Download - I Want / Need Funding
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Just because you are not eligible for a loan, it does not mean you should automatically seek VC funding
If it was only about funding, all companies funded would be doing well and all those without funding would be floundering
I want/NEED funding
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WHO COULD BE POTENTIAL INVESTORS Angel….
– Family/friends/fools (3Fs) or Other?– Debt / Equity / Mix
VC– Early stage/seed or later stage– Equity / convertible
Corporate– Strategic– Financial
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CHECK OUT …INVESTMENT FLAVOURS Indian / International
Individual / Group / Corporate…
Legal / tax implications / any pitfalls..
Sweat equity / in kind as contrasted to in cash
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QUALITY / QUANTITY
In the initial stages, there is a low QUANTITY of– Revenue– Employees– Customers – Cashflow– Repeat business– Marquee clients
How about QUALITY of the above?
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QUALITY / QUANTITY
Can you improve QUALITY of parameters to increase attractiveness of company, for example:– Repeat customers– Higher priced projects/products– Well known individuals as advisors/mentors
This will help you get improved multiples for your valuation
…hmmm..coming to valuation..
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I NEED XXX Rs/ m USD..
What could be a realistic valuation? If I cannot get the valuation I want.. Then what
next– Review investor category
- 3 F’s (family/friends/fools) - Other external angel investors / HNIs - Venture Capital Funds– Check alternate scenarios
i.e Plan A vs Plan B vs. Plan C– Review business model, eg. Hire seniors based on flexi-pay,
hire vs. buying, service + product…
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I NEED XXX Rs/ m USD..
Work to improve/create valuation over time Valuation increases geometrically with
milestones Valuation based on intangibles, of team
(experience, qualification, past history of success as entrepreneur or employee), IP, quality of revenue etc..
Try to pin down the value drivers...such as brand customers, increased paying customers..
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I NEED XXX Rs/ m USD..
Prepare your Business Plan per your requirement, i.e financials, word document, presentation etc. to be customized for investor
Clean up records and presentations for due diligence to minimize value loss
List pipeline of customers for the next year in detail, for eg. categories could be A,B,C,D; A indicating guaranteed with contracts, B pipeline - almost certain, C pipeline - initial, D yet to be targeted, etc..
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• A Business Plan is a Communication Tool
BUSINESS PLANS
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BEFORE YOU START
Take time out to think…
WHAT is the purpose of the business plan – Is it for internal use– Is it for investors (VC/bank/angel investor)– For other purpose (incubation)
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BEFORE YOU START
Take time out to think…
WHAT are the strengths… that you bring to this business
WHAT are the constraints… that you have to either – Address or– Accept (and work keeping this in mind)
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A BUSINESS PLAN COMMUNICATES… Many times, a reader’s perception of
your business/idea will be based on the business plan you prepare
Substance and form matter, more so, when hundreds of plans are reviewed
Different persons will look for different things, a banker will check if a loan can be repaid, the VC will look for value multiples on exit
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LOGICAL STRUCTURE
The plan must have structure and include:Business / ideaPeople behind idea/projectMarket size expectedMarketing strategyCompetitionFinancialsOther information to make it complete
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BUSINESS PLAN SET … could contain Word document (15 – 25 pages) Presentation deck (15 – 20 slides) Spreadsheet with financials (Balance
Sheet, Profit and Loss Account, Cash Flow; 3-5 years)
You may like to keep in hand a separate executive summary or summary business plan as an initial teaser document (3-10 pages)
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BUSINESS PLAN SET
The set should be Self speaking: ie with limited clarification required (including with regard to abbreviations & technical terms) Reader friendly: key information that you want to convey should not be hidden amongst too much details
Do not think only of what you want to share, rather think about what your potential reader may want to know
PREDICTIONS
There should be a believable story about the future performance of the company. For eg.
“Sales is expected to grow at more than average industry expected rate of growth in this services company. This is because of the quality of the management team, the investors and the past track record of the company in getting and retaining customers.
This is visible in the billing rates per hour which are higher than industry average”
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PREDICTIONS … hmmm..
Many uncertainties exist, including that of – Revenue streams– Costs, capital and revenue in nature– Capital inflow at different times– Resource constraints
Can you leave it by saying . ..“What will be will be.. The future’s not ours to see?”
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PREDICTIONS … hmmm..
Some uncertainties may be thought through and reflected using tools:– Scenario analysis: Best/expected/worst case– Sensitivity analysis: Changes in some key
parameters, such as raw material cost increasing by 10%
Some other techniques:– Start with what you know rather than what
you do not, not everything is unknown…– Start with the immediate future, gradually
building upto the medium term…
FORECAST FINANCIALS Capture business strategy and model
into a set of financial statements In short term calculate detailed
numbers, in long term summarize trends expected
The forecast must stand up to scrutiny and must be internally consistent
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FORECAST FINANCIALS
Consistency checks– Check out key ratios and for internal consistency– Benchmark against industry parameters
Cash flow and liquidity– How will company raise funds– How will funds be utilised
Recheck final numbers; verify that they do reflect the overall business model and plan
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THANK YOU
We provide advisory services to corporates, VCs, entrepreneurs, early stage ventures in– Business model, plan and forecast review– Deal/VC funding, negotiation and valuation advisory– Funding strategy and value creation plan
We follow a network model, founded by a Chartered Accountant, former: faculty at IIMB, VP at Ernst &Young, COO at IIMB entrepreneurship centre
Class notes and reading material at www.slideshare.net/anjanavivek