The Buttonwood Solutions

Interview with Tuygan Teoman, Co-founder of Buttonwood
Network, Software Designed To Empower Entrepreneurs To Take Control Of Their Financing.

The Buttonwood Agreement is the founding document of what is now New York Stock Exchange. The agreement organized securities trading in New York City and was signed on May 17, 1792 between 24 stockbrokers outside
of 68 Wall Street. Over 225 years later, Buttonwood Network is creating the second Buttonwood Agreement by building a software platform to facilitate principal-to-principal capital raising, which directly connects
entrepreneurs and their investors.

What problem is your company solving?

Buttonwood Network has developed a software that empowers entrepreneurs and management teams to raise venture capital rounds in less time & at better terms. Our platform optimizes the balancing act any CEO has between focusing on growth and raising capital to fund that growth. As-is, the capital raising process suffers from numerous inefficiencies. Entrepreneurs lose valuable time talking to prospective investors that are not a good fit or that may not have a genuine interest in the business. The process suffers from time-consuming and error-prone tasks such as email follow-ups, keeping various lists/excel files, and integrating various CRMs. It is hard to create favorable deal dynamics to get prospective investors to move at a good pace. In addition, capital raising is a mentally taxing process. By streamlining the capital raising process, we are saving the management team time and mindshare so they can devote as much time to growing business as possible while running a solid, tight fundraising campaign.

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Tell us about your new software. How does it help the entrepreneurs?

Buttonwood process enables entrepreneurs to (1) identify the right set of potential investors, (2) share information with investors seamlessly, (3) track who is interested and who needs a follow-up and (4) measure analytics on their fundraising process at any given point in time. Rather than speaking to prospective investors right away, the entrepreneur invites the prospective investors to its profile page on Buttonwood, which is a mesh between a standardized Capital IQ/Bloomberg page for a company and a multi-media pitch deck. A typical profile page on Buttonwood portrays a video of the entrepreneur making the pitch, product demos, customer case studies, industry and business overviews, TAM/market share analysis, unit economics, historical and projected financials, and FAQs. 

After prospective investors review the profile page and click the “Request Meeting/Call with Management” button, they are a more qualified lead. As a result, management teams have fewer conversations with more qualified leads – which saves time and effort. 

We recognize investors are busy as well and interesting opportunities are competing for their time and attention. The software has embedded features such as reminder nudges, good news updates to help move investors further along their due diligence process. Since activity is measured by the platform, the probability of things falling through the cracks is significantly diminished. 

How does the software help prospective investors?

In any given week, institutional investors receive dozens of decks, which follow different formats and provide only some of the information they need to see if it is interesting on a “first pass”. This means investors need to take many 30-minute introductory calls with entrepreneurs whose decks “may” be interesting at a first glance. A significant portion of those intro conversations uncover basic “no go’s” for the investor and therefore do not lead to any meaningful due diligence efforts. It is a time-consuming, inefficient, and arduous task for investors to cull through in order to identify good companies that fit their area of focus.

The core of Buttonwood is the Company Profile Page, which is very easy to navigate for prospective investors trying to do preliminary due diligence. Investors are now able to answer the basic “no go” questions in a few minutes, rather than digging through decks, data rooms and taking many introductory calls. We tried to emulate the ease of use of a standardized Bloomberg or Capital IQ page of a company while still allowing entrepreneurs to be able to tell their story the way they want to. For example, an FAQ section allows management teams to proactively and preemptively respond to the questions that are likely to come up during the due diligence process (and in response to their standardized information shown above). For the relevant opportunities, investors are in a position to decide with minimal time-spend as to whether they should look further into a company.

Furthermore, we keep track of the types of the opportunities an investor is likely to find interesting in terms of size, stage, revenue, sector, lead vs co-investment. When the CEO of a relevant company wants to meet additional institutional investors, they can utilize Buttonwood’s Marketplace. Via the marketplace, Buttonwood emails relevant institutional investors on a no-name, high-level basis to see if they would like to learn about the opportunity. We facilitate the connection when there is a mutual interest, as part of a double opt-in process. This way, Buttonwood can match interested and relevant parties while keeping the opportunities exclusive and invite-only. 

In addition to the VCs and other institutional funds on Buttonwood’s Marketplace, family offices are becoming increasingly interested in directly investing in high quality growth companies. Through the Buttonwood platform, they are in a great position to leverage the due diligence provided on the Profile Page and layer on top their own risk/return appetite to identify good, compelling investment opportunities.  

As a result, with Buttonwood, investors can (1) save a lot of time in identifying compelling, high-quality investment opportunities and (2) learn about new relevant companies they would not have otherwise received access to. 

What are some of the lessons you learned from working with your clients and their entrepreneurial journey?

As with any process, preparation is key to a successful fundraising campaign. Since fundraising has traditionally been painful, entrepreneurs tend to delay starting the process and so they want the process to be done yesterday. Enough time and effort need to be put in to achieve optimal outcomes. Timing is company specific. However, in general, entrepreneurs should plan to start their next capital raise about six to nine months before they need the cash in their bank account. Three months to lay the foundations (story prep; initial investor outreach), two to four months to run the process, one to two months for final legal due diligence, administrative process. Now this timeline has some buffer built in, but more time is always better than less. Intelligent preparation is key! 

Preparation entails not only creating materials but also crafting a succinct narrative. Entrepreneurs are so entrenched in their business (and rightfully so) that it is hard for some founders to take a step back and nail down a narrative for their company. Sometimes the messaging can be nebulous. Materials need to tick and tie with the narrative and the financials to deliver a coherent, compelling message.

Round size and valuation are critical parameters that deserve careful reflection. Fundraising should provide the high-growth companies with at least 18-24 months of runway, which, in turn, will help dictate the round size. With respect to valuations, entrepreneurs should have a very clear idea of how to get their companies to the point where the company’s assets can generate revenues supportive of such valuations.  There is a tendency to underestimate how important and difficult it is to scale a business and how long it takes to scale the business. 

Finally, whether the company has prominent backers, or the entrepreneur knows many people on Sand Hill Road already, there are high-quality, relevant potential investors outside of their network. It is true that reputable investors do make introductions to other capital providers. However, no one will be able to find every ideal investor just by one-off referrals. Having quality and reputable access to an expanded, more diversified pool of investors can drive superior outcomes for the company (e.g. raises in less time and at better terms). 

How do you believe the technology and VC landscapes would look like in the next decade?

The COVID pandemic has proven to be a pivotal wake-up call to businesses across sectors and geographies. It showed how vulnerable businesses are to exogenous shocks and recalibrated the risk scale against which companies need to run their businesses. The indispensability of technology in personal and professional communications has never been so striking.  

Accelerated by this catalyst, there will be structural changes to the institutional investor landscape as communication technologies (e.g. Zoom, Slack) continue to penetrate even the most human-capital driven industries – including finance. Although the investment sector is often the propeller behind technological innovation and is visionary in how it can help realize the future, finance and investing has lagged behind other sectors with regard to innovating itself. VCs will be actively looking for potential sources of efficiencies to streamline their investment process and entrepreneurs are themselves early adopters – especially when it comes to efficiency-enhancing tools. While the personal relationship aspect of investing will remain key, digitization will play a significantly more active role improving the quality of human interactions in the next decade. For example, most human interactions have many little but cumulatively cumbersome barriers (e.g. drafting bespoke emails, scheduling calls, remembering to follow-up, answering specific questions in conversation) that can instead be replaced with a good product that sits in the background while facilitating an even easier and more direct connection between two sets of people. 

Who entrepreneurs partner with is also beginning to shift. More and more high-growth companies are looking to find institutional investors that can provide not only financial capital but also strategic support. In response, more and more VC’s will bolster their portfolio operations teams to work alongside their portfolio companies. As the focus shifts towards supporting operational success, VCs will welcome innovations tackling streamlined access to high quality deal flow. Family offices, endowments, foundations and other traditional LPs are and will continue to have an increasing presence in cap tables directly, providing not only capital to fund growth but also relevant connections to support companies’ growth. The recent emerging trend of cross-border investing will gain more momentum too as technology allows geographically remote investors to get comfortable allocating capital in domestic companies. Institutional investors, in particular sovereign wealth funds, will be looking to invest in cutting-edge technologies across the globe with a view to bring such innovation to their own geographies.  

What is the current investment appetite your investors seem to have?

Recent performance of a couple of unicorns in the public markets had already started to bring on new dimensions to institutional investors’ expectations from a high-growth company when the COVID pandemic cemented a more disciplined approach to growth. There is no question that risk appetite has abated considerably and that valuations have come down. Efficient use of capital to fund growth and a clear path to profitability has jumped to the forefront of the investment discipline.

Since the outbreak of the COVID pandemic, companies can generally be grouped in three categories: Those that have taken a significant hit on the topline, those that will have a more muted growth path and those that will thrive in the current state of the economy. For the companies whose businesses are severely impacted by the pandemic and their investors, the reaction has been to shore up existing capital to weather the storm and to focus on next generation products. VCs particularly exposed to impacted industries have generally stopped looking at new investments for the time being. The focus for the companies whose growth rates will be 10-30% less depending on the circumstances has shifted to cutting down on costs to extend runway and prioritizing growth in core areas. This can involve bridges from their existing investors as well as smaller extension rounds from new and/or strategic investors. Finally, the focus for the companies whose businesses are likely to thrive in the post-pandemic world has shifted to investing in growth and in marketing. Perhaps surprisingly, appetite for companies neutral to or positively impacted by COVID has remained robust, and while multiples may be lower than they were just a couple of months ago, investors are willing, able and interested to invest in new exciting opportunities. 

As an asset class, venture is regaining investor interest. Earlier in the crisis, institutional investors focusing on both public and private markets initially shifted their focus to public markets due to the high potential returns. As the equity markets have recovered a significant portion of the losses and the uncertainty of the outlook on the economy has muted potential gains in public markets, investors are coming back slowly and resuming their private investment activity. 

The result is a tangible interest from investors with dry powder (including a good chunk of VCs) to get into strong companies at attractive valuations. While a considerable portion of the VCs initially declined to take a look at new investment opportunities in order to be able to attend to the needs of their existing portfolio companies, such VCs have recently started to come back and hold due diligence calls with companies over the past several weeks. As expected, most investors pay special attention to and prioritize those investment opportunities where the business is likely to be propelling forward on the heels of the COVID-pandemic. Due diligence processes focus on how the company can grow sustainably with an eye towards profitability and cash flow generation. 

While private investment activity has been muted by the pandemic, deals are still getting done. With dry powder remaining on the sidelines, valuations coming down and disciplined growth becoming a mantra adopted by more and more companies, we believe that investment activity will pick up pace substantially over the next several months.