This episode is packed with expert advice from Fernando Moreno of Vulcan Growth Partners, including:
Get inspired, take notes, and prepare to elevate your venture with the invaluable insights from today's episode!
If you want to raise capital for your business visit us at https://netcapital.com/
This episode is packed with expert advice from Fernando Moreno of Vulcan Growth Partners, including:
Get inspired, take notes, and prepare to elevate your venture with the invaluable insights from today's episode!
If you want to raise capital for your business visit us at https://netcapital.com/
Hi everyone and welcome to Funding Innovation with Netcapital. Our guest today is Fernando Moreno, a partner at Vulcan Growth Partners. He has a background in management, consulting, finance, venture capital and engineering, and he's worked with hundreds of entrepreneurs to launch, fund and scale their businesses. We're so lucky to have him as a guest today. Hi Fernando, thank you so much for joining me today, hi Kathy thanks for inviting me. Of course. So why don't you kick us off by telling us a little bit about yourself and what you do at Vulcan Partners?
Fernando Moreno:Sure thanks. So I'm a partner at Vulcan Growth Partners and we focus on providing services to early stage companies and small and medium enterprises, mostly focusing on two pillars. The first one is financial support for the decision-making process, and the second one is we help companies through the entire fundraising process, from validating their business model all the way to making investor introductions. So really we accompany them through the entire process.
Kathy Kraysler:Wow, and so how long have you been doing that and how did you get started in this space?
Fernando Moreno:Yeah, so we started Vulkan Growth Partners about a year ago and we are a team of consultants. We met working in an accelerator, but my story as a consultant comes way earlier, right? I started moving from a regular job in Procter Gamble. After a year in Procter, that was pretty a repetitive job for a recent undergrad I moved into consulting in a more dynamic environment, working with companies of all sorts big and small ones, family-owned businesses, a lot of providers in the oil and gas industry in the Southeast part of Mexico as well. So my background in consulting comes all the way from there, focusing on strategic planning, process improvement. And as I started working more and more with these big corporations especially, I saw that there was a niche in early stage companies and small and medium enterprises that really needed a lot of help and they were just not getting it right. So there was a a niche there with an opportunity to have a direct impact in this type of companies and really help them, either making the right decisions and helping them throughout the entire fundraising process interesting.
Kathy Kraysler:So the way that I met you is one of my colleagues introduced me you you came to, you did a webinar for net capital on the top 10 tips for optimizing your landing page for equity crowdfunding, your offering page, and so I guess my question is how did you do you have a lot of clients? You must have a lot of clients who do equity crowdfunding that is correct.
Fernando Moreno:So probably from four years ago, I started working a lot with early stage companies that were trying to fundraise and, as you can imagine, crowdfunding is one of those ways for them to get funded Right. So throughout these four years, I have been like helping them out in creating not only the offering page but really all the documents that they need to have a successful fundraising campaign, and also make sure that they are compliant, which is an important element in the fundraising journey.
Kathy Kraysler:Okay, so let's get into this then. What would you say are the top three things that you've learned in this field that entrepreneurs should know?
Fernando Moreno:Yeah, I think one of them is really trying to understand the fundraising terms right, a lot of entrepreneurs, especially the ones that are doing a crowdfunding round. They put a lot of emphasis on the valuation of their company, which is definitely one of those important topics, but there are so many other terms that need to be really thought before putting the formal offer right Liquidation, preference, conversion rights, voting rights If you're going to be giving your investors a board offer right, liquidation, preference, conversion rights, voting rights If you're going to be giving your investors a board seat right. All those different elements like, as you start getting into the fundraising process, you really start understanding the impact that it could have on your company in the day-to-day operations and also in your potential exit Right After you have an exit, really affecting how much money you get at the end of the day. Another, another topic that I think it's relevant is that a lot of founders they have a technical background and they are not interested or willing to really educate themselves in finance and accounting, which are very, very important elements for a CEO and the entire founding team, not only the CEO, right, everyone wants to be Jeff Bezos. Well, I guarantee you Jeff Bezos knows accounting, knows finance, because those numbers are going to be the ones deciding basically every single action, every single project you do in your company. Right?
Fernando Moreno:And probably the last thing that I have learned is that going slower sometimes is better, right? Having these baby steps in terms of product development, launching your product, focusing exclusively on one revenue stream at the beginning. I see a lot of entrepreneurs that they have this huge idea, which is fantastic, as the long-term vision of their company, and they really want to do it everything since the very beginning. And it's so hard because, as you can imagine, there is a lot of expenses involved in the product development phase and the improving of these products, and it's just so, so hard to do so. So another thing that I have seen is it's usually better just to focus on one element, the one that is going to be driving the growth of your company, and then start adding the other revenue streams, the other products that are going to be creating this ecosystem.
Kathy Kraysler:That is so helpful. I actually haven't heard that before and I've been in this industry for a while, so thank you. So okay, so let's say that someone decides to go into this, what would you say are some best practices for creating a compelling pitch for an equity crowdfunding campaign?
Fernando Moreno:Yeah, and not only for crowdfunding, but even if you are reaching out to angel investors, venture capital firms, family offices, I think the one and the most important thing is to keep it simple, right. Using this KISS approach, some people say it means something. Keep it short and simple is another way of saying it. Yes, this person whether that's an accredited investor, non-accredited investor or a venture capitalist they are going to be seeing a lot of different pitches, right? Or a lot of different offering pages. If you can make their life easier, really telling them what exactly you're doing in a very simple sentence, maybe with a couple of graphs or infographics, that's the best way to do it. Keeping it short, always good, right.
Fernando Moreno:There is a great report from DocSend that tells you that, on average, the average reviewer from a pitch deck is going to be spending around two and a half minutes per pitch deck, so that gives you an idea of how concise and how clear you need to be when providing this information to the potential investor. The next element, I think it's just supporting this useful information with graphs, with the screenshots. If you have a tangible product, that's the best way, right. If you have a tangible product, like an energy drink, and you show me a picture of the energy drink. I know exactly what you're doing. Software companies, fintech companies, have a really hard time doing this, but usually if you have an app and you can show your user interface and you can show how the user and the different parties are going to be interacting with your platform, that's also a great way for you to share a lot of information in just one picture, right?
Kathy Kraysler:Nice, I love that. And one thing that I loved about the webinar you ran with us is that you said remember that the people who are your potential investors, they don't know your industry and they're super busy. They've got disposable income. That means they probably work really hard, so don't assume they know all about your industry. Just explain it as precisely and concisely as you can. So I love that.
Fernando Moreno:Exactly. The other thing is keep it as entertaining as possible, right? If you're reviewing 10 pitch decks and all of them are technical information, the one that is going to be with a story. That's the best way. And if you're running a crowdfunding campaign, the one that generates report with the potential investor, that's the one that is going to get the cash.
Kathy Kraysler:Absolutely so. Let's transition, then, into some of the top challenges that you think entrepreneurs face, because I know you've had a lot of clients and you've probably seen it all.
Fernando Moreno:Yeah, probably and similar. Just to paraphrase what I just said, I think there is in some cases, just a lot of information in some offering pages which is not needed for an investor that is going through the different offering pages in a platform to make a final decision. I think you can keep it brief. If the investor is interested in the team, in the product, in the problem you're solving, that should suffice for them to write a check. The second thing is regarding the product, and maybe this is a more strategic issue is, in some cases, some products that are trying to fundraise through crowdfunding are very technical, meaning that the regular investor, the regular person or user of these crowdfunding platforms, are not going to be interested because whether they don't understand the topic or it's something that is completely out of their scope and they are just not interested in that particular problem. Right, if you are targeting a problem for the regular person, that's the perfect target for a crowdfunding campaign Because, again, you can create a report. They understand the problem. In some cases, they are the end user and they want to invest in these type of companies. And probably the last one is just getting the ball rolling right.
Fernando Moreno:A lot of times you see founders thinking that by just submitting their information and going live with their offering page, checks are going to be coming in immediately. That is not the case. Right, you need to reach out to your investor network. You need to start getting those first couple thousand dollars in there just to create some type of validation inside the platform. If you are an investor and you are checking the different deals that are available for you, you don't want to be the first person or the first couple of of uh persons that are writing that initial check. If the company is raising three million dollars and they are just with five thousand, that's a potential red flag. So that's why you need to reach out to make sure that all the investors that are already committed put the money. In that way, you have some type of traction and validation inside the platform, in addition to the regular traction that you have in your business.
Kathy Kraysler:That's so important. We try and stress to our issuers the importance of having momentum, because nobody wants to be the first, so it's always better to try and reach out to friends and family. Yeah, and so that's what you touched upon, one of the myths that we come across, which is that, you know, build it, just put it up on the platform and the investors will come, and that's not true. So why don't you talk about maybe some other common myths that founders have?
Fernando Moreno:Yeah, probably the first one that comes to mind is regarding the time, and it's also related to how you're reaching out to investors. Right, doing a fundraising campaign, it takes a lot of time, especially from the co-founding team, and in some cases, investors founders are not aware of this and they think, by just submitting the offering page information, that's going to be it. No, there is a lot of things that you need to do before receiving that first check. Even if you are doing a rolling close, they need to account that there is a lot of activities they need to do Reaching out to investors, having meetings, going to networking events and after that, there is still a period in which they are going to be receiving their check. With the rolling close, it's very useful for them because they are able to receive checks before reaching that goal that they have. But if they set up their regular close, they need to wait until they achieve that amount, and usually it's a couple of months from when they start the campaign. So that's another thing to consider.
Fernando Moreno:Another mistake that in some cases they do and I would strongly recommend that nobody is doing this is hiding information or lying about it, and not necessarily on the crowdfunding platforms, but when you're reaching out to a regular venture capital firm saying that you have traction that you actually don't have, that you have contracts or letters of intent that you don't have, that you already have committed capital from a specific investor and you don't have it, that's a red flag and what I can tell you is investors are doing this full time. So if you're lying, they will know right away, and if they don't notice right away, they will do their due diligence and they will find out. So really avoid any type of this behavior at all costs, right. Next mistake, kathy, not knowing the terms being negotiated. Right, and again, going back to the comment I did a couple of minutes ago, is they put a lot of emphasis on the valuation hey, my valuation needs to be higher or my valuation cap needs to be this high. And in reality, even if you're having a great valuation, there are so many other terms that can affect your day-to-day operations and your exit money in case of an acquisition or an IPO that you definitely need to get to study those terms. Make sure that there is no misunderstanding of any of these terms and you have the legal advice that is needed to have a correct contract with your investor.
Fernando Moreno:And the last one is not thinking about the long-term vision for the company. In some cases and I understand the hardships associated with growing a company, in some cases you're running out of money. You need to close that round whatever happens, and sometimes you sacrifice some of your equity or some of your voting rights for staying alive for a couple more months, right, and in some cases that could backfire, especially when you are going a year from now, two years from now, in which you no longer have enough shares, or or enough uh yeah, enough shares to offer to new investors. Or in case of an exit in which maybe there's going to be a successful exit for the company, but you are just going to be a successful exit for the company, but you are just going to bring home a couple of thousand dollars and that's it right. So, again, thinking the long-term and seeing what are the necessary steps to achieve that long-term vision that you have.
Kathy Kraysler:I just want to go back for a minute. Let's backtrack, let's backpedal to what you said about not lying. All I could think was OMG, you must have seen that before or you wouldn't have brought it up. So are people actually doing that? Don't mention any names.
Fernando Moreno:I can tell you, yes, yes, kathy, and those examples I mentioned regarding detraction are probably the ones that I see the most. Oh, we have X number in monthly active users, or we are having X amount of revenue, or we already have five letters of intent from big companies to use our product, and maybe they already have just one conversation with an analyst of that company. Right, they, tenders sometimes tend to exaggerate things, and I understand, you are selling your company, you're selling the success that you're having with it, but it's not a good idea, especially because there will be a due diligence process, especially from institutional investors, and you don't want to be caught on that type of behavior because, as you can imagine, that spreads like wildfire with the rest of the investors.
Kathy Kraysler:So true, Okay, everybody do not lie. Okay, lesson a great lesson, All right. So then, sort of the opposite of that is do you have any success stories you can share them anonymously, but of entrepreneurs who have used equity crowdfunding to raise capital to grow their business?
Fernando Moreno:Absolutely, absolutely, and I would separate them, right. I've been working with some companies that have successfully raised their brands through crowdfunding and other means for receiving these fundings, but they are very early in the process, right, I want to focus our attention in the ones that have had success, not only in finishing the round, but also the long-term success, which is what really matters. The end goal for the founders should not be raising $3 million through net capital. The end goal should be raising $3 million and then growing your company to either do your IPO, pass the break-even point, raise another couple of million. That's what I think it really matters.
Fernando Moreno:And one of those companies that I'm a current user I use them every single week it's called Wise. Well, they used to be called TransferWise, but they changed the name after their IPO and it's a fantastic solution. They are a company that are based in the UK and they raised, if I remember, like $3 million through a crowdfunding campaign and since then, they have grown. This was in 2014. And they have been growing all the way. They did an IPO on 2021 or 2022. And since then, they have continued being a very successful company and very useful company. That's the important thing. They solve real problems. So, for example, in my case, they have different products, but the one that is probably the best is they are very transparent with international payments right. They tell you exactly how much you're going to be receiving. Their fees are the lowest ones out there. That's why I'm using them, so a very useful and successful company in the long term, not only on the fundraising campaign.
Kathy Kraysler:Oh, that's a great one. You got any others? It's okay if you don't.
Fernando Moreno:I mean the most famous one is Oculus that was acquired by Facebook, now Meta. That's like one of those success stories that always come to mind and others that are not as famous. Probably that are fintech companies usually focusing on the payment, peer-to-peer payments, that are having success fundraising but again not knowing what's going to happen in the long term. They are still very early stage in the in the process.
Kathy Kraysler:All right, well, let's. So let's move on to our last question, which is what's the best piece of advice you could give aspiring entrepreneurs or founders trying to raise capital right now?
Fernando Moreno:Yeah, I think the the best advice I can give you is really study before jumping into doing your fundraise campaign right. Study the terms. Study why you need this money. Study what are going to be the effects on your company and your long-term vision of receiving this capital. Even if you're successful, it has some side effects that you need to consider. So really studying what's the entire process going to look like and the different terms I think that's the best advice I can give you.
Kathy Kraysler:That is great advice. So, fernando, if people want to get in touch with you, how can they reach you?
Fernando Moreno:Absolutely so. They can send an email to fmoreno at VulcanGPcom or they can visit our website and, yeah, happy to connect with anyone that needs help in their fundraising campaign, whether that's through Netcapital or from institutional investors happy to help them out.
Kathy Kraysler:Perfect. Well, Fernando, thank you so much for joining me today.
Fernando Moreno:Absolutely, cathy, thanks for having me and I hope this is helpful for the entrepreneurs working with you. And again, please use this advice as someone that is seeing it with a lot of entrepreneurs.
Kathy Kraysler:Perfect. Thank you so much. All right, have a great day, fernando. Bye.
Fernando Moreno:You too, Cathy. Thank you so much.