Frequently Asked Questions
- I have a great idea. How do I get ATI to support it?
- What do you mean you are investors?
- How much of my company do you expect me to give up?
- How much does ATI invest in companies?
- What if I need more money than what ATI can provide?
- What kinds of securities does ATI invest in?
- How does ATI achieve business returns on their investments?
- What kind of return does ATI look for?
- I hear the ATI diligence process is tedious and painstaking. Is that true?
- Since I’m the entrepreneur directing the business, why must I give up any control through board seats? And why do founders hold fewer than a majority of them?
- Why are regular reports to ATI necessary after the investment has been made?
I have a great idea. How do I get ATI to support it?
ATI doesn’t fund ideas, ATI funds businesses. And, ATI doesn’t give money to businesses, ATI invests in them.
In order to be considered by ATI, your business must have a working prototype, beta customers, a go-to-market strategy, and a staffing plan. To find out if you are ready for ATI, review the Applying For Funding page and then complete the online ATI Candidate Application.
What do you mean you are investors?
Success in early-stage business evolves from a solid foundation that includes:
- Passion for the idea
- A market for the product, service, or solution
- Management drive to execute
- Resources to support growth
- A quality management team and business network
- And capital
For the right businesses, ATI provides some or most of the early-stage capital in the form of an equity investment in exchange for an ownership interest in the company, a role in guiding how that capital is deployed, and the expectation of achieving a future profit.
How much of my company do you expect me to give up?
There is no one answer for this question.
The ownership interest ATI acquires is based on the company’s size, the funding required for current and future needs, and the demonstrated effectiveness of management to execute their business plan. ATI believes allowing management to preserve majority ownership is the best incentive for them to successfully achieve their goals. ATI does not engage with a company expecting to control it.
How much does ATI invest in companies?
ATI invests as little as $10,000 and as much as $1 million in the companies that get funded. The average ATI investment is $200,000.
What if I need more money than what ATI can provide?
Businesses that fit the ATI criteria are usually seeking to raise $500,000 – $1,500,000. In the event ATI cannot fully fund company needs, ATI can access a network of angel capital investors throughout the west, share the opportunity, and seek support through a syndicate. Reaching out to the angel network does not guarantee additional funding but does serve as an important resource in many cases.
What kinds of securities does ATI invest in?
ATI is an equity investor with strong preference for Convertible Preferred Stock. (See the ATI Standard Term Sheet to learn more about the structure of these securities.) Occasionally, ATI invests in Convertible Notes, but only when those notes serve as short-term bridges to the issuance of a round of Preferred Stock. In general, ATI does not engage in riskier equity investments such as SAFEs.
How does ATI achieve business returns on their investments?
ATI invests in companies in order to help them achieve rapid growth. If the business is successful and is acquired or goes public, ATI sells it’s equity and ‘exits.’ ATI is not interested in getting annual dividends or revenue shares as payment during the life of the investment. Those are the rewards for investors in slower growth companies.
What kind of return does ATI look for?
ATI invests in disruptive new companies that have little or no business history, possibly no pre-existing market for products or services, unproven technologies, and an entrepreneurial team that is new to running a startup. ATI seeks returns commensurate with those risks. In the screening process, ATI looks for opportunities that produce an internal rate of return between 55% – 80% per annum, or 10 times the investment in 5-7 years.
While seemingly high, it is important to note that these are returns given to minority shareholders who have provided important capital for business growth. In contrast, the entrepreneurs, who own much bigger portions of the company’s equity, have typically invested much smaller amounts of capital. If ATI investors succeed, the entrepreneurs succeed to a much higher degree and realize much larger returns on their investments. We consider this a good partnership.
I hear the ATI diligence process is tedious and painstaking. Is that true?
Diligence is a critical step in understanding the potential investment. While the process can be distracting for an entrepreneur who would rather spend time building the business, thorough due diligence is necessary to get investors across the ‘finish line’. Furthermore, participating in the diligence process helps management hone responses and better prepare for their future steps with institutional (or venture capital) fund investors or investment banks. Experience shows that most business difficulties arise during the early months of a company’s existence. ATI’s early diligence helps identify these issues quickly, enabling management to address them and prepare for the work ahead.
Since I’m the entrepreneur directing the business, why must I give up any control through board seats? And why do founders hold fewer than a majority of them?
The composition of the board is one of the most critical decisions young businesses will make. When ATI invests, there is an expectation that the number of founders with board seats be matched by members from ATI. There is also an expectation that the board will include an odd number of directors with one outsider, or ‘independent,’ member included.
The ATI requirement of adding Board representation is not about usurping the role of senior management. It is about protecting the ATI investment and supporting thoughtful, strategic choices as the company grows. The requirement of having one Board seat filled by an outside, independent director offers several advantages. In addition to providing industry expertise or helpful insights, this outside director can serve as a tie-breaker. Outsiders considered for board seats are identified, vetted, and selected by both the ATI team and company management.
ATI strongly supports the inclusion of an independent director on a board. When company management is unwilling to share the decision-making by including outsiders we generally see a couple of obstacles emerge: (1) founders are unlikely to find investors willing to contribute capital to their enterprises, and/or (2) growth is limited by business cash flow or the founders’ abilities to personally invest. This leaves success of the company to “organic growth” with the company increasing output, the customer base broadening, or new and attractive product development driving growth. But, organic growth happens at a much slower pace than growth fueled by outside investment and acquisition.
The composition of the board will evolve over time as growth and new funding rounds lead to changing needs. However, establishing a strong, diverse group of board members who can offer good strategic advice, provide accountability, and help as needed is the best way to achieving success and long-term value.
Why are regular reports to ATI necessary after the investment has been made?
Most founders underestimate the time required to build a successful business. In fact, most SaaS applications anticipate a round of funding by ATI to be sufficient to take the company to cash flow positive within a single year. In addition, they expect to offset future funding needs with business cash flow. Our experience proves otherwise.
Bumps along the way (i.e., the product takes longer to build, the sales cycle is longer, the cost of customer acquisition turns out to be much higher than anticipated, staff turns over) typically cause delays and cash burn. By reporting regularly to ATI, potential problems can be averted before they turn into company-threatening crises. Furthermore, regular communication reinforces trust between the investors and management and lends to a productive relationship that can lead to additional cash infusion, business network support, and intellectual equity. Many investors at ATI have been successful entrepreneurs themselves and are an asset to the conversation within young, growing companies.
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