Hall Martin | Angel Investing | Micro VC Funds | Start Ups

[MUSIC]

Huge amount. And then there's the model of convergence, where is technology married with therapeutics or life science, for example, if I take a therapeutic and I add AI and data analytics to it, I now have a drug discovery engine that can help me find the right targets. And maybe I'm just selling the data from that to other people, or maybe I'm taking each promising target and carrying it all the way through FDA approval. Welcome back to the Executive Connect podcast.

Today's guest is a legend in the startup funding world, halls the founder and CEO of 10 Capital Network, a powerhouse connecting startups with over 17,000 investors. Their network has fueled the rise of countless ventures, helping them raise a whopping 900 million in Capital. If you're a startup founder seeking funding, you won't want to miss this episode. Welcome hall. Thanks for having me, Melissa. Looking forward to this call today.

Thanks for being here. Now I'm going to jump right in. So 25 years of angel investing. From your perspective, how have the landscape evolved and changed over the last few years? Well, it certainly filled out with more investment types. When we got here, there were standard VCs and then there were angels. And when I started doing angel investing in the late 90s,

people would literally stand up and ask for five million dollars to build a web company. And back then you had to build your own server farm and pay your marital wages for everything, which is very expensive. And then five years, six years later, the business had evolved where you didn't, you only need $500,000 to invest in a startup. And so most of those deals moved from the venture capital world down into the angel world. And that's all there was. There was angels in the

cities. Over the last 10 years, 15 years, we've actually seen the rise of crowdfunding, regulation CF, where people, anybody can invest. And this is for those who have a very large network of people

that want to put in on average $500 into their deal. And then we've seen the rise of the micro VC fund, the sub-100 million dollar venture capital fund, which comes down and looks very much like an angel group as far as the sector and stage that they come in. They come a little bit earlier and for smaller rounds. So we see more people coming into it. And finally, there's the syndication group where people come in

and angels don't set up joining a group. They just join together for each deal that they want to be in. And they just do a syndication for each one. And you can be in this deal, but not that deal. And so and they're not necessarily in a formal group. So we're seeing more groups come together to fill out the ecosystem with more choices for investors to invest. I'm curious too with the major changes in

technology over the last few years. How has that changed the way venture capital is sourced and how you make decisions? Well, one of the biggest changes most recently is that the whole world has moved online through the pandemic. We moved to zoom and then discovered how much a more efficient that was. When I started the Central Taxes Angel Network, I started three of them and first one was

CTAN in 2006. I remember I was sitting there one day in the downtown Headliners Club where we went downtown to do everything screen, diligence, percent, etc. That half of what we could be, half of what we were doing could have been done online. In fact, if you were online, you could use your tools to do more diligence, more research as somebody's pitching. You can look at their competition, check

their evaluation and so forth because you had the tools there. It was a bad form back then to be pulling out your phone and typing on it while somebody's pitching even though I was trying to research. If you move online, you actually get a lot more resources available to you to analyze the pitch and what's going on there. That's one of the biggest changes is that up front, there's so much more that's going to be done as far as introductions online is going to be through zoom. Then the second

and third meeting may go in person if that goes. The one thing we found is that it's very hard to close online. It's easy to open the dialogue, but it's hard to close. The other thing is that there's many more tools out there now for analyzing startups or AI tools coming on the marketplace and other things for doing that. We see a lot more in the way of technology coming into enhanced the experience. In most cases, they're assistive. They're helping you make a decision not making it for you.

Now, you're a fellow podcaster and you have your own podcasts and I'm curious from your perspective, what role does podcasts play in educating investors and entrepreneurs today? When we were talking to many angel group leaders and one of the most common complaints I had from

them was they said, "I wish I had put in more institutional knowledge." In the angel world, especially in an angel group, you have people coming in that are new with this and in the early days they're making mistakes and they're learning and then they get better and just about the time they get really good at it, they retire and move on to something else. Here comes the next group and there is learning all the same mistakes and making all the same mistakes over again and you kind of wish

you could have learned from the previous group. When I started investor connect, I wanted to be able to capture the knowledge of investors to share it with follow-on investors. Primarily, we've done 650 interviews with mostly angel VC and family offices and they talked about how they invest, why they invest, where they invest and how they do it. You can learn a lot if you listen to what other

people do, how much they put into research, how much they weigh the team and those type of things and it does vary from one group to the next but there are some common things one can learn about it. So hopefully you can build some institutional knowledge where you can maintain the learnings of the group as you go forward and so that's why we did ours. That's fantastic. That's a lot, right? Can you share a little bit and maybe a couple of success stories that you've had over the

this last 25 years? Well, from an investing point of view, when we started CTAN, we had two home runs that came out of the first group. When I started CTAN, I was basically on the board in charge of membership because that was the first guy to sign up and then after two months, we lost our director. So I became the director and I helped recruit basically 50 investors to come into the network and then we invested about 5 million collectively into 20 startups of which two turned into home runs.

One was a 40X return, the other was a 35X return and that really propelled the group onward. So it's great to have wins upfront. Typically you get one or two wins every five years of that nature and we had two right up front which really helped move the group forward. So there's a lot of fun to do that.

And then we helped do other things like the Bay of Angel Network who was a university-based group and so we had a, I think the win there was the experience the students got because they were doing the deal flow and the diligence for us and they were actually helping us with figuring out which deals to invest in. And it was a great experience for them to work with real deals, real money, real investors. And of course they had great tools to put into their portfolio because they were putting

in 2025 hours and diligence into each deal, cap table analysis, the whole thing. You can go to your first employer and say, "I've done this kind of analysis on these real deals here." It makes a big difference for the students in getting a great job and a great experience. That's amazing. Now how did you get into this space, Hall? How did you start in this industry? I'm curious. Was there any unique ways that you found Angel investing and being part of C-Tan?

Maybe you could share a little bit about that. Sure. Well, when I was in undergrad my father got me investing into stocks and then in graduate school we got into sector stocks and if you just keep working your way up into different funds and different instruments, eventually you get to Angel investing as one of the ways to invest. And I worked for a company called National Instruments. They went public in '95. I was an early

employee there so I wanted to start investing as an Angel investor. And we had a group in the 90s called the Capital Network here in Austin that ran from '95 to 2002 and they got tied to the .com world. But I went to it and made one investment, lost all my money and learned that this is harder than it looks. And I wanted to join a group to learn how to do Angel investing. So the best thing, the best advice I get people is go find a like-minded group of investors in your area

and join them and learn from the others. Don't make, don't write a check in the first three months. Just watch what the others do and what questions they ask and how they diligence it in from that you pick it up pretty quickly there. Over time you have to do more formal study around diligence, term sheets and the like. But upfront you're just trying to figure out what's in the game and what's not in the game and working with other Angel investors is one of the best ways to start.

That's great. Any other tips for people who have never done this type of investing or who have never invested before outside of maybe a standard 401k and their primary residence? Any other tips that they should look for besides joining a group? You can invest in a fund. Sometimes you, if you have a thesis around a certain sector like I think the world is going to AI or blockchain

or Vintech, you can find a fund out there that manages it. And with many funds comes a community or a network of people and you can be a part of their program and learn from their investment, how they do it, why they do it and so forth. So a well selected fund can also be very helpful in getting into the space because you can use that as a mentorship exercise as well as an investment one.

That's great. Now with technology and AI like you mentioned, what do you believe are going to be some of the biggest challenges with venture capital and angel investments?

It's always a challenge to find the right deals out there and there is a move with AI and data analytics to use a data driven approach, look at what's successful in other areas and try to map that into the market coming up. The challenge with that though is that in I think the next 10 years, we're going to see an explosion of new technology, especially in life science, where there's not a whole lot of data available. You're going into a new area and I found that so the biggest ones I have came

from the new areas that weren't yet proven out. Once it's proven out, well everybody figured out where the goal is so everybody's over there mining that gold before you get there. And so as heart, you have to be a little bit on the cutting edge to do making out size return in the angel investing world. Sometimes you get lucky but for the most part you just have to be in the right space at the right time and that's usually a little bit beyond what is currently proven or known to be true.

Yeah, it feels like everybody's in, I don't know if it's just me, everyone's in AI and software now. I feel like that's the big thing and there's so many companies now to look at and they all have kind of their unique spin on them. So just kind of looking ahead, like you kind of mentioned on just what are some trends out like you mentioned life sciences? Is there any other kind of trends that you see outside of that coming up and maybe things that entrepreneurs can prepare for

or challenges? Well, one of the biggest is life science. It used to be about 10% of our deal flow. Now it's about 50% of our deal flow and what may not be obvious is the fact that there were advancements or tools that came out that lower the cost of life science or starting a life science company. You could do things with the lower cost wet lab space and with lower cost testing and array and diagnostic tools. So there's an explosion of startups out there that are

each picking a novel target and taking it through to the process of getting FDA approval. So there's a huge amount and then there's the model of convergence where is technology married with therapeutics or life science. For example, if I take a therapeutic and I add AI and data analytics to it, I now have a drug discovery engine that can help me find the right targets and maybe I'm just selling the data from that to other people or maybe I'm taking each promising target and

carrying it all the way through FDA approval. So convergence, the combination of tack-in, medical device and therapeutics is an area to really watch because I think that's going to really be a supercharged era. We talk about Moore's Law where everything doubles in 18 months. Well here, everything's going to be tripling in 18 months given the technologies behind DNA sequencing and that of AI coming together is going to be a very supercharged model to look at.

That's great. Any nuggets of wisdom for those? I know I've seen a lot of buzz on my LinkedIn profile where people are leaving their jobs of many years and starting companies. Any kind of nuggets of wisdom for those new founders that are, you know, they've been a W2 employee for the majority of their life and now they're launching a new business in a space they're experts in. Any kind of nuggets of wisdom

that you can share with our listeners? Well, in the world of startup, it really takes the network to build a great startup and so you want to start building your network. You want to know people and the industry that you're in, you want to start with an industry, you know something about it, you can become an expert because I think the winners often come from those who have a insight into

the industry that others don't have. So you're looking for that insight that says this is how this really works and you build a startup around that and then if you have the right network to help you raise funding, you tell you build the product, you go to market, you sell it, you know it comes down to being able to fulfill all of those requirements to make it all take it all the way through.

Yeah, absolutely. I've seen some people pivot completely, maybe they've been in retail forever and now they're going into cybersecurity and I, a lot of these net new business, I don't see the correlation, like you mentioned having a good network, you know, that saying your network is your network, it comes to mind and if you have experience in one field, staying in that field and kind of

finding solutions or problems that are in that field make a lot of sense to me. I know I recently sat in on a pitch for a baby bottle company that redid and retooled how baby bottles are, you know, on the market and they've done amazing, staggering numbers and it's just a bottle with a different top on it and so I think I love the people are coming and inventing new ways to do things and it's awesome to see some of these startup companies create amazing businesses really quick.

What are you seeing the, what business is there a specific sector that's growing faster right now? Is it tech? Is it AI? Is it, you know, healthcare? Is there any one industry that's really, you know, innovating and making new, you know, raising new dollars right now? Well, healthcare is one that's always raising dollars and is such a big market. You don't have to go very far to convince people there's money there and there's also a lot of problems to be solved so it's one of the best markets to

go after from a startup point of view but in this, it's a big market. There's a lot of money that goes into it from all angles so I think that's probably the one that always is available in driving. Everything else like AI is enabling technology that helps you get there. There are other sectors like aerospace, transportation and so forth but I always looked at healthcare as being one of the biggest ones to be a part of so and that that's always going to be true. Even in recession,

people still need the solutions to come out of that. That's great. So just kind of in closing any final like maybe the top three things for people to that we haven't talked about that you can share any other, you know, tips from your perspective that you can share with our listeners. Sure. So in raising funding it's all about the team. You want to find the team that really can

take you all the way there. In any startup failure I invested in it ultimately came down to the team just was not up to the task so you always want to make sure you get the team that is up to the task and is a great one in that case. And then to always make sure that you're working in the, I like to say that the cutting edge you need to go out a little ways from your comfort zone in order

to find new opportunities. If you stay back in the comfort zone you're probably going to be crowded out from too many other competitors and you need to have a little running room space to do the project on your own. And then on the third is I think working with the, in the angel world it's it comes down to sharing the deal flow and the diligence. So you always want to go out and give first and pay it forward first to in order to build a network of people that will help you

help enough other people get what they want you'll get what you want. And that's that's a key part of the angel mantra so make sure that you're out giving to the other people in the network. That's great feedback. You know I've listened to a couple of pitches recently and some were really really great and others seem like it was the first time they've ever talked about their businesses

but they've been around for ten or so years. So when it comes to actually the pitch anything you can share about the actual pitch to the listeners or any like recommend like practice of course practice your pitch any kind of key takeaways for people that are pitching. Well always like the idea of the city of a pitch being a monologue turned it into a collaboration involved the investor in the process as you pitch and gain some level of feedback along the way.

You know mentioned the problem the solution how it works and then check interest what do you think about that and see if you're tracking along or if they're tracking along with you as you go through it and try to figure out where they consider the risks and the deal are and so you want dialogue with it. I have some of the viewers that is just a wall of words and we're grinding through every slide no

matter what and in the end they don't really know if they if the message landed or not. And so the key is to take the investor on the journey with you and not run them over with with your deck and make sure that you get make it a two-way conversation even if it's not meant to be try to get some feedback along the way so you understand it by the end what's working and what's not or where you go from here. That's great. I think you've shared amazing tips and good feedback for our listeners and

I want to thank you so much for being on the Executive Connect podcast today. Any final thoughts, hall or anything? No thanks for having me on here Melissa appreciate all the great work you guys do and looking forward to all the wonderful things you have coming up podcasting you'll find is a great way to meet people and learn a ton about the industry and I'm sure you're going to enjoy the ride. Thank you so much and that's the Executive Connect podcast.