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TD Shepherd: An Experienced, Multidisciplinary Corporate Finance Boutique

TD Shepherd provides a unique blend of corporate finance expertise, hands-on experience with high-tech, high-potential companies, and a rich network of Dutch, European, Asian and US venture funds.

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Semiconductors Sales Increase 2022

According to the Semiconductor Industry Association, semiconductor sales worldwide reached $151.7 billion in the first quarter of 2022, an increase of 23.0% over the first quarter of 2021. Statistics on semiconductor sales are compiled by the World Semiconductor Trade Statistics (WSTS) organization.  

“Global semiconductor sales remained strong during the first quarter of 2022, increasing across all major regional markets and product categories compared to the first quarter of last year” said John Neuffer, SIA president and CEO. “For the month of March, sales into the Americas continued to lead all regional markets, increasing by 40.1% year-to-year.” 

 Apart from the increase in sales in the Americas, sales were also up compared to March 2021 in Europe (25.7%), Japan (20.4%), Asia Pacific / All Others (17.9%), and China (17.3%). China, Japan, Asia Pacific, and Europe saw month-over-month increases, while sales in the Americas fell slightly (-1.5%). 

Source: www.semiconductors.org

Financials: A Red Flag in Financial Presentation

Financials are (an essential) part of the story. So presenting your story and subsequently throwing in the financials as an afterthought deteriorates the quality of the story and leaves a hole in the overall presentation.  

While preparing for a financing round, financials should be simple and straightforward based on the generally accepted accounting principles (GAAP). GAAP is a set of standards for financial reporting adopted by the SEC and covers all the details, complexities, and legalities of business and corporate accounting. Since GAAP standards ensure transparency and continuity, they help investors and stakeholders form evidence-based decisions. 

Presenting financials that turn out to be “doctored” (or “normalized”, an often-used euphemism) is an immediate red flag to any investor and most likely a reason for terminating the discussion. 

Talking About Features Over Benefits

Make sure you appeal to the emotional side of your audience as well. Talk about how your product is helping customers rather than about the features. Talk in terms of the value your customers can extract from your product, not the features that create that value. Make it easy to understand why customers love your company. 

Speaking of derived value is always a good bet. Sell a good night’s sleep rather than just a bed. Sell 1,000 songs on your phone rather than 1GB of extra memory.

“This Is The Last Round" Threat

Do not try to scare VCs into investing by saying: “This is the last round of financing”. It makes you look like a rookie. We all know startups need money to grow. Stay away from non-reasonable scare tactics. Unless you have a rock solid financial plan with the market traction (=revenue) to prove it, a statement like “this is the only round we need” or “this is the last round we need” makes very little sense. It will make any potential investors cautious about the ability of your team to plan and to understand the market they are targeting and, equally important, the investment model that VCs work with. 

The Importance of A Network

After 100+ deals and the individual experience and background of our associates, we’ve learned to trust our network. A network is not just “a set of useful contacts”. An occasional chat or an accidental encounter at a conference doesn’t build a network. A network is built because there is mutual trust and respect for each other’s roles and activities in the overall ecosystem. There is an understanding about the level of quality and completeness that is being delivered and the dedication to ensure best-in-kind results are delivered.

Everyday TD Shepherd has the opportunity to work with new parties in its eco-system. These range from new VCs funds with focus on the DeepTech all the way to the EIF for fund or the EIB with new instruments focused on enabling the European fabless semiconductor market. Building and maintaining one’s network requires investment in time, effort and dedication.

The Message "Get Your Money Back" Isn't a Promising Solution

If you close with "please talk to me and I can show you how to get your money back," it looks like an insult to investors. Aside from the obvious desperate nature of this plea, investors are not worried about getting their money back. They are interested in getting a 10X or better return on their investment. Just “getting their money back” is not something that excites them. 

Follow up With an Investor After a Conversation

Follow up with your primary contact a few days after the conversation to suggest possible next steps that the investor can follow to learn more about the company and the opportunity. It would be better if you communicate some urgency about your fundraising process. If you get a “no,” be thankful, the worst is not hearing back. Receiving a “no” is helpful because you won't be in a state of limbo. If you don't hear back from an investor after three days, consider this an implied no.

If you get a “no” through the e-mail, don’t be insulted, VCs attend a lot of pitches and sometimes take shortcuts. More importantly, if you do get a “no” per e-mail, grab the phone and get the specific person/partner/associate on the phone and discuss the why. Do not try to change the decision but do try to understand the reason(s). Don’t let yourself being put off, insist (in a friendly manner) in getting the details because they will help you prepare for your next pitch.

What Is a Pitch-Deck and Why Is It Needed?

For startups, a Pitch Deck is the presentation that introduces potential investors (but sometimes also potential partners) to the company, the team, its USP and its ambition. A pitch deck is typically between 10 to 12 slides with a few backup slides to cover anticipated questions in depth. A pitch can last between 15 to 20 minutes followed by Q&A.  

The most important aspect of a pitch deck is that it is build with a clear story line and kept as simple as possible. The most common mistake is using a pitch deck to tell potential investors “as much as possible”. You don’t! Overloading a pitch deck with ALL the data is a sure way to kill the interest on the side of your audience: they will suffer from data overload and lose sight of what you are actually trying to tell them. Given that the average partner at a VC will see maybe 4 to 6 pitches a day, your objective is to ensure that the partner at the end of the day remembers your pitch. That is why the story line is key to a good pitch: everyone remembers a good story, no one remembers “data”. 

Your pitch deck is your first encounter with a potential investor. It is your key to the next meeting. Therefore, it is important to use your pitch for the top level message: your USP.  

Coming in With Your Team to A Pitch Meeting, but Only Have the CEO Speak

Another frequently made mistake is coming with your team to a pitch meeting, but only have the CEO speak. Even when discussions are started by the VC, the CEO continues to answer for the full team.  

Investors want to know that you have a good team. They want to get to know your team. If only the CEO speaks, how will they gauge if the other members are any good? So ensure that when you pitch, you pitch as a team. Feel free to bring up points where the team is still in discussion – discussions in the team are good, as long as you get to decision that is jointly supported and executed. The pitch is not just an opportunity to present the company, its product, roadmap and ambition, but, above all, an opportunity to present the TEAM.  

Inside Information about Investors: What the Investor Loves or Hates?

If the previous founders the investor has funded tell you even one thing about what the investor loves or hates, your effort was worth it. This is inside information, mostly available to the inner circle only. So go out and rummage through LinkedIn for connections, stalk them on Facebook & twitter and find their email address. Use LinkedIn premium if all else fails. But do not return empty handed from this quest. 

And while you’re at it, once you have a contact, ask him/her how it is to have the investor as “an investor”. How does the investor functions in the Board, how do they interact with the Management Team? Getting the inside scope ahead of the engagement will help in the discussion.  

Should You Focus on Business Metrics?

Investors are concerned with 5 major questions:  

  1. The market opportunity;
  2. Your team’s ability to turn the idea into a profitable business;
  3. The go-to-market strategy;
  4. Your current & projected numbers (CAC, LTV, among others);
  5. And what you are asking for.

Identify what drives each investor. Do they want to be part of a ground-breaking company? Do they want to make money and exit fast? Target what drives them!  

Focus on the business opportunity rather than spending too much time on explaining your product. If your focus is on the opportunity, you’ll have a better shot at keeping the investors’ interest. 

Arioso Systems GmbH, 2022

The TD Shepherd team congratulates Arioso Systems GmbH on their successful acquisition by Bosch Sensortec. Arioso’s all-silicon MEMS-based uSpeaker technology enables at-cost volume manufacturing while reducing the size of the speaker as well as the power consumption. These are essential characteristics for the next step of the “internet of voice”: true wireless in-ear microspeakers.  

Not Timely Decisions After Presenting Your Startup

Follow up with your primary contact a few days after the conversation to suggest possible next steps that the investor can follow to learn more about the company and the opportunity. It would be better if you communicate some urgency about your fundraising process. If you get a "no," be thankful, the worst is not hearing back. Receiving a "no" is helpful because you won't be in a state of limbo. If you don't hear back from an investor after three days, consider that an implied no. 

The Hidden Problem

While preparing, you suddenly encounter new information that radically changes the outlook of the company. As you need your funding, you think it is better to ignore it for the time being and complete the preparations and start your funding process. As with other “problems” you might want to hide, these things will come up at the most inconvenient times and will force you to restart or rework your proposition when you have no time left. 

This also highlights the need for timely strategic discussions and updates. Elsewhere we have discussed the use of the company’s strategic compass: its ambition. Like all other instruments, your compass requires calibration every now and then. By making this part of your company’s operating procedures you avoid these highly disruptive encounters with complete new outlooks in the middle of your funding process. 

Mismatch Between Expectations and Realities

You only need US$200K, so you’re setting up a full VC funding run, not realizing that most, if not all VCs will not be interested in such a small sum. Search for money in the right places: if you need an angel round, your process looks completely different for a regular VC round. Also, do not forget your existing investors – in most cases (certainly if they are early-stage investors) – they will sympathize with your plight and rather than seeing you divert time to fundraising activities, will give you some breathing room through a convertible loan such that you can complete the milestones set for your next investment round. Always regard your investors as close friends of the company: until the company is generating a (substantial) revenue stream, your investors are paying your bills. Make them part of your planning rather than surprising them with the outcome.

Mistakes at The Start when Creating a New Startup (Part 1)

When discussing the mistakes made during the initial stages of a startup, one can see that most of them are not related to the specific (technology) focus of the startup. Most of the mistakes are related to areas such as the market, the potential customers, the financing, the timeline etc. DeepTech startups have as the main thread the technology content, and this is what has been the focus of the founding team. Only when arriving at a (perceived) milestone, does the team look up and think about the “Next Step”. 

We would like to break down a number of the common mistakes made during the initial stages of building a startup, as this will help you not only to avoid them but to ensure that you and your team extend the line of sight to include these challenges and deal with them as part of your strategy.  

1. Start as a one-person team/run it as a one person-team

Deciding, starting and completing a fundraising path is not a one-person decision nor a one-person effort. Often CEOs will find that the team has to continue focusing on the business and hence will assume the responsibility for the fundraising all or mostly by themselves. Fundraising is a team effort and needs to be executed by the key members of the Management Team. Throughout the preparation process new ideas will come up and new questions will be asked. These require full management team attention and interaction. VCs will seldomly invest in a “one-person” team.   

2. Formulate an ambition without a reality check

Having been confronted with the question of “your ambition” or “your ultimate goals”, teams often resort to a quick “let’s make up some lofty goals” resulting in a revenue target or a market share % but fail to thoroughly validate the target(s). VCs are smart and have associates that will dig out market data and have access to market research reports and databases. In addition, they see many deals being in similar and/or overlapping areas as your proposition. Building a story with silly ambitions will have your story end up in the circular filing cabinet quickly. 

When presenting your startup, you need to make sure that you did not promise something that you are not completely sure of and that you haven’t “verified” with respect to targets and execution. As a team, you need to ensure that you can not only state your ambition, but also the intermediate points (KPIs) that mark the road to fulfilling that ambition.  

3. Not thinking through the complete financial road

 The famous last line “this will be the only investment round we need – after this our business we will be cash-flow positive and not need any venture capital anymore”. VCs hear that line frequently. Their first conclusion is that the management team has either not done a complete financial analysis or does not have sufficient ambition, or does not need venture capital but a simple credit line. Hence, do not look at “just getting in the money for the next round” but think ambition! As a team you need to understand what it will take to get the company to fulfill its ambition (and it is seldomly a single investment round).

Mistakes at The Start when Creating a New Startup (Part 2)

In a previous post, we talked about common mistakes made at the initial stages of creating a startup. In this post, we will add to the list of common mistakes. Avoiding these, you can successfully move to the next stages of the startup's life.  
•Start without sufficient financial runway. 

Any financing process will take time; most financing processes will encounter a delay, sometimes short, sometimes long. Sometimes delays are due to bad planning (forgot about the Christmas vacation period?). Sometimes they are due to unforeseen business challenges (new competitor suddenly appearing with a better product or service, etc.). Sometimes they are due because based on the preparations you have decided to change your business model or pivot the company. Starting a fundraising process because “we’re running out of cash soon” is a recipe for disaster. For any fundraising process, reserve at least six months. That assumes that you’re ready to roll, e.g., the essential components are present and verified.  
•Start without a plan B. 

Never assume that the fundraising will be successful or complete in your planned/allotted time; always have a plan B at hand. A plan B could be a strategic customer, a bridging loan, or an R&D grant application. Ensure realistic checkpoints and sufficient time to move Plan B into Plan A if and when necessary.  
•Preparing for a sprint when it is a marathon 

Sometimes teams have had early contact with VCs and interpreted feedback as “we’re ready to invest, tell us how much you need” … This has led to the assumption that getting to the most important point—MIB or Money in the Bank—is going to be a walk in the park. It almost never is. Don’t assume you can get your venture round done in a few months, even when VCs will confirm that they can work fast and “have done a round in two months’ time…”. 
 

Do Not Be "uncoachable"

Do not scare away investors by coming across as "un-coachable." Your lack of flexibility, unwillingness to share control, or not bringing in new executives at the right time might cost you closing the round. This perception can be created as early your first pitch: listen closely to what comments and questions you get and consider your answers carefully. Don’t be dismissive and take each and every comment and question as an attempt by the other person to improve your story, not to break it down. Weigh your response and take suggestions into consideration. Respond to them at a later point in time so you have time to think about them and prepare a proper answer. 

Equally important, ensure your team demonstrates the same “openness” and not just to investors during the pitch but, as important (or even more important actually), towards each other. All input is welcome and important – consider it carefully and don’t dismiss things out of hand. Even (or maybe even specifically) a newcomer might have really valuable observations that the team has completely overlooked. 

Tips for Your Pitch

Do not start your pitch with ‘I’m sorry, this is not what I normally do’. When you open like that, it shows a lack of confidence. You have virtually conceded that you are not prepared, and you are basically just giving it “a shot” without really understanding who you are talking to or what message you are trying to convey. 

Start strong, end strong. Make your point and make it convincing. “I’m sorry” is not part of being convincing. Rather than dwelling on multiple points, if you have to choose, make one point and make it count.