Instrumentl

instrumentl

So, you need money. L Pitches have become a form of entertainment. Tech press sensationalizes funding announcements. et’s face it, the startup world fetishizes fundraising. But despite all the buzz, you should think long and hard about whether raising money is the right move. For many companies, it’s not. Fundraising will eat a huge chunk of your time, lock you into a cycle where you must continue raising ever larger amounts of money to survive, and dilute your ownership and control as a founder. If you can build a profitable business any other way, do it. But if you are truly setting out to build a high-growth startup tackling a multi-billion dollar market, then teaming up with the right investors is key. More than just providing capital, great investors contribute know-how, credibility and connections. Before closing your first check, you’ll need a feel for the milestones that investors expect at each round of funding. You’ll need to understand the pros and cons of the various investment instruments and when to use them. And you’ll need a working vocabulary of the terms you’ll be negotiating. So, here’s your cheat-sheet. Investment Rounds How much money should raise, and when? While the definitions are fluid, early-stage investing is usually framed in three buckets: Pre-Seed, Seed, and Series A. Here are finger-in-the-air approximations for each: You’ve already created a prototype and are now building your minimum viable product (MVP), but want to raise $50k to $500k at a low ($1m to $2.5m) valuation to give you up to 12 months of runway to launch your MVP and test the market for product-market fit. Pre-Seed. Your product is launched, you’re generating over $50k monthly revenue, and you want to raise $750k to $3m (at a valuation of $3m to $10m) for 18–24 months of runway to add a few key hires, really dial in product-market-fit, and figure out how to produce consistent, double-digit month-over-month growth. Seed. . You’re generating $100k to $200k in monthly revenue and are growing 10% to 30% month-over-month. Congratulations, you’re now in Series A territory. At this stage you’re probably ready to raise $4m to $15m (at a $15m to $50m valuation). Series A These are merely rough rules of thumb, and they’ve been changing significantly from year to year. To , the definitions are less important than the headline goal for each round, which can be summarised as minimum-viable product (round 1), product-market fit (round 2), and sustainable growth (round 3). Jason Calacanis’s point Since this post is about closing your investor, it’s worth highlighting that angels (much less VCs) don’t invest in business plans anymore (unless you’re Elon Musk). You need at least a prototype, and preferably a minimum viable product and some initial customer traction, before you spend time and energy trying to raise pre-seed funding. first . Visualization by Anna Vital Investment Instruments With those funding milestones in mind, let’s survey the investment instruments at your disposal and consider when to use each one. (It goes without saying though that I’m not a lawyer and this isn’t legal advice — just my notes as a fellow founder.) Equity round An equity round or “priced round” is when you and your investors agree on a valuation for your company and issue new shares to those investors. This often involves negotiating additional terms such as liquidation preferences, anti-dilution rights, boards seats, etc. It's the most complicated (and therefore most time consuming and expensive) method of the three, and for that reason is usually reserved for Series A rounds, and most certainly involves attorneys. Here are a few very basic terms, though there are many others: The total amount of money you raise in a given round. If you’re trying to raise a $1 million seed round, for example, then the round size is simply $1 million. Round size. The agreed-upon value of your company at a certain time. It’s the number most negotiated by founders and investors since it determines the investor’s ownership and the founder’s dilution. Valuation. When additional shares are issued to new shareholders, the existing shareholders end up owning less of the company than they did before. This is called dilution. For example, if you raise a $1 million round at a $5 million valuation (thereby giving the new investors $1 million worth of shares), the new investors will then own 16.7% ($1m/$6m) of the company, diluting the existing owners by 16.7%. Dilution. In short, equity rounds are usually reserved for Series A. But they are getting easier and cheaper. Here’s a blog post from Yokum that . compares several sets of standardized equity seed round documents Convertible note The convertible note circumvents much of the complexity of equity rounds, though it introduces some complications of its own. The convertible note is a debt instrument that converts into equity at a later point, usually at a subsequent equity round. This makes it a good candidate for pre-seed and seed investments that are intended to convert into equity at Series A. Rather than set an explicit valuation, the convertible note typically features both a valuation cap and a discount rate (though it can have just one or the other) which determine how many shares the investor receives when the note converts into equity. However, since the convertible note is essentially a loan, it also includes a maturity date (when it has to be paid back) and interest rate. Therein lies the catch 22 of the convertible note: it can lead to a founder/investor conflict if the maturity date is reached before a conversion event has occurred, since the startup would at that time be obligated to repay the investor. Here are the terms you need to know: The date when the convertible note is due and the company must pay back the loan. Two years is common. Maturity date. As a debt instrument, the convertible note usually accrues interest. 5% to 7% is common. Interest rate. The maximum valuation at which the investor’s capital will convert into equity. This is the most negotiated term. Cap. The discount rate applies if the valuation in a subsequent equity round is below the specified cap. See the example below. Discount. While equity rounds used to be the only way investments were done, the relative ease of the convertible note led to its widespread adoption for early-stage startup investments around 10 years ago. But you have to watch out that the maturity date doesn’t came back to bite you. For further discussion of the equity vs. convertible note debate, see these posts from and . Jason Lemkin Mark Suster SAFE Wouldn’t it be great if there was an investment instrument that offered the simplicity of the convertible note without the maturity date risk and loan-that-isn’t-intended-as-a-loan awkwardness? There is: it’s called a SAFE, or Simple Agreement For Future Equity. It features a cap and discount just like the convertible note, but it’s not a loan and it doesn’t have a maturity date or interest rate. There are only two terms to negotiate with your investor: The maximum valuation at which the investor’s capital will convert into equity. (It works exactly like the cap on the convertible note.) Cap. The discount rate applies if the valuation in a subsequent equity round is below the specified cap. It’s typically around 20%. (Again, just like the convertible note.) Discount. Since its creation in 2013 by YCombinator, the SAFE has quickly become the go-to instrument for early-stage fundraising in Silicon Valley, and increasingly across the U.S. (though it’s still a novelty outside the U.S.) I recommend using it unless you have a good reason not too. For more about the SAFE, see: https://www.ycombinator.com/documents/ Understanding Cap and Discount We briefly defined the cap and discount when talking about the convertible note and SAFE above, but they can take some effort to wrap your brain around. Here’s an example to better understand the interplay between the cap and discount. Let’s say someone invests $1 million in your startup on a convertible note with a $5 million cap and a 20% discount. Here’s how it would play out in both an up- and down-round scenario. If you were to later raise an equity round at a $10 million valuation (well above the cap), the note holder’s $1 million investment would convert at a $5 million valuation, since the cap on the note was $5 million. Up-round: On the other hand, if you instead raise an equity round at only a $4 million valuation (i.e. below the cap), then the 20% discount rate would kick in, causing the note holder’s $1 million investment to convert at a $3.2 million valuation (e.g. $4 million * 0.8). Down-round: Parting Tips Whichever investment instrument you choose for closing your first investor, it’s important to follow the rules, file the right forms, and keep your affairs in order. Here are three important things to keep in mind. While there are occasionally legal workarounds, startups can generally only accept investments from accredited investors—individuals with a net worth (excluding their primary residence) over $1 million, or who earn above $200,000 annually (or over $300,000 collectively with their spouse). This is intended to safeguard people who are not financially sophisticated from making risky investments. for more. You should only raise money from accredited investors. See this post from Cooley This applies not only to equity rounds, but to any form of investment including the convertible note and SAFE instruments mentioned above. The deadline for filing the form with the Securities and Exchange Commission is 15 days after the first investment. It’s a PDF form that you or your attorney submit online using the SEC’s “EDGAR” system, with whom you must first register to get a username and password (which they call a CIK number and access code, respectively). For more information, . If in doubt, seek legal advice. You must file a Form D with the SEC when you raise money. see the SEC’s guide to filing a Form D Short for “capitalization table,” your is an overview of who owns what at your company. As you issue founder shares, accept investments, and grant options to employees, having a single source of truth is crucial for making informed decisions about your business. This can be a spreadsheet (here’s a and ), or you can use a cap table management system. I use and recommend it; , , and also offer cap table solutions. Stay organized, but don’t overcomplicate things. Be intentional about managing your cap table. cap table template from Venture Hacks instructions on how to use it eShares Capshare Captable.io Gust Go Get ’Em Now that you know what investors expect at the pre-seed, seed, and Series A level, and are familiar with the common investment instruments and their key terms, you’ll be able to hold your own when closing your first investor. In my experience, my early backers have been some of the most supportive people I’ve ever had the privelege of working with. I hope you’ll be able to say the same. Good luck! Other Startup Cheat-Sheets This is the second post in my series. Here are others: Startup Cheat-Sheet How to Incorporate Your Company How to Close Your First Investor How to Create a Winning Pitch Deck How to Hire Employees & Advisors How to Get Into an Accelerator How to Run a Crowdfunding Campaign How to Track the Right Metrics How to do Cohort Analysis How to do Inbound Marketing How to do Outbound Marketing

Startup Cheat-Sheet: How to Close Your First Investor

In my previous article, I delved into the statistical methods to perform causal analysis. One of the methodologies involved using “instrument variables”. We will delve deep into the math of that methodology in this article series. In the first part, we will cover the basics of model specification errors and confounding; and in the second part, we will cover the math behind instrument variables. Regression model specification errors – There are two prominent kinds of regression model specification errors: Specifying the model incorrectly by exclusion of relevant variables
Specifying the model incorrectly by inclusion of irrelevant variables Of course we will have to investigate how these regression model specification errors impact the regression. Before we do that, let’s cover the derivation of a basic result. This proves that the least squares estimator is unbiased. Now, we go back to our earlier discussion on the regression model specification errors. Our objective will be to investigate the bias in the least squares error estimator because of those errors. Now that we have covered the mathematical background of confounding, we are ready to delve deep into the math of instrument variables in the part 2 of this article. In my previous article , I delved into the statistical methods to perform causal analysis. One of the methodologies involved using “instrument variables”. We will delve deep into the math of that methodology in this article series. In the first part, we will cover the basics of model specification errors and confounding; and in the second part, we will cover the math behind instrument variables. Regression model specification errors – There are two prominent kinds of regression model specification errors: previous article Specifying the model incorrectly by exclusion of relevant variables Specifying the model incorrectly by inclusion of irrelevant variables Specifying the model incorrectly by exclusion of relevant variables Specifying the model incorrectly by inclusion of irrelevant variables Of course we will have to investigate how these regression model specification errors impact the regression. Before we do that, let’s cover the derivation of a basic result. This proves that the least squares estimator is unbiased. Now, we go back to our earlier discussion on the regression model specification errors. Our objective will be to investigate the bias in the least squares error estimator because of those errors. Now that we have covered the mathematical background of confounding, we are ready to delve deep into the math of instrument variables in the part 2 of this article.

Instrument Variables and AB Testing – Part 1

On War by Carl Von Clausewitz, is part of the HackerNoon Books Series. You can jump to any chapter in this book here . War as an Instrument of Policy Book VIII: Chapter VI. B. War as an Instrument of Policy Having made the requisite examination on both sides of that state of antagonism in which the nature of war stands with relation to other interests of men individually and of the bond of society, in order not to neglect any of the opposing elements, an antagonism which is founded in our own nature, and which, therefore, no philosophy can unravel, we shall now look for that unity into which, in practical life, these antagonistic elements combine themselves by partly neutralising each other. We should have brought forward this unity at the very commencement, if it had not been necessary to bring out this contradiction very plainly, and also to look at the different elements separately. Now, this unity is the conception that war is only a part of political intercourse, therefore by no means an independent thing in itself. We know, certainly, that war is only called forth through the political intercourse of Governments and nations; but in general it is supposed that such intercourse is broken off by war, and that a totally different state of things ensues, subject to no laws but its own. We maintain, on the contrary: that war is nothing but a continuation of political intercourse, with a mixture of other means. We say, mixed with other means, in order thereby to maintain at the same time that this political intercourse does not cease by the war itself, is not changed into something quite different, but that, in its essence, it continues to exist, whatever may be the form of the means which it uses, and that the chief lines on which the events of the war progress, and to which they are attached, are only the general features of policy which run all through the war until peace takes place. And how can we conceive it to be otherwise? Does the cessation of diplomatic notes stop the political relations between different nations and Governments? Is not war merely another kind of writing and language for political thoughts? It has certainly a grammar of its own, but its logic is not peculiar to itself. Accordingly, war can never be separated from political intercourse, and if, in the consideration of the matter, this is done in any way, all the threads of the different relations are, to a certain extent, broken, and we have before us a senseless thing without an object. This kind of idea would be indispensable even if war was perfect war, the perfectly unbridled element of hostility, for all the circumstances on which it rests, and which determine its leading features, viz., our own power, the enemy’s power, allies on both sides, the characteristics of the people and their Governments respectively, etc., as enumerated in the first chapter of the first book, are they not of a political nature, and are they not so intimately connected with the whole political intercourse that it is impossible to separate them? But this view is doubly indispensable if we reflect that real war is no such consistent effort tending to an extreme, as it should be according to the abstract idea, but a half and half thing, a contradiction in itself; that, as such, it cannot follow its own laws, but must be looked upon as a part of another whole, and this whole is policy. Policy in making use of war avoids all those rigorous conclusions which proceed from its nature; it troubles itself little about final possibilities, confining its attention to immediate probabilities. If much uncertainty in the whole action ensues therefrom, if it thereby becomes a sort of game, the policy of each cabinet places its confidence in the belief that in this game it will surpass its neighbour in skill and sharpsightedness. Thus policy makes out of the all-overpowering element of war a mere instrument, changes the tremendous battle-sword, which should be lifted with both hands and the whole power of the body to strike once for all, into a light handy weapon, which is even sometimes nothing more than a rapier to exchange thrusts and feints and parries. Thus the contradictions in which man, naturally timid, becomes involved by war, may be solved, if we choose to accept this as a solution. If war belongs to policy, it will naturally take its character from thence. If policy is grand and powerful, so will also be the war, and this may be carried to the point at which war attains to its absolute form. In this way of viewing the subject, therefore, we need not shut out of sight the absolute form of war, we rather keep it continually in view in the back ground. Only through this kind of view, war recovers unity; only by it can we see all wars as things of one kind; and it is only through it that the judgment can obtain the true and perfect basis and point of view from which great plans may be traced out and determined upon. It is true the political element does not sink deep into the details of war, Vedettes are not planted, patrols do not make their rounds from political considerations, but small as is its influence in this respect, it is great in the formation of a plan for a whole war, or a campaign, and often even for a battle. For this reason we were in no hurry to establish this view at the commencement. While engaged with particulars, it would have given us little help; and, on the other hand, would have distracted our attention to a certain extent; in the plan of a war or campaign it is indispensable. There is, upon the whole, nothing more important in life than to find out the right point of view from which things should be looked at and judged of, and then to keep to that point; for we can only apprehend the mass of events in their unity from one standpoint; and it is only the keeping to one point of view that guards us from inconsistency. If, therefore, in drawing up a plan of a war it is not allowable to have a two-fold or three-fold point of view, from which things may be looked at, now with the eye of a soldier, then with that of an administrator, and then again with that of a politician, etc., then the next question is, whether policy is necessarily paramount, and everything else subordinate to it. That policy unites in itself, and reconciles all the interests of internal administrations, even those of humanity, and whatever else are rational subjects of consideration, is presupposed, for it is nothing in itself, except a mere representative and exponent of all these interests towards other States. That policy may take a false direction, and may promote unfairly the ambitious ends, the private interests, the vanity of rulers, does not concern us here; for, under no circumstances can the art of war be regarded as its preceptor, and we can only look at policy here as the representative of the interests generally of the whole community. The only question, therefore, is, whether in framing plans for a war the political point of view should give way to the purely military (if such a point is conceivable), that is to say, should disappear altogether, or subordinate itself to it, or whether the political is to remain the ruling point of view, and the military to be considered subordinate to it. That the political point of view should end completely when war begins, is only conceivable in contests which are wars of life and death, from pure hatred: as wars are in reality, they are as we before said, only the expressions or manifestations of policy itself. The subordination of the political point of view to the military would be contrary to common sense, for policy has declared the war; it is the intelligent faculty, war only the instrument, and not the reverse. The subordination of the military point of view to the political is, therefore, the only thing which is possible. If we reflect on the nature of real war, and call to mind what has been said in the third chapter of this book, that every war should be viewed above all things according to the probability of its character, and its leading features as they are to be deduced from the political forces and proportions, and that often—indeed we may safely affirm, in our days, almost always—war is to be regarded as an organic whole, from which the single branches are not to be separated, in which therefore every individual activity flows into the whole, and also has its origin in the idea of this whole, then it becomes certain and palpable to us that the superior stand-point for the conduct of the war, from which its leading lines must proceed, can be no other than that of policy. From this point of view the plans come, as it were, out of a cast; the apprehension of them and the judgment upon them become easier and more natural, our convictions respecting them gain in force, motives are more satisfying, and history more intelligible. At all events, from this point of view, there is no longer in the nature of things a necessary conflict between the political and military interests, and where it appears it is therefore to be regarded as imperfect knowledge only. That policy makes demands on the war which it cannot respond to, would be contrary to the supposition that it knows the instrument which it is going to use, therefore, contrary to a natural and indispensable supposition. But if it judges correctly of the march of military events, it is entirely its affair, and can be its only to determine what are the events and what the direction of events most favourable to the ultimate and great end of the war. In one word, the art of war in its highest point of view is policy, but, no doubt, a policy which fights battles, instead of writing notes. According to this view, to leave a great military enterprise, or the plan for one, to a purely military judgment and decision, is a distinction which cannot be allowed, and is even prejudicial; indeed, it is an irrational proceeding to consult professional soldiers on the plan of a war, that they may give a purely military opinion upon what the cabinet should do; but still more absurd is the demand of Theorists that a statement of the available means of war should be laid before the general, that he may draw out a purely military plan for the war or for a campaign, in accordance with those means. Experience in general also teaches us that notwithstanding the multifarious branches and scientific character of military art in the present day, still the leading outlines of a war are always determined by the cabinet, that is, if we would use technical language, by a political not a military functionary. This is perfectly natural. None of the principal plans which are required for a war can be made without an insight into the political relations; and, in reality, when people speak, as they often do, of the prejudicial influence of policy on the conduct of a war, they say in reality something very different to what they intend. It is not this influence but the policy itself which should be found fault with. If policy is right, that is, if it succeeds in hitting the object, then it can only act on the war in its sense, with advantage also; and if this influence of policy causes a divergence from the object, the cause is only to be looked for in a mistaken policy. It is only when policy promises itself a wrong effect from certain military means and measures, an effect opposed to their nature, that it can exercise a prejudicial effect on war by the course it prescribes. Just as a person in a language with which he is not conversant sometimes says what he does not intend, so policy, when intending right, may often order things which do not tally with its own views. This has happened times without end, and it shows that a certain knowledge of the nature of war is essential to the management of political commerce. But before going further, we must guard ourselves against a false interpretation of which this is very susceptible. We are far from holding the opinion that a war minister, smothered in official papers, a scientific engineer, or even a soldier who has been well tried in the field, would, any of them, necessarily make the best minister of State where the sovereign does not act for himself; or in other words, we do not mean to say that this acquaintance with the nature of war is the principal qualification for a war minister; elevation, superiority of mind, strength of character, these are the principal qualifications which he must possess; a knowledge of war may be supplied in one way or the other. France was never worse advised in its military and political affairs than by the two Brothers Belleisle and the Duke of Choiseul, although all three were good soldiers. If war is to harmonise entirely with the political views and policy, to accommodate itself to the means available for war, there is only one alternative to be recommended when the statesman and soldier are not combined in one person, which is, to make the chief commander a member of the cabinet, that he may take part in its councils and decisions on important occasions. But then again, this is only possible when the cabinet, that is the government itself, is near the theatre of war, so that things can be settled without a serious waste of time. This is what the Emperor of Austria did in 1809, and the allied sovereigns in 1813, 1814, 1815, and the arrangement proved completely satisfactory. The influence of any military man except the General-in Chief in the cabinet, is extremely dangerous; it very seldom leads to able vigorous action. The example of France in 1793, 1794, 1795, when Carnot, while residing in Paris, managed the conduct of the war, is to be avoided, as a system of terror is not at the command of any but a revolutionary government. We shall now conclude with some reflections derived from history. In the last decennary of the past century, when that remarkable change in the art of war in Europe took place by which the best armies found that a part of their method of war had become utterly unserviceable, and events were brought about of a magnitude far beyond what any one had any previous conception of, it certainly appeared that a false calculation of everything was to be laid to the charge of the art of war. It was plain that while confined by habit within a narrow circle of conceptions, she had been surprised by the force of a new state of relations, lying, no doubt, outside that circle, but still not outside the nature of things. Those observers who took the most comprehensive view, ascribed the circumstance to the general influence which policy had exercised for centuries on the art of war, and undoubtedly to its very great disadvantage, and by which it had sunk into a half-measure, often into mere sham fighting. They were right as to fact, but they were wrong in attributing it to something accidental, or which might have been avoided. Others thought that everything was to be explained by the momentary influence of the particular policy of Austria, Prussia, England, etc., with regard to their own interests respectively. But is it true that the real surprise by which men’s minds were seized, was confined to the conduct of war, and did not rather relate to policy itself? That is, as we should say: did the ill success proceed from the influence of policy on the war, or from a wrong policy itself? The prodigious effects of the French revolution abroad were evidently brought about much less through new methods and views introduced by the French in the conduct of war than through the changes which it wrought in state-craft and civil administration, in the character of governments, in the condition of the people, etc. That other governments took a mistaken view of all these things; that they endeavoured, with their ordinary means, to hold their own against forces of a novel kind, and overwhelming in strength; all that was a blunder in policy. Would it have been possible to perceive and mend this error by a scheme for the war from a purely military point of view? Impossible. For if there had been, even in reality, a philosophical strategist, who merely from the nature of the hostile elements, had foreseen all the consequences, and prophesied remote possibilities, still it would have been purely impossible to have turned such wisdom to account. If policy had risen to a just appreciation of the forces which had sprung up in France, and of the new relations in the political state of Europe, it might have foreseen the consequences, which must follow in respect to the great features of war, and it was only in this way that it could arrive at a correct view of the extent of the means required as well as of the best use to make of those means. We may therefore say, that the twenty years’ victories of the revolution are chiefly to be ascribed to the erroneous policy of the governments by which it was opposed. It is true these errors first displayed themselves in the war, and the events of the war completely disappointed the expectations which policy entertained. But this did not take place because policy neglected to consult its military advisers. That art of war in which the politician of the day could believe, namely, that derived from the reality of war at that time, that which belonged to the policy of the day, that familiar instrument which policy had hitherto used—that art of war, I say, was naturally involved in the error of policy, and therefore could not teach it anything better. It is true that war itself underwent important alterations both in its nature and forms, which brought it nearer to its absolute form; but these changes were not brought about because the French Government had, to a certain extent, delivered itself from the leading-strings of policy; they arose from an altered policy, produced by the French Revolution, not only in France, but over the rest of Europe as well. This policy had called forth other means and other powers, by which it became possible to conduct war with a degree of energy which could not have been thought of otherwise. Therefore, the actual changes in the art of war are a consequence of alterations in policy; and, so far from being an argument for the possible separation of the two, they are, on the contrary, very strong evidence of the intimacy of their connexion. Therefore, once more: war is an instrument of policy; it must necessarily bear its character, it must measure with its scale: the conduct of war, in its great features, is therefore policy itself, which takes up the sword in place of the pen, but does not on that account cease to think according to its own laws. About HackerNoon Book Series: We bring you the most important technical, scientific, and insightful public domain books. This book is part of the public domain. Carl von Clausewitz (2006). On War. Urbana, Illinois: Project Gutenberg. Retrieved https://www.gutenberg.org/cache/epub/1946/pg1946-images.html This eBook is for the use of anyone anywhere at no cost and with almost no restrictions whatsoever. You may copy it, give it away or re-use it under the terms of the Project Gutenberg License included with this eBook or online at www.gutenberg.org , located at https://www.gutenberg.org/policy/license.html .

War as an Instrument of Policy

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Mispricing Opportunities: Underserved Small Business Segments Immigrant communities are the heartbeat of American entrepreneurship. They’re launching startups, scaling innovations, creating jobs, and driving economic growth. According to payroll company Gusto, immigrants have formed about around 20% of new businesses, with rates over 40% in some states. A more recent study at MIT reveals, on a per capita basis, newcomers are 80% more likely to start their own businesses than US-born citizens. In fact, many of the biggest names in tech—Google, SpaceX, and Zoom—were founded by immigrants, highlighting the fact that nearly 55% of America’s billion-dollar startups have immigrant origins. But despite their entrepreneurial drive and solid track records, immigrant business owners face steep barriers to accessing affordable funding sources. The data is clear: immigrant and minority entrepreneurs are denied bank loans more frequently than average applicants regardless of their credit scores - even if they are found to have lower delinquencies. These founders face higher scrutiny around income verification and asset documentation, creating a nearly impenetrable barrier to capital. This underserved market is significant. About 5 million new businesses (mainly small or micro) are formed every year, with around 20% owned by immigrants. Assuming half of these immigrant-backed businesses survive their first 5 years and roughly 40% of them seek a loan, this translates into approximately 300 thousand potential new credit customers in the market annually. Of these, 70% could get approved for a loan averaging nearly $500 thousand each*. For lenders, they might have looked into but essentially ignored a more than $70B lending market by origination volume. Moreover, such credit relationships might unlock cross-selling opportunities, creating extra revenue streams to lenders. Drivers of Mispricing The challenges for immigrant founders are often systemic. Language barriers, cultural obstacles, and rigid documentation standards make for a complex landscape. Without conventional documentation, US credit histories, or W2 incomes, many simply don’t fit the mold set by traditional underwriting standards. This gap leaves many entrepreneurs relying on costly equity financing or informal funding from personal or family sources. Yet hope on the horizon. The fintech sector is stepping in, offering innovative, tech-driven solutions designed to serve this overlooked market segment. Technologies Unlocking Origination and Underwriting With advancements in artificial intelligence (AI) and Open Banking regulatory reforms (like 1033 rulemaking), we’re seeing real change in how lenders assess creditworthiness. Cash flow-based underwriting model looks beyond credit scores, focusing instead on business dynamics like bank transactions, customer relationships, and revenue streams. Take this scenario: a small business supplies materials to a reputable, large-scale manufacturer. That stable client relationship could be the key factor in determining lending eligibility. APIs and alternative data sources generated through AI/machine learning technologies could additionally include 20-500 data points, making risk assessment more comprehensive. On individual entrepreneurs specifically, their alternative personal scoring could be as accurate as traditional methodology. Combined with conventional scores, total assessment results could offer a nearly 5% lift on model predictive performance for risk differentiation. Innovative Funding and Distribution Channels As origination and underwriting evolve, so do the sources and methods of distributing originated small business loans along the credit value chain. Here’s a breakdown: Diverse Funding Sources: The cautious stance of traditional banks has paved the way for private funders to step up. Percent and YieldStreet have been democratizing access to small business lending, allowing a broader range of individual accredited investors to get involved. Additionally, companies like Bluevine leverage larger-scale asset managers/private credit funds to support small businesses at scale.


Digitized Distribution Platforms: Platforms like iCapital, CAIS, and Moonfare are making institutional private credit more accessible and streamlined. These platforms enable wealth advisors (e.g., RIAs and independent broker-dealers) to connect private credit funds with accredited investors and family offices, minimizing operational burdens. For investors, this approach offers exposure to lending opportunities that are diversified and professionally managed, similar to a mutual fund experience.


Secondary Market Innovations: Secondary markets for small business revenue-based financial assets are creating an exciting new space. An increasing number of secondary marketplaces have emerged and allowed investors to trade small business loan shares like stocks. By leveraging innovations like blockchain, these markets could unlock new funding channels for entrepreneurs, even as they remain niche for now. Micro Connect Financial Assets Exchange (MCEX), for example, is a licensed revenue-based financing exchange out of China. It enables small businesses to raise capital through revenue-based financing that can be traded like stock shares or ETFs. MCEX has set an inspiring example for US lenders and investors, showing a transparent, flexible, and scalable pathway for funding for small business owners in America, combining liquidity with steady cash distributions. Immigrant and minority-owned businesses are indispensable to the American economic growth. But traditional funding hasn’t kept pace, leaving many small business loans mispriced. As technology reshapes lending and distribution, the small business financing market is set for a transformative evolution, bringing inclusivity, cost savings, and increased liquidity to the forefront. Notes: Triangulated using average SBA (7) loan size as well as interview data by the author
Information only. No investment advice provided in this article
Revenue-based financing can be packaged into loans and other credit instruments; only focused on loans in this article Feature Image*: Google co-founder Sergey Brin (left) came to the US at the age of 6* Mispricing Opportunities: Underserved Small Business Segments Mispricing Opportunities: Underserved Small Business Segments Immigrant communities are the heartbeat of American entrepreneurship. They’re launching startups, scaling innovations, creating jobs, and driving economic growth. According to payroll company Gusto , immigrants have formed about around 20% of new businesses, with rates over 40% in some states. A more recent study at MIT reveals, on a per capita basis, newcomers are 80% more likely to start their own businesses than US-born citizens. In fact, many of the biggest names in tech—Google, SpaceX, and Zoom—were founded by immigrants, highlighting the fact that nearly 55% of America’s billion-dollar startups have immigrant origins . payroll company Gusto 20% 40% A more recent study at MIT 80% 55% 55% of America’s billion-dollar startups have immigrant origins But despite their entrepreneurial drive and solid track records, immigrant business owners face steep barriers to accessing affordable funding sources. The data is clear: immigrant and minority entrepreneurs are denied bank loans more frequently than average applicants regardless of their credit scores - even if they are found to have lower delinquencies. These founders face higher scrutiny around income verification and asset documentation, creating a nearly impenetrable barrier to capital. denied bank loans more frequently regardless of their credit scores - even if they are found to have lower delinquencies. This underserved market is significant. About 5 million new businesses (mainly small or micro) are formed every year, with around 20% owned by immigrants. Assuming half of these immigrant-backed businesses survive their first 5 years and roughly 40% of them seek a loan, this translates into approximately 300 thousand potential new credit customers in the market annually. Of these, 70% could get approved for a loan averaging nearly $500 thousand each*. For lenders, they might have looked into but essentially ignored a more than $70B lending market by origination volume. Moreover, such credit relationships might unlock cross-selling opportunities, creating extra revenue streams to lenders. This underserved market is significant. 20% first 5 years 40% 300 70% $500 thousand For lenders, they might have looked into but essentially ignored a more than $70B lending market by origination volume. For lenders, they might have looked into but essentially ignored a more than $70B lending market by origination volume. Drivers of Mispricing Drivers of Mispricing The challenges for immigrant founders are often systemic. Language barriers, cultural obstacles, and rigid documentation standards make for a complex landscape. Without conventional documentation, US credit histories, or W2 incomes, many simply don’t fit the mold set by traditional underwriting standards. This gap leaves many entrepreneurs relying on costly equity financing or informal funding from personal or family sources. Yet hope on the horizon. The fintech sector is stepping in, offering innovative, tech-driven solutions designed to serve this overlooked market segment. Technologies Unlocking Origination and Underwriting Technologies Unlocking Origination and Underwriting With advancements in artificial intelligence (AI) and Open Banking regulatory reforms (like 1033 rulemaking ), we’re seeing real change in how lenders assess creditworthiness. Cash flow-based underwriting model looks beyond credit scores, focusing instead on business dynamics like bank transactions, customer relationships, and revenue streams. Take this scenario: a small business supplies materials to a reputable, large-scale manufacturer. That stable client relationship could be the key factor in determining lending eligibility. 1033 rulemaking 1033 rulemaking APIs and alternative data sources generated through AI/machine learning technologies could additionally include 20-500 data points, making risk assessment more comprehensive. On individual entrepreneurs specifically, their alternative personal scoring could be as accurate as traditional methodology. Combined with conventional scores, total assessment results could offer a nearly 5% lift on model predictive performance for risk differentiation. 20-500 5% Innovative Funding and Distribution Channels Innovative Funding and Distribution Channels As origination and underwriting evolve, so do the sources and methods of distributing originated small business loans along the credit value chain. Here’s a breakdown: Diverse Funding Sources: The cautious stance of traditional banks has paved the way for private funders to step up. Percent and YieldStreet have been democratizing access to small business lending, allowing a broader range of individual accredited investors to get involved. Additionally, companies like Bluevine leverage larger-scale asset managers/private credit funds to support small businesses at scale. Digitized Distribution Platforms: Platforms like iCapital, CAIS, and Moonfare are making institutional private credit more accessible and streamlined. These platforms enable wealth advisors (e.g., RIAs and independent broker-dealers) to connect private credit funds with accredited investors and family offices, minimizing operational burdens. For investors, this approach offers exposure to lending opportunities that are diversified and professionally managed, similar to a mutual fund experience. Secondary Market Innovations: Secondary markets for small business revenue-based financial assets are creating an exciting new space. An increasing number of secondary marketplaces have emerged and allowed investors to trade small business loan shares like stocks. By leveraging innovations like blockchain, these markets could unlock new funding channels for entrepreneurs, even as they remain niche for now. Micro Connect Financial Assets Exchange (MCEX), for example, is a licensed revenue-based financing exchange out of China. It enables small businesses to raise capital through revenue-based financing that can be traded like stock shares or ETFs. MCEX has set an inspiring example for US lenders and investors, showing a transparent, flexible, and scalable pathway for funding for small business owners in America, combining liquidity with steady cash distributions. Diverse Funding Sources: The cautious stance of traditional banks has paved the way for private funders to step up. Percent and YieldStreet have been democratizing access to small business lending, allowing a broader range of individual accredited investors to get involved. Additionally, companies like Bluevine leverage larger-scale asset managers/private credit funds to support small businesses at scale. Diverse Funding Sources : The cautious stance of traditional banks has paved the way for private funders to step up. Percent and YieldStreet have been democratizing access to small business lending, allowing a broader range of individual accredited investors to get involved. Additionally, companies like Bluevine leverage larger-scale asset managers/private credit funds to support small businesses at scale. Diverse Funding Sources larger-scale asset managers/private credit funds Digitized Distribution Platforms: Platforms like iCapital, CAIS, and Moonfare are making institutional private credit more accessible and streamlined. These platforms enable wealth advisors (e.g., RIAs and independent broker-dealers) to connect private credit funds with accredited investors and family offices, minimizing operational burdens. For investors, this approach offers exposure to lending opportunities that are diversified and professionally managed, similar to a mutual fund experience. Digitized Distribution Platforms : Platforms like iCapital, CAIS, and Moonfare are making institutional private credit more accessible and streamlined. These platforms enable wealth advisors ( e.g., RIAs and independent broker-dealers ) to connect private credit funds with accredited investors and family offices, minimizing operational burdens. For investors, this approach offers exposure to lending opportunities that are diversified and professionally managed, similar to a mutual fund experience. Digitized Distribution Platforms e.g., RIAs and independent broker-dealers Secondary Market Innovations: Secondary markets for small business revenue-based financial assets are creating an exciting new space. An increasing number of secondary marketplaces have emerged and allowed investors to trade small business loan shares like stocks. By leveraging innovations like blockchain, these markets could unlock new funding channels for entrepreneurs, even as they remain niche for now. Micro Connect Financial Assets Exchange (MCEX), for example, is a licensed revenue-based financing exchange out of China. It enables small businesses to raise capital through revenue-based financing that can be traded like stock shares or ETFs. MCEX has set an inspiring example for US lenders and investors, showing a transparent, flexible, and scalable pathway for funding for small business owners in America, combining liquidity with steady cash distributions. Secondary Market Innovations : Secondary markets for small business revenue-based financial assets are creating an exciting new space. An increasing number of secondary marketplaces have emerged and allowed investors to trade small business loan shares like stocks. By leveraging innovations like blockchain, these markets could unlock new funding channels for entrepreneurs, even as they remain niche for now. Micro Connect Financial Assets Exchange (MCEX) , for example, is a licensed revenue-based financing exchange out of China. It enables small businesses to raise capital through revenue-based financing that can be traded like stock shares or ETFs. MCEX has set an inspiring example for US lenders and investors, showing a transparent, flexible, and scalable pathway for funding for small business owners in America, combining liquidity with steady cash distributions. Secondary Market Innovations Micro Connect Financial Assets Exchange (MCEX) Immigrant and minority-owned businesses are indispensable to the American economic growth. But traditional funding hasn’t kept pace, leaving many small business loans mispriced. As technology reshapes lending and distribution, the small business financing market is set for a transformative evolution, bringing inclusivity, cost savings, and increased liquidity to the forefront. Notes: Notes: Notes: Triangulated using average SBA (7) loan size as well as interview data by the author Information only. No investment advice provided in this article Revenue-based financing can be packaged into loans and other credit instruments; only focused on loans in this article Triangulated using average SBA (7) loan size as well as interview data by the author SBA (7) loan size Information only. No investment advice provided in this article Revenue-based financing can be packaged into loans and other credit instruments; only focused on loans in this article Feature Image *: Google co-founder Sergey Brin (left) came to the US at the age of 6* Feature Image Feature Image

Mispricing Opportunity: Lending to Immigrant Founders

የተሳሳተ ዋጋ መስጠት፡ ለስደተኛ መስራቾች ብድር መስጠት

Възможност за погрешно ценообразуване: Кредитиране на основатели имигранти

Špatná cena: Půjčka zakladatelům přistěhovalců

Oportunidad de fijación de precios erróneos: préstamos a fundadores inmigrantes

הזדמנות לתמחור שגוי: הלוואות למייסדי עולים

Սխալ գնագոյացման հնարավորություն. վարկավորում ներգաղթյալների հիմնադիրներին

誤った価格設定の機会：移民の創業者への融資

ໂອກາດທີ່ບໍ່ຖືກຕ້ອງ: ການໃຫ້ກູ້ຢືມແກ່ຜູ້ກໍ່ຕັ້ງຄົນເຂົ້າເມືອງ

गलत मूल्य निर्धारण गर्ने अवसर: आप्रवासी संस्थापकहरूलाई उधारो

Möjlighet för felprissättning: Utlåning till invandrargrundare

Yanlış Fiyatlandırma Fırsatı: Göçmen Kuruculara Borç Verme

错误定价的机会：向移民创始人提供贷款

The Cyclicality of the Crypto Markets Shows Its Hand Once Again

What IS this Chatbot Anyway? My AI chatbot: Top Content Bot, is a companion for anyone who is just getting started or wants to break into the world of content creation and influencing. This chatbot simplifies the process of developing social media strategies, content ideas, and tips to better capture one’s desired niche and shorten the learning curve for new creators. Wanna See A Quick Demo? You can experience the Top Content Bot right here. It’s easy to use and a resounding success when I ran tests to see if the bot was versatile enough to give niche advice while also being able to gently start beginners off on their content creation journeys. A video recording of the bot in use can be found here. Behind the Scenes: The Top Content Bot The creation of the bot was quite easy even though I don’t know how to code! Using Coze’s straightforward bot creation dashboard, I was able to create the Top Content Bot, integrating high-end APIs, workflows, and databases at the click of a button. There was also a YouTube tutorial video on Coze’s channel that made the already seamless process even easier with detailed explanations about each option offered and its effects on the bot’s eventual outcome. Initially, I used a prompt saying, “You are a content strategy and idea generation bot. Your job is to help me make great content by generating ideas for my videos, blogs and any other shared media”. Thanks to the tutorial video, I used the “Optimize” option which helped me detail exactly what I wanted the bot to do with written code, templates, and formats. From there, I added what databases my bot would draw knowledge from. I went with YouTube, Google Search, TikTok, and Chat GPT4. These databases are vast with the knowledge of user-influenced search engine prompts and video formats for the chatbot to draw inspiration from when serving users. I also added a voice assistant to read out its questions or answers in order to accommodate users with visibility impairments. Start To Finish To begin, I went to the ‘+’ sign on the top left of the Coze homepage. I entered the name of my bot and a short description, and I was taken to this page which allowed me to type in and optimize my prompt for the creation of the bot. I thought I was going to get confused for sure, but the Coze tutorial video was very helpful in clearing up any ambiguities. A Preview and debug section ensured that every step of the way, I could correct any discrepancies before publishing the AI agent. I’m very proud of how efficient this bot is after only one iteration. The chat box is responsive both in English and French, so it is available to more users looking for a way to easily tap into their creativity. I hope that this chatbot makes at least one content creator’s work a bit easier to stay on top of. In the future, I hope that this chat will be instrumental in developing content creators and helping them get into the game faster instead of wasting precious time doubting themselves or doing research and strategy that can be completed in minutes. I also hope future iterations of this bot will include storyboard generation and script writing optimization to enhance the quality of the content being created by target users. Conclusively, this was the easiest foray into no-code tech I have experienced. It has inspired me to try my hands at even more AI bot creation in the future. I believe that as the barrier to non-code writers in the internet community continues to be lowered, the quality of tech solutions available will begin to rise. What IS this Chatbot Anyway? My AI chatbot: Top Content Bot, is a companion for anyone who is just getting started or wants to break into the world of content creation and influencing. This chatbot simplifies the process of developing social media strategies, content ideas, and tips to better capture one’s desired niche and shorten the learning curve for new creators. Wanna See A Quick Demo? You can experience the Top Content Bot right here . It’s easy to use and a resounding success when I ran tests to see if the bot was versatile enough to give niche advice while also being able to gently start beginners off on their content creation journeys. here A video recording of the bot in use can be found here . here Behind the Scenes: The Top Content Bot The creation of the bot was quite easy even though I don’t know how to code! Using Coze’s straightforward bot creation dashboard, I was able to create the Top Content Bot, integrating high-end APIs, workflows, and databases at the click of a button. There was also a YouTube tutorial video on Coze’s channel that made the already seamless process even easier with detailed explanations about each option offered and its effects on the bot’s eventual outcome. Initially, I used a prompt saying, “You are a content strategy and idea generation bot. Your job is to help me make great content by generating ideas for my videos, blogs and any other shared media”. Thanks to the tutorial video, I used the “Optimize” option which helped me detail exactly what I wanted the bot to do with written code, templates, and formats. From there, I added what databases my bot would draw knowledge from. I went with YouTube, Google Search, TikTok, and Chat GPT4. These databases are vast with the knowledge of user-influenced search engine prompts and video formats for the chatbot to draw inspiration from when serving users. I also added a voice assistant to read out its questions or answers in order to accommodate users with visibility impairments. Start To Finish To begin, I went to the ‘+’ sign on the top left of the Coze homepage. I entered the name of my bot and a short description, and I was taken to this page which allowed me to type in and optimize my prompt for the creation of the bot. I thought I was going to get confused for sure, but the Coze tutorial video was very helpful in clearing up any ambiguities. A Preview and debug section ensured that every step of the way, I could correct any discrepancies before publishing the AI agent. I’m very proud of how efficient this bot is after only one iteration. The chat box is responsive both in English and French, so it is available to more users looking for a way to easily tap into their creativity. I hope that this chatbot makes at least one content creator’s work a bit easier to stay on top of. In the future, I hope that this chat will be instrumental in developing content creators and helping them get into the game faster instead of wasting precious time doubting themselves or doing research and strategy that can be completed in minutes. I also hope future iterations of this bot will include storyboard generation and script writing optimization to enhance the quality of the content being created by target users. Conclusively, this was the easiest foray into no-code tech I have experienced. It has inspired me to try my hands at even more AI bot creation in the future. I believe that as the barrier to non-code writers in the internet community continues to be lowered, the quality of tech solutions available will begin to rise.

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