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Capital Q Ventures: Empowering Companies, Enriching Investors, and Fueling Entrepreneurial Spirit.

Author: Eric Martz, President & Founder – MARTZ Soltuions Group LLC

Consider this when you find yourself in a new position, new responsibilities, and uncertain of where to start;

  • Identify and solve the right problems. Build credibility early on, addressing and solving the problems that your boss cares about.
  • Create your plan with backward planning, set your deadlines and then execute your plan!
  • Focus on execution! It has been said that an organization can have talented people and a superb strategy and still fail. It’s rarely for lack of smarts or vision. It is poor or absent execution.
  • About 70% of organizational failures are due to poor execution. That is the leader’s responsibility.
  • Only one in five staff members has clearly defined work goals, and just one in ten clearly understands how his or her work relates to the firm’s top priorities.
  • New goals are sidetracked by less important priorities. New goals require new ways of thinking and working.
  • Only about half of all workers report that they feel accountable for their goal performance.

Your role amounts to; planning, organizing, developing, delegating, supervising, measuring, and reporting.

  • People – Get the right people on the bus, in the right seats, and the wrong people off of the bus. Seek to inspire, rather than motivate!
  • Profit – Focus on the profitability of the line of business/firm.
  • Plug – Resolve obvious near-term problems by plugging the holes.
  • Stabilize – Take steps to minimize staff turnover and client departures until such time as you have a meaningful permanent solution.
  • Sustain -Keep the daily momentum going.
  • Compliance – Government oversight and corporate governance must be maintained throughout your initial phase.

Be visible!

Over-communicate!

Tighten disciplines!

Resources:
MARTZ Solutions Group, (317) 640=0157, www.martzsolutionsgroup.com, eric@martzsolutionsgroup.com
Michael Watkins (2003), The First 90 Days Critical Success Strategies for New Leaders at All Levels. Boston, MA: Harvard Business School Press
James C. Collins (2001), Good to Great: Harper Collins Publishers © 2016 Eric Martz. All rights reserved

I know it has been a topic of discussion since the Industrial Revolution, but we must have the difficult conversation about the constant displacement of Human Capital. Human Capital is a term popularized by Gary Becker, an economist from the University of Chicago, and Jacob Mincer that refers to the stock of knowledge, habits, social and personality attributes, including creativity, embodied in the ability to perform labor, which is then used to produce economic value.

Our nation’s Human Capital endowment—the skills and capacities that reside in our people and that are put to productive use—is the most important determinant of our long term economic success. These human resources must be invested in, but also leveraged efficiently in order for it to generate economic returns—for our citizens as well as our economy as a whole. 

Human Productivity, describes the various measures of efficiency of labor in production.  In order to increase Human Productivity, each worker must be able to produce more output. This is referred to as labor productivity growth. The only way for this to occur is through a decrease in Human Capital in the production process. This decrease can be in the form of decreasing the number of workers and asking the remaining workers to do more but more often is generated through innovative improvements in the production process, such as capital expenditures in robotics and other innovations, which replaces many workers and make less workers more productive on a per capita basis.  But where does it end? 

Throughout history innovative improvements have constantly increased Human Productivity.  We witnessed Human Productivity leap significantly during the Industrial Revolution.  Most experts, however, estimate that Human Productivity will increase exponentially, and grow at an extraordinary pace over the next 10 years, through improved robotics, more powerful computer processing and the advent of partial and fully implemented artificial intelligence. These huge Human Productivity increases, give rise to the real plausibility that smarter and better built robots, will create what I call “Superfluent Human Capital” or unproductive, excessive, expendable, gratuitous and redundant labor, conducted by humans in the future production processes.  

But what is the value of Human Capital?

When considering human-powered equipment, a healthy human can produce about 1.2 horse power or 894.84 watts briefly, in orders of magnitude, and can sustain about 0.1 hp (74.57 W) indefinitely; trained athletes can manage up to about 2.5 hp (1.85 kW) briefly and 0.35 hp (260 W) for a period of several hours. The Jamaican sprinter Usain Bolt produced a maximum of 3.5 hp (2.6 kW), 0.89 seconds into his 9.58 second 100-meter dash world record in 2009.  So there is indeed a calculable measurement of Human Capital, in both horse power and Watts…and hence in economic value.  This also means there is a measurable labor-loss value that can be associated with the implementation of robotics, used to displace Human Capital. 

In the past, the low tech jobs that vanished based on innovations that displaced workers, were replaced by higher tech, and often higher wage, jobs.  In light of the most recent technology innovations, this may no longer be the case in the future.  When an intelligent robot is stronger, faster and has the ability to make decisions quicker than humans, Human Capital may become obsolete and unnecessary to bring goods and services to market.

In an interview with Quartz editor-in-chief Kevin Delaney, Bill Gates explained why robots that take jobs away from people shouldn’t get a free pass when it comes to paying income tax.  While making “Robot Citizens”, with hypothetical “Robot Income Taxes” might not be the correct solution, there will be a point where “Superfluent Human Capital” becomes a problem for our society and where robots continue to displace workers.  Especially, if Robots also fulfill, through artificial intelligence, the higher tech jobs which may also be created.  Superfluent Human Capital, must in some way be calculated, taxes and then reimbursed to the citizens. We must begin thinking of a plan to assist our citizens, as well as our economy as a whole, if (or when) Human Capital, is no longer required to perform labor, and used to produce economic value.  


When does that conversation begin? 


For most companies, fundraising isn’t about $100-million rounds and “unicorns”. It’s often an anxiety-ridden, lonely, frustrating process filled with uncertainty and self-doubt. Despite the stories out there, raising venture capital isn’t easy for most startups.

Entrepreneurs are always evaluating tradeoffs, such as valuation and. But there’s much more, so we’re sharing the below list of questions we often hear to help shed light on the realities of raising capital.

1. When should we raise capital; how do we time it right?

You should only raise capital when you’re “ready” to execute a process, but determining when you’re “ready” is the hard part. You’re never actually ready: There’s always another close milestone that’s going to increase your valuation, there’s never enough time to prepare. At some point you just have to push yourself out there and begin.

In the best-case scenario, raise capital when these three criteria are true:

1) You have sufficient cash runway to provide you flexibility in the fundraising process so your back isn’t up against the wall (yes, that old adage ‘raise money when you don’t need it’ is true!). Runway = negotiating leverage.

2) You’ve achieved the necessary milestones to get the valuation you think you deserve.

3) You’re thoroughly prepared to deliver a knock-out pitch and efficiently respond to diligence requests.

2. What does a typical company raising a Series “X” look like, and what are the right milestones we need to hit in order to ensure a successful raise?

There are so many factors that go into pricing a round of private capital, that it’s almost dangerous to draw specific conclusions from other companies. There is no right answer. Every company is different. Every management team is different. And the market conditions are always changing.

Just remember that regardless of size or what a round is called (Seed, Angel, Series A, B, C, etc.), it’s all about the alignment of capital to milestones. Use that rule to keep yourself grounded. The more traction and the greater the growth, the better.

3. Should we ask for a specific valuation?

While it’s certainly true that some companies can name their price, the reality for most startups is about taking the best offer the market delivers. Asking for a specific valuation can sometimes be a risky negotiating strategy. If you ask for a valuation of $x and the investors pass on the opportunity because they don’t think the company is worth $x yet, going back to that same investor with a lower valuation rarely leads to a different outcome.

By the way, even if you don’t ask for a specific valuation you’re probably providing valuation signals without even realizing it. When assessing a “valuation ask” by an entrepreneur, investors also consider implicit signals like the proposed size of the raise, the price of the last round, the total amount of capital raised, and the number of rounds of capital raised.

4. How much capital should we raise?

Of course, you want to be strategic about the amount of capital you raise, not least because of sensitivities about dilution. As such, you want to size the round in a way that gives you sufficient cushion to get to the next set of milestones and valuation inflexion points.

What you do not want is to end up a “tweener” caught between rounds! In investor jargon, “tweener” is a polite way of saying your valuation expectations are too high for the financial or operational traction you’ve achieved so far. To get yourself out of this position, you can (1) lower valuation expectations or (2) improve execution and grow into those valuation expectations. Neither are optimal in the middle of a fundraising process.

5. What investors should we target?

The most important thing to focus on here is finding investors that are appropriate for the stage of the company: e.g., an early-stage company should focus on early-stage investors. And if the startup is still in “company building mode”, then focus on targeting investors that are company builders.

You can always move onto later-stage investors as the company matures, but it’s hard to go back to an early-stage investor after bringing in a later-stage investor.

6. What are ‘crossover’ investors?

Crossover investors typically invest in the public markets, such as mutual funds and hedge funds, but also invest in private companies.

An increasingly important group of investors, crossover investors can be very valuable partners to a startup — particularly as it approaches the IPO stage. They can help a startup start transitioning to life as a public company and make the IPO process less jarring.

7. Should we include ‘strategic’ investors in our round?

A simple way to think of strategic investors is as ‘companies or former executives that invest in startups’ — everything from corporations with large, dedicated investing organizations (with significant amounts of capital allocated just to investing in startups) to those who have made only one investment in their history (using cash straight from their balance sheet). Strategic investors can be valuable partners.

The advantages of strategic investors include expanded distribution, implied credibility, and technology sharing. On the flip side, choosing some strategic investors over others could mean closing off potential distribution channels. Understanding how a strategic investor seeks to work with its portfolio companies is an important ‘reverse diligence’ step entrepreneurs need to take before deciding whether to work with one.

8. How many investors should we approach? Can’t I approach just a select few?

You’re always striking a balance between efficiency and optimizing for probability of success when fundraising. Especially because you just want to successfully raise capital so you can get back to growing the business.

This is why you don’t want to talk to so few investors that you end up running a fundraising process multiples times — i.e., starting from scratch each time. That kind of ‘serial processing’ is exhausting. At the same time, you don’t want to cast such a wide net that you can’t deliver the personal attention required to identify the best partner for your company.

9. Can’t I just have a conversation with the investors? Do I really need to prepare a full slide deck?

Most companies — again, not just focusing on those few big-name stars or ‘unicorns’ — get very few opportunities to make a strong impression with potential investors. So, treat each interaction as your last. Make those interactions count.

Don’t leave anything to chance. Take time to prepare a full deck and practice, including creating a script and doing dry-runs.

10. How long does it take to raise a round?

Some companies can get it done in a matter of days. For others it takes many, many months. Either way, be prepared for the process to take longer than you expect. Also give yourself plenty of cushion when assessing your cash runway.

To maximize your probability of success, the most important thing you can do is spend a little extra time upfront preparing for a process; remember, you don’t want to run the process twice in a short amount of time. In fact, the strongest leading indicator of successful financing — flawlessly executing on the business — happens before you talk to investors. Companies that consistently deliver strong revenue growth and attractive profit margins rarely have problems raising capital.

11. I’m worried about sharing confidential information. How much information should we share — and when should I provide customer references?

The venture capital community is built on trust and reputation. The most important thing for VC firms is their reputations and the easiest way for them to impair those reputations is by not honoring your trust. That’s why high-quality venture capital firms will respect the confidentiality of your private information.

One of the potential risks of not sharing sufficient information upfront and waiting until after signing a term sheet is that the investor may change their mind after signing. You want to derisk this scenario by leaving only confirmatory (vs. discovery) diligence to post-term sheet signing. At the same time, don’t be naive: information occasionally leaks out, even unintentionally. So, trust, but use common sense.

12. What kind of financial model should I provide to investors?

Every company should be utilizing some sort of financial model or set of financial projections. Even if you’re at a super early stage, you should be managing to some sort of budget in order to understand cash burn and optimally time raising capital.

Understanding cash burn is one of the most important components of a financial model, and a robust model of cash burn includes detailed headcount-driven expenses. Understanding the unit-level drivers of revenue is also critical once a company crosses into the revenue generation stage. Just remember that precision is not necessarily an indicator of accuracy.

13. Should we raise debt instead of equity?

Debt can be a great source of capital when used appropriately. It can dramatically lower the overall cost of capital and provide a lot of financial flexibility.

But, it should be used judiciously because borrowing means you ultimately need to repay that debt … and the consequences of not repaying it are severe (i.e., bankruptcy). Remember: debt is a complement to, not a replacement for, equity.

14. Should we use an advisor to help us raise the round?

Investment banks or other types of advisors can add a lot of value when raising a round of capital, particularly at the later stages. Such advisors can help streamline the process by front-loading a lot of the diligence and preparation, allowing you to focus more closely on running the company. They can also help provide access to a broader set of investors.

That said, not every company needs an advisor, and the decision to use an advisor should be made in the context of the specific situation. For example, companies that receive multiple unsolicited term sheets at compelling valuations have the luxury of choosing their investor without the assistance of an advisor.

15. Should I sell some secondary stock?

Selling stock early in a company’s life can be interpreted by potential new investors as a negative signal from the selling shareholders: What do they know that I don’t know? Is the company already fully valued?

However, selling stock may also alleviate pressures on some employees to make their ends meet and even allow them to remain committed to the company longer. As with everything here, the answer to this question depends on a set of factors unique to every company: How much stock in absolute dollars is being sold; what percentage of total ownership is being sold; what stage is the company at; has a predictable revenue stream been established; and so on.

16. What happens if I come up empty after running a process, or if the market conditions turn against me?

Successfully raising capital is never a certainty, so always have backup plans in place.

Backup plans can include doing a bridge from insiders, tapping debt lines, and reducing cash burn. In general, having alternatives provide you leverage in the fundraising process.

Certain information contained here has been obtained from third-party sources, including from portfolio companies of funds managed by Capital Q Ventures Inc. or Capital Q Management LLC or its affiliates (“CAPQ”). While taken from sources believed to be reliable, CAPQ has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for any given situation.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services or consultancy of any sort. Furthermore, this content is not directed at nor intended for use by any entrepreneur, investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by CAPQ. (An offering to invest in a CAPQ fund will be made only by the private placement memorandum, subscription agreement, limited partner agreement and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies referenced, referred to, or described are not representative of all investments in investment vehicles managed by CAPQ, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A partial list of investments made by funds managed by Capital Q Management LLC (excluding investments and certain publicly traded companies/ cryptocurrencies/ and other assets for which the issuer has not provided permission for CAPQ to disclose publicly) is available at https://capitalqventures.com/portfolio/.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Hey,

I spent the last several month embedded into one of our portfolio companies and discovered Social Media is the single most important area that every company should learn. Here is a Social Media Trends 2020 document. I hope helps!

-Q

SocialMediaTrends2020_Repor… by anugerah husni on Scribd

It is an irrefutable fact of life that most businesses will suffer losses and setbacks at some point. Small startups are particularly prone to financial obstacles. However, a few bumps along the road do not signal defeat. Here are four helpful suggestions to keep in mind as you continue on your journey to becoming a successful entrepreneur.

1. Open Your Mind to Change

Many companies have sunk because they failed to adapt. From Blackberry and Sears to Blockbuster. You must be willing to make adjustments based on data analytics, current and growing trends, projections and customer feedback to succeed. You need to evolve to meet constantly shifting demands.

Out of all the businesses that flop, 42% do so because there is no market for what they offer. Diversify and incorporate new ideas and innovations to cater to the crowd you want to attract. For example, are you the owner of a tea shop in a college town who has noticed younger generations make up a small percentage of your clientele? Then expand your stock to coffee and other drinks that appeal to them. You can also renovate to create a more contemporary atmosphere that attracts a younger crowd.

Another effective tactic is to perform a regular SWOT analysis to evaluate your company and make modifications based on the results. SWOT stands for Strengths, Weaknesses, Opportunities and Threats, the four aspects of your business you assess.

2. Manage Your Cash Flow Better

Cash flow is the movement of funds in and out of your enterprise. Surveys indicate that 82% of businesses crash because individuals either don’t understand or can’t manage it correctly. Carefully watching your cash flow helps you identify any existing issues and spot emerging ones before they become a serious problem.

Another strategy to help manage your cash flow is to incorporate an organized and reliable payroll system. Doing so ensures compliance, saves time, minimizes errors and even boosts overall morale because employees are more likely to receive the correct wages at the right time. If you choose to update your payroll setup, look for a platform that offers a host of perks like the ability to run reports, automate tax filing and calculations, free direct deposit, payroll scheduling and even mobile payroll options to make it easy to monitor payroll when you’re on the go. 

3. Set Goals

Creating goals breaks down seemingly huge challenges into doable steps. One method many business owners use is the S.M.A.R.T. (Specific, Measurable, Achievable, Relevant and Timely) technique. This involves specifying what you want to accomplish, deciding how to measure your level of achievement (the results), determining if you have the resources and time to reasonably reach your goals, ensuring your aims align with your business objectives and setting deadlines.

4. Optimize Your Marketing Strategy

Marketing is vital to any business. The advance of digital technology has made it possible to reach more people than ever before, providing a variety of tools to grow brand awareness and gain exposure. Use social media sites, blogs and networking to grow your customer and client base.

It can be hard to move past financial hurdles that obstruct your path, but it’s not impossible. By adapting, practicing good cash flow management and employing goal-setting and marketing strategies, you can overcome financial lows and draw closer to fulfilling your entrepreneurial dreams.

Capital Q Ventures is dedicated to small businesses, investors and communities. Connect with us today to see how you can level up your growing business.

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