CEO multiple times, reviewed materials, called company employees and associates, and even reviewed the Keiretsu Forum due diligence report. FEMSelect is currently in the commercialization stage, is starting its VC round, and is well on its way to profitability. Mark is very happy with his investment and praises the research that helped him get ready to invest.

Example 3: Seneca Therapeutics

Mark’s relationship with the company:

• Two-hour discussion with the founder’s advisor
• Lunch and four-hour discussion with founders and advisors
• Personal research - what is an oncolytic virus, patent protection, etc.
• Initial Investment
• Keiretsu Due Diligence Team Member (investment disclosed)
• Ongoing dialogue with founders on how to strengthen the company
• Secondary investment
• Invited to be a Board Member
• “Volunteered” to become the company CFO

Mark took a 2-hour train ride with a member of Keiretsu Forum and one of the advisors to the founder of Seneca Therapeutics, where he had the opportunity to briefly learn about the company. He found the experience interesting and ended up organizing a personal follow-up meeting with the founder and advisors, which lasted 4 hours, through which Mark was able to learn about areas he was unfamiliar with. Mark started researching oncolytic viruses and patent protection and eventually made a small initial investment in the company. The company then presented at Keiretsu Forum, and after Mark disclosed his investment in the company, he worked on the due diligence team and got to know Seneca's team very well. After making his second investment, he was invited to join the board and eventually volunteered to be the company's chief financial officer.

Mark's advice to investors is to do personal and team due diligence before you start thinking about investing in any company.

 ABOUT THE SPEAKER:

Mark Kerschner is an Angel Investor, Advisory Board Member, and Board Member. He began his career with PWC in NYC and has been a CFO of both public and private companies, working in the chemical, engineering, and pharma industries. Currently, he serves as a Board member and CFO of Seneca Therapeutics, Inc. He is an active member of the Broad Street Angels, Mid Atlantic Bio Angels (MABA), and Keiretsu Forum. Click here to watch his keynote address.  

Due diligence is an investor's first opportunity to explore potential investments. This is the process of reviewing, investigating, and validating investment opportunities to confirm all relevant factual and financial information.

Did you know that the due diligence process is the most important step in safeguarding investor interests? Failure to conduct proper due diligence can lead to poor investment decisions. It is in the best interest of angel groups like Keiretsu Forum to conduct due diligence as we facilitate funding.

Entrepreneur and Due Diligence Director Juan Arango created the first due diligence (DD) process for Keiretsu Forum by taking a 500+ page manual created by Michael Grounding and turning it into a functional process. The goal of Keiretsu Forum's current due diligence process is to provide members with the structure they need to make informed investment decisions. Our due diligence process has evolved steadily since its inception to provide investors with a 360-degree view of the company they wish to invest in, and our revised process ensures a complete report within 4-6 weeks.

Keiretsu Forum 5-Step Due Diligence Process

Here is a step-by-step guide of our process.
 

Step 1: Data Room and Team Recruitment

To begin the due diligence process, it is important to fill out the data room with information about the company and attach the specific documents requested by the Keiretsu Forum team. Without complete data, the due diligence process cannot begin. Secondly, when recruiting a due diligence team, it is the entrepreneur’s responsibility to take charge of the process. You need to keep this in mind and invite angel investors who are excited about your company and who will likely write checks.  Keiretsu Forum members are experienced in conducting due diligence and know-how to handle the process. But it is up to the entrepreneur to invite the right investor to join their team. To choose the right investor, you need to talk to them and understand their investment ability and willingness. If you feel an investor is the right fit, but they are currently not investing any capital into companies, instead of trying to convince them it is advisable to look for someone else. The optimal number of investors on the due diligence team is no more than 5-6 people. You also want investors to have expertise in different areas such as finance, technology, etc. so that they can use their expertise in the DD process.

Step 2: Launch, review, schedule & ask critical questions

This stage of the due diligence process includes the launch, review, scheduling of deep-dive calls, and creation of questionnaires. The Keiretsu Forum team will facilitate this process and help resolve any issues along the way.

Step 3: Deep dive calls, transcription & visioning

At this stage of the process, the due diligence team & entrepreneur will be in regular communication through the deep-dive sessions. These calls can often last up to an hour or more and focus on what the due diligence team wants to know about the company. Members of the Keiretsu Forum team are on hand to transcribe every deep dive call. After each deep dive, the Keiretsu Forum team captures, cleans, edits transcriptions, and adds them to the "DD Notes" document, which is in a question-and-answer format. This document, also known as the first version of the DD report, is shared with the due diligence team to review and ensure all data is correct. Ideally, it would take anywhere between four to seven deep dives to get all the necessary data from the company.

Step 4: Review, approve & publish the report

As we enter stage 4 of the Due Diligence process, the Keiretsu team produces a document called a "Zero/Rough Draft", which is a combination of all the data received so far from the deep dives. The document is divided into sections and formatted for ease of reading. The task of the due diligence team and entrepreneur is to review the data represented in it and ensure that it is accurate. If any data is missing, you can add it as well. We urge everyone to use the "Track Changes" option in the document so everyone knows what changes were made to the document and by whom. Once all changes have been made and the document beautified, the document will enter a final stage called a "Final Draft" format.

Step 5: Share results

In the 5th and final stage of the process, the Keiretsu Forum team adds logos, executive summaries, Term Sheets, investor references, investment reasons, potential challenges, background checks, etc., to the final draft. We also clean up the language to make it seem like it was written by a third party and add a template to match the look of our professional DD reports.

Two additional considerations:

Weekly Status Call: We ask investors to set up a weekly status call. They can last 15 minutes but not more than 20 minutes, and the purpose of these calls is just to find out what due diligence work has been done in the past week and what is in the pipeline.

Updating Investors: Entrepreneurs send weekly updates to investors outside the due diligence team who are interested in their company. This is just to keep investors informed about progress and ensure their continued interest in the company.

Common Due Diligence Assumptions

If you have never joined a due diligence team, you may have some questions! Here are answers to some common assumptions about the process:

Does every discussion between investors and entrepreneurs count as due diligence?

Yes, this is correct! Every conversation between an investor and an entrepreneur counts as due diligence. After all, every conversation about the business might eventually lead to a potential investment.

Do checklists and templates limit the scope of work?

Yes! Checklists and templates limit the scope of the regular workflow. Professional angel investors have long known how to conduct due diligence on companies. We believe that by suggesting conversation topics, we are not utilizing their expertise. Our goal is to let investors take the lead and get answers to the questions that they are interested in.

Can an investment decision take up to 4 weeks?

Yes! With Keiretsu Forum's new due diligence process, it can take anywhere between 4-6 weeks to make an investment decision.

Are the deep dive sessions recorded and transcribed?

Yes! We urge investors and entrepreneurs to record all deep-dive sessions. We do this simply to capture important conversations, thought processes, and questions of all investors. This gives us the basis for a very solid due diligence report. For example, professional angel investors will ask 90% of the questions that any investor will want to know.

Will the due diligence team be required to write reports?

No! Our new due diligence model ensures that all conversations are recorded and transcribed. All angel investors and investors involved in the due diligence process are not required to write reports. The Keiretsu team will capture the recording, transcribe, edit and share the document with the entrepreneur and the due diligence team to clean up the language and ensure all data points are correct and all questions are answered. As a result, the due diligence team does not have to write any reports, just revise the document to ensure completeness and accuracy.

Can a due diligence report be shared?

Yes! There will be one single sharable link for the due diligence report.

Is due diligence for potential investors a sales process?

Yes! Due diligence by potential investors is considered part of the sales process. If you can talk to investors and convince them to put money into your business, it's a deal! Therefore, it is important to consider this as part of the sales process, and the central theme of all discussions should be to answer key questions from investors.

Due Diligence Best Practices

Below are some of the best practices suggested by Entrepreneur and Due Diligence Director Juan Arango for speeding up the due diligence process.

Immediately recruit investors for your team: Start by assembling your due diligence team. A team can consist of 5-6 angel investors.

Record every single deep dive call: Record every deep dive call and send the recording to the Keiretsu Forum team for transcription.

Prepare your data room in advance: Create and populate your data room so investors can easily access all the information related to your company.

Stay up to date on revisions in the Due Diligence Report: Constantly track changes in the due diligence report and answer questions from investors instantly.

Focus on key questions that need answers: Focus on the key questions investors ask so that their queries are resolved and they feel more confident writing checks.

To learn more about Keiretsu Forum’s Due Diligence process, visit here.

Starting a business can be a tumultuous experience for an entrepreneur. Every entrepreneur wants to build a business that will attract funding, scale their operations and make profits. Likewise, investors are looking for companies that promise attractive returns on their investments. So, what connects entrepreneurs and investors? Both are looking for a recipe for a start-up’s success. Is there a recipe for success? If not, what are the factors that can accurately predict a successful future for a start-up? Is it the business model? The idea? The team? Kevin Turner tells you how!

He is a long-time angel investor and Keiretsu Forum member who recently delivered a keynote speech at the Keiretsu Forum Northwest & Rockies April Roadshow. Under the theme, "Due Diligence – to write a check", he explained what investors are looking for in a company and what factors give them the confidence to invest.

So, what are the factors that make a start-up a success?

The answer to this question goes back to a 2015 Ted Talk. In a study, American businessman and Idea Lab founder Bill Gross identified the most important factors for a start-up’s success.

How do you predict which start-ups will be successful? Does funding rank as the most important factor? Or does the business model win? Bill Gross gave his prediction in order of importance:

• Timing (42%)
• Team/Execution (32%)
• Idea (28%)
• Business Model (24%)
• Funding (14%)

Timing

We all know that being in the right place at the right time is critical. When new technologies become part of the innovation landscape, their success depends on how well they help ensure that these technologies are understood by a wider audience.

Example: The apple pilot debuted in the 1990s. it was the first personal digital assistant to be produced. It was a failure, and Apple had to abandon it, not because it was a bad product, but because it was ahead of its time. In the future, the iPod and all other Apple products follow Apple's pilot. This shows that timing plays the most important role in the success of a product.
 

Team/Execution

A good team that can thoroughly implement the idea is the second most important factor. Every business needs a quality team and a good execution plan, otherwise, the business will not move forward. Some people only invest based on the team, especially if they have a track record of entrepreneurial success and multiple successful exits. A good team includes not only a group of highly qualified professionals but also their ability to respect each other's opinions and collaborate effectively to implement ideas and push the company vision forward.
 

Idea

A good idea is the third most important factor after timing and a good team. According to Bill Gross, the success rate of the idea is 28%. If you have a great idea, you can get the team, you can get funding, and you can get a lot of recognition in the market - but a great idea by itself doesn't give you huge success.
 

Business Model

A good business model is a very important strategic tool for entrepreneurship. It's not enough to have a good idea - even a good business idea can be useless if it cannot be developed, executed, and implemented. A good business model not only helps you focus on the steps needed to make your idea successful but also helps you achieve your short- and long-term goals.
 

Funding

To Kevin's surprise, funding was considered the least important factor out of the five for a start-up's success. He explained that while start-ups need funding, they don’t need it initially. A start-up needs to organize launch times, business strategy, ideas, and teams into a cohesive model that ultimately drives funding. As an entrepreneur, you might have a great product at the right time, run by a great team, and your chances of getting good funding might be high, and that's what it's all about!

Kevin follows the KISS (Keep it Simple Stupid) approach to investing
and these are his 4 predictors for a start-up’s success

Kevin’s mantra to finding the perfect company to invest in, with examples! 

 Kevin shared his experience as a member of multiple due diligence teams and the core of the investment philosophy that led him to invest in multiple companies. His investment philosophy? Invest in companies that have a positive impact on humanity. Kevin has always been passionate about investing in companies that work to create positive change in the real world, and now he has decided to go a step further and invest in companies and services that can do just that! Here are some examples of companies he invested in and what aspects of the companies led him to ultimately decide to invest.

Oisin Biotechnologies – Gene Therapy Startup

Oisin Biotechnologies wanted to be the FedEx of gene therapy. It wasn't until he became part of the due diligence team that he began to appreciate the simplicity of gene therapy. The company had a highly skilled and experienced team who together developed an elegant solution.  They have yet to identify any bottlenecks for the future of gene therapy, and based on their progress so far, Kevin thinks the future of medicine is very bright.

Oscilla Power – Wave Energy Start-up

Oscilla Power was focused on being the lowest-cost provider. They achieved this by creating an IP focused on the design of floats and reaction vehicles. They used off-the-shelf electronics to make the product as cheap as possible, saving on installation and maintenance costs compared to their competitors who used more expensive electronics. Kevin said he knew all of this because he was part of the due diligence team.

Pattern Computer – Explainable Artificial Intelligence

Kevin was introduced to Pattern Computer through a member of the due diligence team. It took him several months to understand the quality of the team and the people in the company. Since then, his initial investment in the company has seen a 20x return, and he attributes his investment decision to the time he spent on due diligence.

Kevin’s advice for investors  

Over the next decade, we will see tremendous advances in knowledge and technology as growth in both fields accelerates.  Kevin pointed out that it is currently difficult for investors to learn and keep up with technology within their area of expertise, let alone outside of it. He noted that if investors can overcome this hurdle, they can become excellent integrators, bringing together the latest technologies. He believes that every investor should develop an investment philosophy, and save money for investments. As an investor, you can choose the best start-up based on an idea you think will be successful, then join a due diligence team that will help you make key decisions and eventually write that check.

ABOUT THE SPEAKER

Dr. Kevin Turner has accumulated more than three decades of experience and expertise in the practice and business of medicine. An awarded and Board Certified, Obstetrician/Gynaecologist, Dr. Turner is an expert in navigating complex regulatory frameworks and compliance. His wide breadth of experience and expertise include the following: business management; robotics, human resources; public health; software development and integration; curriculum development; strategic planning; product development and manufacturing; and marketing. With a background in macroeconomics and technology, Dr. Turner has carefully monitored the rise of cryptocurrencies, blockchain, and artificial intelligence (AI). He is an accepted thought leader in the convergence of these technologies. Click here to watch his keynote address.  

If you're thinking about going the angel route, here are five critical things to know about the process that can lead to a successful round.

For startups, a great alternative to venture capital is angel funding. A silver lining that has rapidly emerged over the past year is the uptick of virtual angel investment groups. 

At Keiretsu Forum we have pivoted online, a notable trend amid large angel investment groups, which means existing investors, no matter their location, can access and evaluate any of the deals that go through the network. Concurrently, new investors seeking to diversify their portfolios are gravitating to the virtual angel model. Member onboarding, due diligence, live presentations, and member meetings are now all conducted online.

If you’re thinking about going the angel route, here are five critical things to know about the process that can help lead to a successful round:

1. Prepare for virtual fundraising

In a post-Covid-19 pandemic, world capital must be raised virtually. The biggest challenge for entrepreneurs is that investments are made without ever meeting potential investors face-to-face. There is minimal eye contact and little body language—which is the language of funding—in a Zoom meeting. The goal is selling the upside potential and creating interest.

Try and get into the mind of the angel, who will be evaluating you and asking themselves:

• Who are you?
• Why would I want to be involved and work with you?
• Do I support the journey, the mission, and the impact?
• Is the technology compelling?
• How vast is the market opportunity?

All those questions must be addressed during the pitch presentation.

Fundraising as an ongoing process, with presentation and speaking skills evolving over the course of the campaign. Constantly evaluate your own presentation: Is the audience-market quickly defined? What is the pitch about? Why is it being pitched? Who will benefit from it?

Indeed, the most effective technique for improving your pitch skills is to watch entrepreneurs with similar stage companies deliver pitches. Presenting to 50, 60, or hundreds of investors is no small task. Before and during the process, put your ego aside, and attend a few online investor forums to see how the best do it.

A good pitch coach is someone who can simplify the process and make it less daunting. In addition to the pitch itself, not to be underestimated is honing the presentation skills that enable the entrepreneur to deliver an engaging and compelling presentation.

2. Angels like familiarity

Angels gravitate toward opportunities in the industries they have direct experience in, and the insights they can share with founders on how to successfully grow companies within those markets is invaluable.

Relationships between entrepreneurs and angels can get started quickly and can be very hands-on, with angels oftentimes embedded within the company’s extended management and advisory network. In scenarios like this, the expertise, plans, and funding take place within an exciting and collaborative environment.

“People invest in people they know, like and trust. Once an entrepreneur goes through the process of securing angel funding, they are part of a tight community.”

People invest in people they know, like, and trust. Once an entrepreneur goes through the process of securing angel funding, they are part of a tight community. By example, approximately half the entrepreneurs that present to Keiretsu Forum are members of the group. Many are angels and entrepreneurs that have built and sold several companies.

The companies that make it through the full process are typically ones who raise capital, have a track record of success, understand the fundraising process and the value of seed funding. This environment helps to cultivate relationships between the investors and the entrepreneurs.

3. Due diligence is the force multiplier

Due diligence is the key to a successful funding round. The process can be lengthy, taking upwards of 80 to 100 hours over six to eight weeks, but once completed the company is now able to syndicate and receive further capital.

Typically, in an angel group setting, companies initially pitch first to a deal screening committee who determines if the opportunity is worthy of a full investor presentation. If there is interest, the due diligence process begins. Keiretsu Forum deploys on average 50 to 60 members that evaluate the opportunities and vote on inviting opportunities forward to the next step. Tight screening should be a confidence builder for both angel and entrepreneur.

For example, Keiretsu Forum members back more than 80% of the companies that go through the process. An affiliated fund, Keiretsu Capital, will often invest alongside the members backing the company. This process gets repeated when the deal is syndicated across the network that includes numerous additional angel groups. At the end of the cycle, there should be 50-70 interested angels to close capital from.

4. Protect intellectual property

Most angel investment groups will not sign NDAs to conduct due diligence. It is critical to have a proper patent strategy to protect key intellectual property (IP). That said, due diligence plays a large hand in formulating that strategy, ensuring there is a good framework in place for the company to document a sustainable differentiation, with the freedom to operate and prevent competition from infringing on their patents.

Most angel groups have IP attorneys who are members and conduct those reviews. Be careful about what you put in writing—angels should be able to understand what is going on with your business without you disclosing important assets.

5. Family offices deliver patient backing

The alignment between family offices and angel groups is the future of entrepreneurial finance. Indeed, family offices are experiencing a huge transfer of wealth (approximately $20 trillion) to the next generation of family members who are eager to make impact and diversity investments. Consider that more than one-half of the companies funded through Keiretsu Capital are now also funded by family offices.

Moreover, unlike VCs, family offices are geared toward investing over a longer horizon and do not have an incentive to overly dilute the companies they invest in. Most important, family office investment adds a substantial balance sheet for fueling growth, and a sense of financial confidence for anticipated tough stretches.

The symbiotic relationship between the angel investors that have the entrepreneurial expertise and the family offices that have the wealth that should most excite female entrepreneurs seeking to raise capital.

Brianna McDonald is president of Keiretsu Forum Northwest, the largest chapter of Keiretsu Forum, the world’s biggest angel investor network ranked by Pitchbook #1 “Most active investors early stage US region” and “Most active investors late-stage US region.” Brianna is adept at screening companies for angel investment, coaching companies on presentation and investor relations, sales strategy execution, relationship management, and leading due diligence teams. Brianna believes in companies that have “multiple bottom lines”, in that they are not solely focused on profits but also focused on impact, social good, diversity, and making the world a better place for the next generation. 

Sep 29, 2020, 10:31am, Forbes

Today, HaptX, Virginia Tech, and the University of Florida won a $1.5 million National Science Foundation (NSF) grant to develop the first program to bring force feedback to upper and lower limbs in virtual environments, ForceBot. Founded in 2012 by Jake Rubin and Dr. Robert Crockett, HaptX started with a vision they strikingly captured in an image of the full body haptic system Rubin envisioned for virtual reality (VR). The company has taken a serious detour through reality, productizing haptic gloves for VR and robotic telepresence. After turning practical, and doing another round of funding based on its growing enterprise business, they are going back to the future with this announcement.

ForceBot is a four-year project to develop an exoskeleton for commercial and enterprise applications using HaptX’s microfluidic touch feedback technology to simulate virtual objects. The NSF grant will be distributed between each company to contribute individual components to ForceBot, and then the resulting IP will be used for commercial products. In the project, VR and robotics are hand in hand towards building a full-body haptic exoskeleton rig. The rig will increase force feedback on the human body for users in virtual environments. HaptX’s contribution to the project is finding the commercial uses for the rigs, in addition to the use of HaptX Gloves products in the rig. Jake Rubin, CEO and Founder of HaptX told us that in the short term they have always, “built towards the company’s original vision piece by piece, performing R&D on each segment of the full system while simultaneously narrowing down what has the most short term commercial potential.” The grant brings things into a full circle, with plans to use the exoskeleton to create prototypes of a product for the future.

This exoskeleton will be designed to mimic real-world forces such as weight, texture of objects, shape, and terrain. Dr. Alexander Leonessa, Principal Investigator, Virginia Tech stated, “we’re excited to create a system that increases immersion for VR users in applications requiring intensive body motions like sports and industrial skills training, gaming, emergency response, and many others.” 

How we interact with the virtual worlds we occupy is one of the central questions of VR. This thought regarding HaptX was included in my first book, Charlie Fink’s Metaverse. With the HaptX full exoskeleton, the rig will be able to use mechanical arms with gloves [as seen at CES 2020] and actuators attached to each leg will simulate the haptic feedback from walking, running, and climbing stairs. The company is trying to establish itself as more than a glove company. Regardless of the success of the ForceBot, the worst-case scenario is still a product that fulfills the company’s original vision in some capacity. Rubin left us with this statement, “immersion and fidelity are wanted in the market and HaptX is not going to stop until we get there.” 

This story was written with Brandon Cloobeck.

About Keiretsu Forum

Keiretsu Forum, the world’s leading angel investor network with over 1,500 investors in 38 chapters on 3 continents. Keiretsu Forum has invested more than $500 million into more than 700 companies since inception. Keiretsu Capital administers funds on behalf of its Limited Partners - the Co-Investment & Opportunities Fund creates a diversified portfolio of technology start-ups backed by top tier angel groups and pursues the high upside value potential in these dynamic investment opportunities while promoting the sharing of risk inherent in any early-stage venture.  The firm is based in Seattle and San Francisco and its principals are veteran Silicon Valley and technology investors Randy Williams, Matthew C. Le Merle, and Nathan McDonald. 

For more information please visit www.keiretsuforum.com or contact us.

425 business, August 10, 2020: Interview with  Brianna McDonald on how to successfully raise funding during COVID.

Despite a worldwide pandemic, entrepreneurs and investors continue the quest to uncover emerging-market drivers and opportunities. At Keiretsu Forum, we have funded nearly all of the companies this year that have participated in our (now virtual) online investment forum, with a continuous flow of due-diligence packages completed or syndicated new deals successfully closed. 

We strongly believe there will be a V-shaped recovery for 85 percent of the economy; already there are favorable market indicators such as a stabilized and appreciating stock market. Available capital and liquidity also remain abundant. Companies that have significant demand drivers associated with COVID-19 are raising capital fairly quickly and efficiently in large amounts. Technology also remains an area of continued interest with a high quality of deal flow.

A silver lining is we expect to see leaner, more efficient, and more focused companies moving forward, ready to take advantage of a market recovery. If you’re considering funding or in the process now, here are seven steps early-stage companies can take to become more attractive to investors.

1. Strengthen the balance sheet by closing outstanding commitments, and explore venture debt and lines of credit.

Companies should exhaust every opportunity to generate additional working cash flow without taking on additional liabilities. One way is to convert lines of credit or venture debt into expanded cash flow. Likewise, companies with inventory will want to increase stock, even though there might be volatility in inventory drawdowns and/or potential supply chain challenges. To do such, close any existing sales or partnerships because they can provide additional flexibility and cash where applicable. For example, Palarum offers a product for hospitals that prevent falls and just completed key pilot studies. It recently concluded a three-year purchase letter of intent from a key customer, which is leveraged to acquire additional financing that covered the cost of the product rollout.

2. Negotiate with vendors/landlords/others to reduce or defer costs.

On average, our portfolio companies are negotiating reduced rates cut at nearly 50 percent. If no reduction is available, look to get two or three free months deferred to the end of the lease. You might be surprised at how easy it can be to negotiate favorable terms. Replacing a tenant is a high-cost landlord who wants to avoid for otherwise high-quality growing companies.

3. Immediately variabilize costs/shift to equity-based compensation where it makes sense.

A great way to reduce cash burn is to increase option pools and/or create more equity-based incentive compensation in the form of stock options available to executive team members. Less cash-out equals less cash burned! Equity-based compensation is tied to milestones and is considered a variable cost.

4. Slow down payables, including maximizing payment schedules against terms and conditions.

This is another case of “Ask and Ye Shall Receive.” Negotiate longer payment terms, and/or purchase upfront or in bulk. That can drive substantial price reductions and savings of as much as 50 percent.

5. Take swift action to cut costs and reduce burn rates — earlier decisions are rarely regretted.

Where are you focusing your marketing spend? Where are you focusing on your business development efforts? Is that spend really realistic going forward? Is engineering fully focused on where it should be? If not, cut back as much of that discretionary spending to further reduce the burn rate. Look at ways you can be a more efficient customer-focused organization versus a market-focused one.

6. Focus on revenue generation, reorder priorities, replan the road map to emphasize the top line.

Maximize the top line and get healthy around that line of business. Start by replanning the go-to-market road map, with a focus on the core values and core customers that maximize survival. Oftentimes companies try to do lots of different things, but in reality, there are only one or two things they do really well. Everything else is a distraction that drives excess costs. Focus on the customers who have money and will have significant demand for your product or service. Then make sure to take really good care of them!

7. Get in line now for government support/non-dilutive funding (e.g. DoD, NIH grants), etc.

Most companies have probably filed for PPP funding; if not, do so immediately, but there are other opportunities for government funding. Many of our life sciences and health care technology portfolio companies, such as XYZ, have applied for DoD and NIH grants administered via the Small Business Innovation Research and Small Business Technology Transfer (STTR) programs.

Brianna McDonald is president of the Northwest region of the Keiretsu Forum angel investment community.

Keiretsu Forum Northwest is delighted to be recognized by several major news source publications for their 2015 accomplishments. As a collective, Keiretsu Forum Norwest region oversaw the funding of 57 companies with over $43.5 Million in angel investing. We are honored by the recognition of this accomplishment and grateful to the following news sources for their coverage of our success. Check out the articles featuring the Kieretsu Forum Northwest investment collective.  

Seattle Times

GeekWire

Xconomy

Business Journal