venture capital equity funding explained - paula mariwala, seed fund
TRANSCRIPT
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 Incubators Accelerators 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
VC
fund
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 IDEA
Unique
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 TEAM
Experience and Background
Demonstrated Ability to Execute
Loyalty and Commitment to
the Idea
Team Structure and Dynamics
Motivated and Passionate Risk Takers.
FUNDING
Amount of Funding
$$$
Valuation and
Equity Share
Use of Funds
Does your financial model justify the amount of funding
asked?
The BUSINESS
Is 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 trends
Looking for a winner
But not afraid of failure
Fantastic coaches and mentors
Nurturing, Caring but Focused on Milestones
The VC Math
Always 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
urc
e: “T
he
Eco
no
mic
Im
pa
ct
of V
en
ture
Ca
pita
l in
Eu
rop
e”
(EV
CA
an
d C
oo
pe
rs &
Lyb
ran
d)
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