Decoding Early Stage Investment Introduction to Fund Raising
What is Angel - VC funding? What do investors look for? What gets funded What does not get funded?
Start Up Financing
Why do you require funding?
Start Up FinancingPotential Sources of Funding :
Personal funds Friends and
Family Angel Institutional
Strategic Government Public Internal
Accruals
Start Up Financing Equity Capital :
Money for owning a slice of the company Ownership depends on the “valuation” of the
company Founding team will have to welcome other
“partner” Equity partner can add and/or subtract value Management, strategic plan may be impacted New shareholder may have his own demands
for quick scale up, exit, etc.
Equity Funding :Private Equity & Venture Capital
“Private Equity” means capital to companies not quoted on a stock market ,in exchange for an equity participation.
“Venture Capital” (VC) is a sub-class of Private Equity characterized by investments made for the purpose of developing, launching, and expanding new products or service offerings.
Stages of Investment
Start Up Financing :Capital Lifecycle
Seed (< $ 1 mil)Early Stages ($1 - 10 mil)Expansion/ ($ 10+ mil)development
Angels IncubatorsAccelerators Venture Capital Private Equity &Merchant Banks
Source : Angel Resource Institute
Fund Raising Pattern – Life Cycle of a Startup
How VC’s work
Investor
Investor
Investor
VCfund
Investor
Startup
Startup
Startup
What VCs do ... Sift through thousands of (good and bad)
investment propositions Identify a few valid initiatives and finance them Support, Mentor the entrepreneurs -
Financial advice Building Teams Connecting with customers Strategic Direction Focus on Milestones
Decoding the Investment Criteria at VC Funds
The IDEAUnique
InnovativeFeasible
Are you solving an important problem in a unique manner?
The SECTOR
Large Market with Growth
Potential
What is your differentiator
Crowded
space?
Can you be the market leader?
The TEAMExperience
and Background
Demonstrated Ability to
Execute
Loyalty and Commitment to the Idea
Team Structure and
Dynamics
Motivated and Passionate Risk Takers.
FUNDINGAmount of Funding
$$$
Valuation and Equity
ShareUse of Funds
Does your financial model justify the amount of funding asked?
The BUSINESSIs there currently traction?
Strong Revenue model in Place
Accurate Assessment of Technology and Future challenges
Is there a potential profitable exit for the VC???
Why are early stage VC’s Different?
Bet on people not trendsLooking for a winnerBut not afraid of failureFantastic coaches and mentors
Nurturing, Caring but Focused on Milestones
The VC MathAlways
looking for a 10X return!
VC is fundamentally an institutionalized form of finding outliers!
Why 10x?The “Portfolio Effect”
Out of Ten Start-ups Funded 2 successes at 10x or better 5 ‘OK’ returns at 2x to 5x 3 write-offs, total loss of invested money
Assessing Portfolio Risk
Anatomy of a “great” Start Up VC Bets on people not trends Driven by the big idea Looking for a ‘Winner’ Not afraid of failure Understand how to manage a portfolio of risk Serves as a fantastic coach Does her best work outside of the board room Not waiting for validation from other VCs
Most Appreciated VC Contributions
Financial Advice Corporate Strategy & Direction Sounding board for ideas Challenging status quo Contacts or market information Management recruitment Money !!!! So
urce
: “Th
e Ec
onom
ic
Impa
ct o
f Ven
ture
Cap
ital i
n Eu
rope
” (E
VCA
and
Coop
ers
&
Lybr
and)
What to look for in a VC People you LIKE !
Trustworthy & Collaborative Can bring value, not money only !
Do not have to be experts in the sector but have to understand the business.
Good network of contacts. Ask for references
Our Formula :It’s the Chemistry and not just the math that adds up to SUCCESS
Doing a startup isn't easy. Funding one isn't, either. The VC – Entrepreneur relationship isn't
simple. There'll be good times, bad times and incredibly horrible times.
Do we like each other and can we still be friends at the end of it all?
For us, this chemistry is a big deal. A smile is the best yield curve
What’s HOT Ecommerce Mobile VAS/Apps Social Media Transportation Hospitality Data Analytics Healthcare
Health, Nutrition, Fitness
Dating Social Media Online Education Cleantech Technology enabled
consumer businesses
What doesn’t get funded “Me Too” idea Poor Business
model Long gestation Esoteric, R&D
driven plans Huge marketing
spends
Niche “Lifestyle Businesses”
Too many angels, cross holdings
$$$$ for the promoters
“Arrogant” Teams
What VCs are Not Good at• Long term research investments• Sustainability• Evolutionary development• Asset maximization• Billion $ capital requirements
The Start Up MYTH
+ +
=
THANK YOU