On today’s show, we interview Hall Martin, who is the founder and CEO of TEN Capital, a company that helps startups and growth companies everywhere raise funding from angels, family offices, venture capital and high net worth individuals. To date, the company has helped entrepreneurs raise over $410M. He is also the founder of the Texas Open Angel Network, which has helped to educate over 6000 investors. 

In this episode, you’ll learn:

• What is the future for family funds, VC and Angels groups
• What are some key metrics for the success rate of a startup receiving funding
• From an investor standpoint, what to focus on in the due diligence process
• Which cities in the US are housing some exciting startups at this moment

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Guest Info:

• LinkedIn for Hall Martin
• Website for TEN Capital

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• Email Shawn@thesiliconvalleypodcast.com

Disclaimer to the Transcripts:

The transcript was generated using an Artificial Intelligence program and then scanned over; we would like to thank you in advance for understanding that there might be some inaccuracies.  While reading, one might also notice that there are times were the sentences are not grammatically correct and due to changes in advertisements, the time stamps do not always align with the show.  We are keeping the text as true to the interview as possible and hope that the transcript can be used for a reference in conjunction with the Podcast audio. Thank you and enjoy.

Intro  00:00

You’re listening to The Silicon Valley Podcast.

Shawn Flynn  00:02

On today’s episode, we interview Hall Martin, who is the founder and CEO of TEN Capital, a company that helps startups and growth companies everywhere raise funding from angels, family offices, venture capital and high net worth individuals, which to date has helped entrepreneurs raise over $410M. He is also the founder of the Texas Open Angel Network, which has helped to educate over 6000 investors. We talked about the future for family funds, VC and Angels groups; key metrics for the success rate of startups receiving funds; the due diligence process and more on today’s episode.

Intro  00:40

Welcome to the Silicon Valley Podcast with your host Shawn Flynn who interviews famous Entrepreneurs, Venture Capitalists and Leaders in Tech. Learn their secrets and see tomorrow’s world today.

Shawn Flynn 01:03

Hall, thank you for your time today on Silicon Valley. Can you give us a little bit of background on TEN Capital and yourself?

Hall Martin  01:09

Hey, Shawn. Yeah. Thank you for having me. Yeah, the story of TEN Capital actually started about 10 years ago. My background is I started three Angel networks in Texas, the Central Texas Angel Network, the Baylor Angel Network, and the Wilco Angel Network. I saw the challenges that entrepreneurs had at raising funding. And so, when I finished my day job and started my second career in 2009, I started a company called Texas Entrepreneurs Network. And we had the mission of helping companies raise funding, and we spent most of our time working on startups in Texas that were raising funding from angel investors because that was our network, and we knew the process.

Over time, we grew to be a sizable network. And then about 2016, I started getting calls from outside of Texas saying, “Well, I’m not in Texas, but I want to access your investors. How do we do that?” And we took our event series which previously ran in Austin, Dallas to Houston, and now we run in Austin, LA, San Francisco, Seattle, Chicago and all the way around the country in a much bigger circle. Most of what we were doing was online, except the event series which was something we were doing in a physical setting. And so, we just expanded that to complement what we already were doing in a virtual way.  So that’s how we got to where we are today. And today, I think we have more than, for every company in Texas, we have three outside of Texas that are in our program.

Shawn Flynn  02:27

So, I’m just kind of curious, how big of a network does TEN Capital have? What is your reach?

 Hall Martin  02:35

Well, we actually have over 6,000 investors in our network, and we’ve been building it for 10 years as we work in angel networks. And then afterwards, when we started to do work in Texas, we just started to build a list. And so over time, we have expanded it. So when people come to me, I say “Well, not everyone’s going to be interested in your startup because they’re all divided up by revenues, sector and stage, and so there’s a group for consumer product, there’s a group for tech, healthcare, CPG, etc. And so, it varies based on what your revenue sector’s stage is, as to how many investors are in your group, so to speak.”

Shawn Flynn  03:12

TEN Capital, one of the things that really interest me is the void you’re filling in the market for entrepreneurs and the problems that they’re facing. Could you talk about the funding struggles that some of these startups face?

Hall Martin  03:25

For sure, as we were running angel networks, what I saw was, first challenges the entrepreneur needed to know if they should raise money, if and then they need to put documents together if they were going to move forward with it. And then they had to go get introductions, and then they had to keep those investors up to date. And the rule was, you’re supposed to add 10 more to your list. This was just a lot of work for an entrepreneur who was busy building products, hiring people trying to close customers. And the challenge was, there is a process for fundraising that you follow, you’ll raise money. It may take a little bit longer than expected. It is not a 30-day process. It’s more like, you know, our rule was for every one million dollars you want to raise from angels, it took you one calendar year to raise it. So, a lot of people had unrealistic expectations. But at the same time, they also weren’t putting in the processes to really make that a viable process itself.

Hall Martin 04:19

For example, they didn’t come prepared with documents, they didn’t have their pitch together. They didn’t have any process for keeping the investors up to date once they had pitched to them. And so, when we started, our company said, well, that’s the problem we’re going to solve. We’re going to solve those chokepoints that entrepreneurs have. And the other solutions out their broker dealers, investment bankers, and so forth. Those were really appropriate when you got to, you know, Series B, or C or even private equity levels. Well, those services made sense, but they never really made sense down in the seed in series A level, but we were working. It was just everyone was on their own. And so that’s what is the target market that we chose to serve.

Shawn Flynn  04:59

With all these startups that you’re helping, you must collect a ton of data on these companies. Could you talk to us about some of these key metrics of success that you have discovered over the years?

Hall Martin  05:12

Sure, we actually gave our data set to Oklahoma State University program with the PhDs that were looking for some academic research to do. And so, they took the data and they studied it. What made a fundable company based on the data, and they came up with things that really mattered and within their things that had no effect whatsoever. And the three things that really mattered is one is you had a solvable problem. If you’re going in and doing something that it looks like you could actually get it done in a reasonable amount of time, reasonable amount of money, you raise funding more quickly than if you were trying to solve something greater, grander, glorious, which would take a lot of time and a lot of money.

Hall Martin  05:52

The second thing that came up and I hadn’t heard of it in a while was a very strong competitive advantage. They rated all of the company on 1 to 5, and those who had a competitive advantage of four or better, were the ones that usually raise money. Now, if you ever talked to an entrepreneur, they always say if you ask, do you have a competitive advantage, everyone says they do. But we started to find the competitive advantage as your model or team or product or whatever would get an additional 30% of revenue or decrease the cost by 30% in the marketplace. So, there’s a real demonstrable advantage you have over the competition, not just because you think you’re a little bit better, but that was a big factor is if you had a competitive advantage.

Hall Martin  06:34

The third thing was an experienced team, those who had two experienced C level people, you know, one person or even two inexperienced people, two experienced people made a big difference for getting funded. And then the metrics that really had no impact or detail financials, but they went broad or narrow on their target market, whether or not they were currently in business, whether or not they had an exit plan, IP and whether or not they had a prototype. None of those things really made much difference in the process itself.

Shawn Flynn  07:08

That’s fascinating. Could you talk a little bit more about how important all this data has been for your company and how it’s allowed you to really help the startup?

Hall Martin  07:19

Well, it helps us figure out what to really focus on. Of course, we want to make the deal as strong as possible. And then I always tell the entrepreneur if you have any attention at filing provisional patents or copyrights, well, now’s the time to do it, because a lot of investors look for that. In fact, I’d say half the value of IP was just for the fundraise, not for the business. And of course, some companies the IP really does make a difference down the way so if you are going to do it, you need to do it upfront. But the reality is a lot of this stuff really has very little bearing, especially in the software world. Patents really don’t hold much in three and a half years. When the patents get approved, the technology will move on and it’s really not an advantage anymore. So, I think patents, for the most part, got overplayed a little bit because what the investors really looking for is a mode or competitive advantage or some defensibility of the business itself. And IP is just one way to do that, you know, other ways to do that is having very strong data sets, having access to key markets that others don’t have, and having algorithms or how you do things, which can’t always be put into patents, having a better business model is the real mode that you can put around your business.

Hall Martin  08:32

And the other side is sometimes investors overplay things. When I started my first angel networks, virtually everybody that walked in the room said they were tech investors, but when we rolled out the results, at the end of the year, 50% of our investments were in consumer product goods. And so, what people say they’re looking for is what they actually do are not always the same. And so, there’s a little bit of a change that goes on there. When you realize and run the data, you realize, well, IP really is the thing to do. What is the thing to do? And we can focus on those because we have some good data on it.

Shawn Flynn  09:03

With all that data, are you seeing any trends in the market right now with certain sectors getting more investments or more hyper certain areas cooling down?

Hall Martin 09:14

So, you have things like blockchain, for example, it went really hot for a couple of years 2016-2017 and then it fell off. And, you know, some say it was the regulatory environment from the SEC shutting things down. But I think the real reality was 40% of the ICOS in 2017 went dead by Q1 of 2018. And that’s what really shut it down for most investors, when they saw how risky this was and how half-baked many big companies were. They took a big step back and stopped working on it.

Hall Martin  09:44

Other things have a longer tail on it like AI is doing very well. We saw a lot of companies come up in the AR, VR world get initial funding three years ago, and they are now coming back for the second round of funding. And so, you’re starting to see that cycle play out because they have matured the business in some way, gotten working business models and other things that are moving that forward. So, you can see these things in certain cycles come through, where it really takes about three years to fully stand up a business, even from the time they first get funded. I used to go to accelerators and what I always found is in most cases, on the day they graduate from the accelerator till the day they can really raise funding is about one year. So there are just cycles on these things that we see and understand and then coach on as well, because I think some people get a little overexcited about their business or their opportunity and then they want to accelerate things beyond what is reasonably possible.

Shawn Flynn 10:41

Say they’ve just graduated in the accelerator, it’s in their first year, they haven’t really raised any funding outside of maybe what they got at the accelerator. When they come to you, what’s kind of the onboarding process?

 Hall Martin 10:53

So, the thing we look for the people that are successful, the ones that have a growth story, define the growth story as being able to identify the core business model that is operating today in your business. You can acquire customers from this source at this rate, close them, and they stay with you this long with this process. And even at a unit economic level, even at a beta level, you can identify that process and you understand how that works. You know that there’s a way of generating leads, qualifying them, closing them, and then making the customer happy. You have that process at some level working in your business. And you can even do that even if they’re not paying, they’re still spending their time with it. There’s still some number of people that sign up, there’s still some number of people using it. You want to metric those things. And so, when those who come out of the accelerator, that’s what we’re coaching them on: build your funnel, understand your numbers, understand your core KPIs. And then you have a story to tell to investors because sometimes entrepreneurs come to me in there, they’re really excited. “I sold eight units and they just flew off the shelf and I have no idea why.” They think well, the market is just hot and it’s going to get hotter. But that’s not a bad idea. It’s great to have some native interest in what you’re doing in the marketplace, you want to see that.

Hall Martin 12:09

But it’s really not the A answer. It’s always the B answer. The A answer is I took $5,000, I went out, I generated these leads, took me this much time to close them. This is how many people bought, this is the average selling price. And so, I now have figured out my metrics: how many dollars generate a lead, how much process time takes to close it, and then how much people are actually paying for it. And that’s where you want to take to your early-stage investors is, that model, that unit economic model or that funnel, whatever you want to call it. We call it the growth story, because now you want to show that I have a repeatable, predictable process. And when I talk to startups, they often don’t want to tell me what their revenue is. It’s amazing how they avoid that question or not answer it. And they’re afraid that if they tell me a number that’s not large, then nobody will be interested.

And I tell them “Well, investors aren’t really expecting large numbers. You are a startup; they’re expecting small numbers.” But what they really are looking for is repeatable, predictable numbers. If you can bring that process in place that is showing that funnel is coming together, a repeatable process is in place and time and dollars. Well, this is something investors can get excited about because they know if they put money into it, it will get bigger. But if they don’t see any process there, they don’t know you have the systems in place. Scott Adams once famously wrote, “Losers have goals. Winners have systems. And when you see a pitch deck up there from the startup, it is filled with goals. This is the product we’re going to make. This is the revenue we’re going to generate. These are the customers who we are going to close. But what you really want to see is well what system is behind that? What processes are in place for it?

Hall Martin  13:48

Now somebody walks in with a million dollars of revenue in their company, okay, there is a process back there. They did not get to a million dollars just by happenstance. They actually have a process going. But your pre-revenue, that’s the question, is what’s really there? And then you start looking for the competitive advantage, what are you doing that let you close that business. And over time you can grow that into a stronger moat.

Shawn Flynn  14:12

When a startup is presenting to an audience, a group of angels for the first time, how can they present their processes, their organization, their goal all in one five-minute pitch?

Hall Martin  14:25

So, it just takes one slide, 30-second story: I took $5,000 of my own money, I generated x leads. It took me this process time to qualify them and close them. Here’s the numbers that came out of it. Out of 800 leads, it generated 45 or qualified 33 bought. The average selling price was $2100 each, and that’s the lifetime value. You tell me how much revenue you want. I can tell you how many leads I have to generate; how many I have to qualify and how many I need to close. And I know what the steps are in time and process for that. So even though you’re not bringing a full-fledged system together, you’re bringing the core business model to the table. And that’s what investors are looking for.

Hall Martin  15:09

And so many people focus on the product or the space or the team. And all of these things are important. But what closes an investor is seeing that you don’t just have a goal, you actually have a system back there. And you want to showcase at even the core level what that system might look like. And you don’t have to get into how you do it. All you want to talk about is what the high-level numbers are. And the key thing is you have to say, “This is proven. I’m doing it now. I’ve already done. It is not a future.” Almost everybody is going to talk about futures. Stop talking about futures and start talking about what’s there now and you’ll see much more interest from investors.

Shawn Flynn  15:46

So, when one of these investors say they’re about to write a check, but before that they go through the due diligence process. Could you talk a little bit about what that process looks like for an early stage company?

Hall Martin 15:59

So, one thing you can do is actually look into CrunchBase and other sources and pick out other businesses in your sector. And maybe one out of 50 actually do this as far as I’ve seen, where you actually do some actual numerical analysis and say we went to all the companies in our sector, say payments sector of FinTech. And the average raise is one million dollars. And the average exit in the last five years has been 3.5 years and the actual valuation on that group of companies has been five times revenue, something like that. And so, if you go and you do a little bit of data research of companies in your sector, you can start to put a little bit of competence behind your numbers. You can, you know, start putting that as a comp up there.

But most people when they put comps up there, they just pick one or two numbers that they read in the paper that align with what they’re saying. It really doesn’t go with the overall market and of course, the numbers you get out of overall market research would probably be less than some of the comps that showcase theirs gloriously. But what it does demonstrate is that you do your homework and you know your numbers. And if you know your numbers, you rise very quickly in the eyes of the investor because you stand out among so many other people who don’t know their numbers. And you are at some level, an expert in your industry, whereas so many other people don’t know anything about their industry. They’re just making a cool app in a space where there’s lots of money, but they really don’t know much about it. So, I always encourage entrepreneurs to put numbers into their presentation and demonstrate you know your space, you know your product, you know your customers, and demonstrate that.

Shawn Flynn  17:40

What are you seeing for the impacts of valuations right now in companies?

Hall Martin  17:46

In healthcare, I’ve seen valuations go up quite a bit because the M&A had been spectacular since 2015. So, I do see healthcare valuations going up. For all the other ones, I don’t see the valuations going up so much for seed in series A. Now Series B and C, the valuations you know is a different game out there based on the current IPO and the M&A market. But for the scene series A, it’s still pretty much the same as it was. Now we’re in the Midwest, we’re in Austin, Texas. And so, we have less of a West Coast, East Coast mentality. And so, we don’t see the bubbles that can go up and down on the coast so much here from Austin, we see a little bit more of a steady as it goes process… in the process. So, valuations have up a little bit but not in a tremendous amount in the seed series A world for sure.

Shawn Flynn  18:39

Family funds, VCs and Angel groups. What do you see as the future for these groups?

Hall Martin 18:44

I still see them as separate groups. I see angels having their risk-reward profile. The angels they want to see you know, three to five times your money in three to five years. But you have to have some revenue. You have to have a lot of proof. VCs don’t have enough money to go invest in 20 deals with two winners, each deal has got to have something of a return. Family offices are coming more and more into the direct investment room as far as coming and making investments directly in the startups. And what I find they do is they put a portion into the startups where they can evaluate them and get comfortable with investing. And then for sectors you know, blockchain is a good example where it can be hard to figure that out. They just put money into the fund for those.

And they often end up with a hybrid approach, if a fund will bring them a good deal, they’ll put some money directly in the startup and then they’ll put the rest in the fund itself. So, you see them straddling both sides of it also. In the VC world, I see it going down and out. If you read the paper, it’s all coming together with these big mega funds that are billion dollars and so forth. And that’s an interesting story, but what you’ll find is that there’s a handful of those and that’s big money for sure. You know, big money makes the paper but what doesn’t make the news cycle is the proliferation of micro VCs and nano VCs. There’s over 15,000 of those out there now. And a nano VC is someone with a $15 million fund and a micro VC is a $25 to $50 million fund. And I looked at my LinkedIn network and it seems like every fifth person is now a VC.

In one sense, there’s a lot more funding out there because there’s a lot more micro and nano VCs out there, filling the void, picking up good deals that are available. So, I see VC going out. In fact, I see VCs now engaging in brand marketing and trying to differentiate for somebody else’s as far as a startup, you know, come to us and we have services, we have incubation we have whatever. We make our money more attractive than somebody else’s. And fighting for the good deals is becoming very, very competitive for sure. But in almost every deal we put out there, we typically get a combination of VCs, family offices and angels coming together to syndicate across the pool.

Hall Martin  20:59

One reason is that the average check size continues to go down. It used to be angels walked in with the hundred thousand check and assigned it to one group. Now they walk in with the hundred thousand check and they’re saying, “Okay 25 for you, 25 for you, 20…” And they’re spreading it across four deals trying to get a hit. So, there’s more deals, and there’s spreading the money across as many as they can to make it work. And so, people coming to us and entrepreneurs are looking for more investors because they’ve gone through their network and they got good money, but they didn’t get all of their money. And the days of going to one group and getting all your money is pretty rare. What you do is you get a little bit from here a little bit from there and you have to go to a lot of networks to raise the entire round.

Shawn Flynn  21:43

Have you seen any changes in term sheets that investors might be asking for from the startup?

Hall Martin  21:50

Actually, no, for a while we saw the implementation of the SAFE note which was a variation on the convertible note. It’s just SAFE notes were like convertible except that you know, some dropped out the interest rate, some dropped out the cap rate, and some dropped out the discount rate. And for the most part, you know investors, angels, what have you, had no problem with those except if you dropped out the cap rate. There are a number of investors that tell me they don’t sign SAFE notes without cap rates. But beyond that I’ve seen the notes become pretty much the same and the structures remain the same. They haven’t changed that much. I do see people putting in redemption rights and revenue base funding structures and some deals in order to generate returns where they’re not sure this is going to be a true venture deal. That’s one thing we got into is adding redemptions to the contracts for those that may not go all the way to unicorn or a big exit. You know, they may go halfway up and then they turn into, you know, a standard business and you’re trying to find a way to make sure you get a return on those deals, as opposed to just waiting for a buyout.

Shawn Flynn  22:59

Where are we seeing the trends in technology?

Hall Martin  23:03

So, on the blockchain side it used to be that people would have a blockchain business. And in fact, they made the entire system on blockchain, even the UI was based in blockchain. And they got a lot of interest. Today that group is shifting more to enterprise applications. And we just happen to be using blockchain. So blockchain is no longer the driving thing. It is more of just an enabling technology inside a much bigger program that is enabling an application and that’s getting a lot more traction with investors because it’s more balanced on the technology side. Blockchain was pretty tough to put in place in the early days, because it was a new technology. It was emerging, a lot of infrastructure has to go in place. But if you just make it as an enabling piece, it doesn’t tilt the field so much in that direction.

Hall Martin  23:47

So, we also see a lot of AI companies coming through. We’re seeing more FinTech and alternative lending systems coming through. There’s a lot of those coming up. Healthcare remains a very hot sector because any costs you can pull out of the system is going to be a winner. That doesn’t mean you shift the cost of some other place in the system. But if you can truly reduce the cost, there is a lot of interest in that space as well. A whole new brands are coming out from the shift from the boomers to the millennials, they want their own brands for everything. So, you see a lot of new companies coming up with healthy, organic. These are things you’re seeing a lot of. Everything is shifting from a nonprofit focus to be more of an impact investment focus. That’s the other trend. We see a lot about there as well.

Shawn Flynn 24:34

And outside of Silicon Valley and Austin, Texas, are there any other cities that are really exciting?

Hall Martin  24:40

Quite a bit, you know, we see in Utah is coming up with a great number of startups that we like. Nashville, a lot of great startups and being there in the center of the healthcare world. There’s a lot of competence in that as well. We just came back from Seattle and I saw some really great companies out there. And other places like Washington DC, a lot of good companies coming out of there with, you know, government backgrounds and government applications that are really interesting. You know, so tech is going out, it’s going out to other places. And it’s interesting where you find competence. I was talking to some guys in Nebraska. And I asked, “Well, who are the successful entrepreneurs, because that’s what you build your entrepreneur community on?” You know, build it down the Chamber’s strategic plan that’s not connected to anything in your community, build it on entrepreneurs who are actually successful, and you make them the cornerstone of it. And they said, “Back office software for insurance.” And I said, “Well, that’s what you should focus on, become the competence center for back office software and insurance because you’ve got a good foundation with the current entrepreneurs that are winning at that and can expand that out into a bigger thing.”

Hall Martin 25:47

And so you’re finding surprisingly, all over the place, competence coming up in areas that are not traditional tech centers, but they’re doing very well in the niches that they are in and that’s what we always encourage people to do. Most have a vision of becoming the next Silicon Valley, but in most places, they don’t have the same resources as Silicon Valley, you don’t have the same history. And so, the chance that they’ll repeat that is very low. So, they need to play their own game.

Shawn Flynn  26:13

And Hall, is there any other topic or information that you’d really like our listeners to know about? And also, what is the best way to find out more information about yourself, your company and what you’re working on?

Hall Martin  26:26

Sure. So in TEN Capital, we’re continuing to move around the country. We have 36 events going on this year, covering everywhere from LA to Seattle, to Boston to Atlanta back to Austin. We’re heavily focused in Austin. And so we’re continuing to get out and spread the word about how you can raise funding. I think the world’s changed quite a bit. When I started the angel networks, there were 50 generalists that just put money into deals in our backyard. But if you go to that group today, what you’ll find is they all have a very narrow investment thesis. It’s a medical device or its FinTech. And so you have to realize that when you go out to raise money, they’re going to look at you not as a Austin deal or an LA deal or Seattle deal. They’re going to look at you as a FinTech or medical device, whatever. And so you have to get around to a broader number of people in order to find enough of your sector investors in order to fund you. And so that’s what we focus on, is trying to connect them up with the investors who are interested in their kind of deal. Best way to get in touch with us is if you go to our website and just click on the Contact Us, you can drop me an email and I answer most of those.

Shawn Flynn  27:35

All right, and we’ll have all that information in the show notes. So once again, Hall, I’d really like to thank you for your time today. This was an amazing interview. I got a lot of amazing information. So, thank you, and we look to have you on again in the future.

Hall Martin  27:49

Thanks for having me, Shawn. Hope to see you soon again.

Outro  27:53

Thank you for listening to The Silicon Valley Podcast. To access our resources, visit us at TheSiliconValleyPodcast.com and follow our host on Twitter, Facebook, and LinkedIn @ShawnFlynnSV. This show is for entertainment purposes only and is licensed by The Investors Podcast Network. Before making any decisions, consult a professional.