Here are some frequently asked questions by entrepreneurs to guide your consideration of applying to CTAN.
- About CTAN
- How to Engage with CTAN
- CTAN Investment Preferences
- CTAN Funding Cycle
- Austin Startup Ecosystem
What are some of the benefits of angel investment?
Angel investors are high net worth individuals (accredited investors) who have been very successful in previous professional endeavors. Angels bring experience, specific industry knowledge, and personal and professional connections to companies in which they have invested. Angels only get a return on their money if your company succeeds, so if they invest their money, they are also personally investing in your company’s success.
What types of companies does CTAN fund?
CTAN members fund unique, scalable, and defensible startup companies. CTAN does not fund lifestyle businesses or one-off endeavors such as bowling alleys, coffee shops, dance studios, or franchises. Please review our Investment Criteria for more details.
What is a lifestyle business?
A lifestyle business is more akin to a small business endeavor, which typically provides a lifestyle-level income over the course of the business. Lifestyle businesses generally are not scalable and don’t aim for an “exit” or acquisition, which would result in significant profit for the owners and investors.
Does CTAN offer loans?
CTAN members do not give loans, as would a bank or other financial institution. CTAN members do, however, participate in convertible notes, which are debt instruments that convert into equity in the relatively near future during an equity raise. In general, CTAN prefers equity rounds, but will consider convertible notes with a valuation cap.
HOW TO ENGAGE WITH CTAN
Should I send my decks to CTAN?
No—save your executive summary and business plan for your application. We do not review deals outside of our established Funding Cycle.
What is the best way to meet CTAN members?
The best way to meet CTAN investor members is through your own professional network. Ask your peers and advisors if they know a CTAN member who might be willing to connect with you. A number of our members actively mentor and attend events in the startup ecosystem, so you might meet them in the community yourself. Otherwise, you may have an opportunity to meet CTAN members if you apply to our Funding Cycle and receive an invitation to our Screening Forum.
Can CTAN staff help connect me to individual angels who might be interested in my deal?
Unfortunately, no. CTAN member names and contact information is confidential. It is incumbent upon the member to share their personal information, should they wish to be public about their angel investing. Therefore, CTAN does not distribute names, emails, or phone numbers. If you meet a CTAN member that you connect with and would like to keep in touch with, you can ask if they are willing to share their contact information with you.
Will CTAN work with my broker?
Because CTAN has an open application and is a nonprofit organization, we do not work with brokers. Rather, we invite entrepreneurs to review our website and apply directly if they’re interested in seeking funding from CTAN members.
How do founders reach other investors?
A founder’s network is usually key to their fundraising success. We suggest that founders who are raising capital for the first time ask other founders for referrals and warm intros to angels or institutional investors who may be interested in their deal. We also recommend that founders attend mentor hours in the startup community and other ecosystem events where investors may be present.
Angel investors generally want to be helpful, so don’t be afraid to ask for a follow up meeting, or introductions to other potential investors or customers if you meet an angel with whom you click. Having an advocate on the inside of an angel group can be very powerful. Again, we recommend that founders ask their network for warm intros to CTAN members prior to applying. (We do not recommend cold outreach to angel investors.)
CTAN INVESTMENT PREFERENCES
Is my company ready to apply to CTAN?
Since CTAN is not structured as a fund, each individual member has their own thesis on what makes a deal ready for investment. Generally, investors will want to see a deal de-risked as much as is appropriate for the stage, sector, and valuation of the company. That being said, please do refer to our Investment Criteria to see if your deal is within the typical investment range for our group.
Does CTAN fund companies outside of Texas?
While CTAN members do invest in many Austin- and Texas-based companies, we have a number of out-of-state portfolio companies and welcome out-of-state entrepreneurs based to apply. (CTAN does not consider international companies.)
With what terms does CTAN invest?
CTAN members invest in both equity and convertible note rounds. Our term sheets vary depending on the type of deal, the risk associated with your startup, industry dynamics, and the timeline to exit; however we do strive to invest under commonly accepted investment terms. Angel investors only invest in preferred stock (not common stock). Liquidation preferences vary from deal to deal, and each section of a term sheet is negotiated depending on the individual circumstances. CTAN members do not invest is SAFE or KISS notes.
What is a good resource to begin learning about term sheets?
We recommend reading the book Venture Deals: Be Smarter than your Lawyer and Venture Capitalist by Brad Feld and Jason Mendelson. They break down term sheet language so that it’s easy to understand, and they provide an entrepreneur’s perspective at the end of each chapter. You should be familiar with the basics before engaging an accredited investor. For a deeper dive, we also recommend Term Sheets & Valuations by Alex Wilmerding.
Does any member of the CTAN staff invest or make investment decisions?
CTAN staff does not make investment decisions, nor do we invest in CTAN companies. The CTAN staff organizes and executes the Funding Cycle process and entrepreneur and investor educational events, and coordinates all logistics of CTAN operations. Staff conducts some due diligence on behalf of the members and supports the CTAN membership and entrepreneur community in any way possible.
What is the average size of CTAN’s investment?
Individual CTAN members typically write checks between $10k-$100k, though some members will invest larger amounts, especially in follow-on rounds. The total combined investment from CTAN members averages ~$450k across sectors and stages. CTAN does not typically fund entire rounds so we suggest that you continue pursuing conversations with other investors while engaging in the CTAN process.
How does CTAN feel about companies that already have a lead investor?
Companies that have a lead investor and are looking to fill their round are encouraged to apply to CTAN. Having a lead investor can accelerate a deal’s progress through CTAN’s funding cycle, especially if the lead investor is willing to share their due diligence summary (deal memo) and term sheet. In this case, CTAN is happy to sign a Non-Reliance / Hold-Harmless Agreement with the lead investor. In rare instances, CTAN members may not be comfortable with a lead investor’s terms and may ask the entrepreneur to renegotiate those items before members invest.
How does CTAN think about founder salaries?
Investors, including CTAN members, want their interests to be aligned with founders’ interest. That means that they want founders to be able to make a living and support their families without getting comfortable to the degree that their company transforms into a lifestyle business. Investors don’t want founders to be operating out of extreme scarcity, but they do want them to be motivated to grow and eventually sell their business.
How does CTAN feel about SAFE and KISS agreements?
CTAN does not consider SAFE or KISS agreements for investment.
Does CTAN have a preference for C Corps or LLCs?
There has been a lot of conversation among CTAN members and the angel investor community about which entity is preferable. There are some tax benefits to the investor if there are early losses on an LLC, which is an important consideration for some investors. Other investors prefer the governance structure of C Corps, with which they may be more familiar. Regardless of investors’ initial preference, companies should be willing to convert from an LLC to a C Corp at the appropriate time, if applicable for acquisition. The vast majority of CTAN’s investors will invest in either entity.
If you haven’t already converted to a C Corp, we recommend you keep your company structured as an LLC until you negotiate terms with your lead investor. Converting to a C Corp might be part of the deal negotiation with any investor, including CTAN, if the investor has a strong preference for investing in C Corps. It’s far easier to transition from LLC to C Corp than from C Corp to LLC, so don’t do so until you are ready. More information is available on the LLC vs. C Corp conversation HERE.
CTAN FUNDING CYCLE
How long is your funding cycle process? When will my company receive investment?
From application to investment, our Funding Cycle can take as few as six weeks to complete. If your deal continues to garner member interest after our Pitch Night (Week 3), your deal will progress into formal due diligence. From there, the length of due diligence can vary greatly depending on your ability to promptly produce materials and respond to requests and our members’ bandwidth to drive the deal toward closing.
Other items that can delay completion of due diligence include the availability of your references, any questionable results on your third-party background check, term negotiations, and unforeseen macro economic changes that affect the viability of your deal. We reserve three weeks for due diligence in ideal circumstances, but you should expect the due diligence process to take longer before your round actually closes.
I can’t wait 6+ weeks. Do you issue emergency funding or loans?
No, CTAN does not issue short term or emergency financing.
How can I circumvent the Funding Cycle process?
CTAN members are investing as individuals, and the evaluation process of each entrepreneur and each deal takes time. Our Funding Cycle is an organized and intentional process during which members screen and evaluate investment opportunities. If your company is successfully funded through CTAN’s funding cycle, we will be happy to syndicate your deal externally to partnering angel groups around the state and country to help fill your round. Similarly, if you have already completed due diligence with an angel group that is a member of the Angel Capital Association (ACA) — or other lead investor — and they have signed a term sheet with you, we may be able to consider your deal for inbound syndication. If accepted as an inbound syndication deal, your process with CTAN will be expedited. Email us at director[at]ctan.com if you think your round qualifies for syndication to CTAN.
I’m interested in applying, but I have some questions. Can you help?
We certainly hope that the entrepreneur section of our website and this FAQ page answers most of your questions. If you haven’t already, please review the other pages in this entrepreneur section before reaching out to staff. If you do still have questions after reviewing all our materials, please direct questions to director[at]ctan.com. Staff will be happy to answer your questions via email as they are able. Staff is not generally available to accommodate phone calls.
Can companies competitive to current CTAN portfolio companies still apply?
Yes, companies who are competitors of other companies in the CTAN portfolio can still apply.
What fees are associated with applying to CTAN?
CTAN charges an application fee of $250, due prior to submitting your application. This fee grants each company the opportunity to come through two CTAN cycles of their choosing. That means, if you apply once and don’t get as far in our process as you were hoping to, you can apply again one more time without paying the application fee again. (You must “sit out” at least one cycle prior to reapplying but can otherwise apply to the future cycle of your choosing.) If CTAN members invest $200,000 or more in your company, CTAN collects an administrative fee of $5,000 upon closing. If CTAN members invest $400,000 or more in your company, CTAN collects an administrative fee of $7,500 upon closing.
I’m having trouble submitting my application on ProSeeder, what should I do?
If you experience trouble submitting your application on ProSeeder, first make sure you have read all instructions fully and that all attached files fit within the size limitations listed in the application. If you continue to experience issues with your application, try switching browsers. If this doesn’t solve your problem, email CTAN staff at director[at]ctan.com. CTAN staff will help you troubleshoot as much as they are able and may recommend that you submit a support ticket to ProSeeder for technical issues.
Can I defer my application after applying?
If circumstances change after you submit your application and you decide that it would be better to defer to a later cycle, email CTAN staff at director[at]ctan.com as soon as you make the decision. In most cases, CTAN staff is able to defer applications with advance notice. However, if you notify CTAN staff after we have already reviewed your application, it may not be possible to defer. Therefore, you should only submit your application if you fully intend on participating in the upcoming funding cycle.
What is a SIG?
SIG stands for Sector Interest Group. At CTAN, we have five SIGs: B2B Software, B2C Software, Consumer Products, Hardware/Other, and Life Sciences. All companies that apply to CTAN are required to declare their SIG. Our members also identify which SIG(s) most closely aligns with their expertise, so that their sector knowledge can be leveraged throughout the funding cycle.
Are there SIGs that are more popular than others?
B2B Software and Life Sciences are the largest SIGs in terms of number of portfolio companies and actual dollars invested by CTAN. However, on the member side, the SIGs are fairly evenly split, and members can participate in more than one SIG. We do not reserve slots by SIG for Pitch Night; instead, Pitch Night invitations are based on overall member interest across SIGs.
What if our company fits more than one SIG?
Pick the SIG that most closely aligns with your company’s core business. For instance, if your company creates a digital tech solution for healthcare, we recommend you select Life Sciences rather than B2B Software.
Are there any complications involved in applying to multiple angel groups at the same time?
Not at all; CTAN doesn’t expect you to raise from our members alone. In fact, in most cases, CTAN members cannot fill an entire round, even if the deal garnered a high level of interest. We do ask that founders keep CTAN aprised on their progress with other angel networks upon application and throughout our funding cycle so the groups can potentially collaborate. If CTAN invests in a deal with room still available, we’ll also work to syndicate the round with other angel groups to try to help close the round. And on the flipside, if a deal has investors which commit before CTAN, we want to know; it will only make your deal more attractive to our members.
Which Funding Cycle events do I need to attend in-person?
It is recommended that entrepreneurs attend all CTAN events in-person. Attendance at the Screening Forum is not required, but it is your only opportunity to meet and make an impression on members before Member Voting opens, so attendance is highly encouraged. Remote attendance is not possible.
Attendance at our Pitch Event is required; we cannot accommodate remote pitches. Should your deal progress into Due Diligence, we highly recommend attending at least the initial meeting in-person, but a conference call can be accommodated if needed.
Can my teammates attend Funding Cycle events with me?
Each invited company is allowed to have up to two team members (including the presenting entrepreneur) at the Screening Forum and Pitch Night.
How does the Member Voting process work?
During Member Voting, each member is allocated 20 points to assign to the companies that they find the most compelling. Members cannot allocate more than five points to any single company. After voting is complete, CTAN staff reviews the results and the four companies that receive the highest number of points are invited to participate in Week 2, Staff Review. More details on the CTAN Funding Cycle HERE.
How much time will I have to present at Pitch Night?
Each presenter at Pitch Night is allocated 8 minutes to pitch and 8-10 minutes for investor Q&A. These parameters are subject to change depending on the event agenda, and exact details will be confirmed with you should you be invited to pitch.
How many slides does CTAN recommend for my pitch decks?
The faster that investors are able to understand a deal’s value proposition the better. So in that sense, we recommend that slides are simplified and kept to a minimal number, within reason. We also suggest including an appendix where you can elaborate on further details of the deal and business plan.
Will CTAN ask me to share trade secrets?
CTAN does not ask entrepreneurs to share trade secrets. While it is important for investors to understand a company’s differentiators, founders are welcome to speak in generalities around their intellectual property if they do not hold issued patents.
Does CTAN sign non-disclosure agreements (NDAs)?
No. Most angel investors and venture capitalists will not sign NDAs.
What happens if the whole group doesn’t love my deal but one or two CTAN members do?
At any point in the CTAN Funding Cycle, if a company does not receive an invitation to continue in the process, the founder’s contact information is made known to our members. From there, interested members are encouraged to reach out to the founder directly to potentially mentor or invest.
Who drives the process of negotiating terms?
If a founder doesn’t already have terms set by lead investor, it becomes a negotiation between the entrepreneur and the member Deal Lead, who is representing all CTAN members. It is not a contentious process, and typically the entrepreneur and Deal Lead have a substantial amount of rapport built up prior to negotiating terms.
Is there a percentage range of the company that I should expect to be diluted in my early funding rounds?
The biggest founder dilution typically comes in the earliest rounds. A general rule of thumb is that a founder will be diluted up to ~17% in Pre-Seed and/or Seed Rounds, but that later raises like A, B, and C Rounds founders should only dilute founders ~8-12%. Investors want founders to stay motivated and generally don’t like to see too much founder dilution in early rounds, especially if that entrepreneur is going to need to raise subsequent rounds of capitals. If a founding team’s ownership dips below 20%, their investors might start to get concerned about their motivation.
What happens if there are CTAN members interested in my deal who I find to be not helpful, or maybe even difficult to work with?
It’s incumbent upon founders to accept investment from people with whom they want to work. Founders will get to know our members throughout the Due Diligence process, and just as investors may ask a founder to meet one on one, founders may want to request individual meetings as well. Founders can also ask staff or their Deal Lead for information on how each individual member who has soft-circled will be able to add value to the company. It’s likely that while an individual may not seem particularly helpful to your business at the moment, they may have skills or connections that will be valuable to a company in the future.
If founders have any concerns about a CTAN member’s behavior throughout the process, please notify CTAN staff immediately.
If CTAN members invest in my company, what will it look like on my Cap Table?
CTAN is not a fund and we do not create special purpose vehicles (SPVs) for our investments. That means that each individual CTAN member will invest with their own funds and will appear on your Cap Table. That said, because we do a thorough due diligence process, CTAN investments are not “party rounds.” The number of CTAN members in a round varies greatly but the average is typically 6-8 investors.
AUSTIN STARTUP ECOSYSTEM
What relationships does CTAN have with local incubators or accelerators?
We have relationships with virtually all of the accelerators in town and across Texas, including Austin Technology Incubator (ATI), Capital Factory, DivInc, MassChallenge, SKU, Sputnik, Techstars, etc. We also maintain relationships with community support organizations, such as the Austin Chamber of Commerce. Our members mentor and participate in functions at each one of these organizations. We occasionally refer accelerators and incubators to a startup who may need their help, or they refer to us a startup that is ready to raise money.
What is CTAN’s relationship with other investors?
CTAN is a member of the Alliance of Texas Angel Networks (ATAN), which consists of more than a dozen angel groups across Texas. CTAN staff speaks with fellow ATAN groups at least monthly, and the groups syndicate deals regularly. CTAN is also a member of the Angel Capital Association (ACA), which is the trade association for angel investor groups in North America. CTAN staff maintains relationships with many other ACA member groups and syndicates deals, both inbound and outbound, often. When any of these groups syndicate deals, we all invest on the same terms.
CTAN also maintains relationships with a number of venture capital firms, micro-VC firms, and family offices. We have syndicated deals to and from VC firms in Texas and across the U.S. In addition, our membership consists of more than a dozen family offices and micro-VC funds.