venture investing cbs
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DigbijoyShukla
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} Anentrepreneurisapersonwhohaspossessionofanewenterprise,ventureorideaandisaccountablefor
theinherentrisksandtheoutcomeSourceWikipedia
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} ForanentrepreneurhowevertrivialitmaysounditsextremelyessenCaltotranslatehisideatopaperasoneofthefirstcriCcalstepstowardsbuildingacomprehensivebusinessplan&visionpathforhisventure.
} Thejourneyfrombeingamereideainonesheadtopaperisnotan
easyone,asitforcestheentrepreneurtothinkwithclarity,logic&seetheopportunityinitstotality.
} ThisexerciseisnotjustafundingapplicaConbutactuallyavision
documentforyourventure,severalentrepreneurshavingdonethisexercisesawforthemselvesthepotenCal&thegapsintheopportunitythattheywantedtopursue.
} Henceifyouareseriousaboutyouridea&youfeelyouareonabig
opportunitystartpuJngittopapernotforanyoneelsebutyourself.
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} Anideaisworththepaperitswri"enon,unlessbackedbyabusiness.Andabusinessusuallyis:
} TiedtoSolvingaLargeProblem,whichIfSolved,wouldResultinHugeValuetoSomeone,who(collecCvely)WouldbeWillingtoPayaLargeSumfortheSolu@on.
} InvestorsexpecttheboldquesConsinthestatementabovetobeansweredwithcrystalclarity.InaddiCon,theyliketohavethefollowingquesConsansweredaswell. Whyhasnttheproblemabovebeensolvedbefore? Whatmakesyouandyourteamexpertsatsolvingtheproblem? Whycantothercompaniessolvetheproblem? BarriertoEntry:Whycantacompanywith$100Mincapitalsolvetheproblem
be"erthanyou?
} InvestorsinvestinbusinessesthatareinnovaCveandteamsthatcanexecutewell.IfalargecompanylikeMicrosoV,Google,SAP,orReliancecandowhatyoureproposing,
theyhave100xmorecapitalthanyoueverwilltopullitoff.Bepreparedtoanswer
whyyourelikelytosucceedinspiteofthecompeCCon.
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} Areyoureallycommi"edtoyouridea?} Doyouhavethecouragetoquityourcushysalariedjob?} Areyouwillingtoputinwhateverli"lecapitalyouhave,orcanraisefromfriendsandrelaCves,Cghtenyourbeltandsomehowexecute
youridea?
DOYOUHAESKININTHEGAME?????
}Onceyourconceptisvalidated,investorscomeinwithmuchgreaterconfidenceandgiveyouamuchhighervaluaConthantheywould
haveatanearlierstage.Inotherwords,yougettokeepalarger
shareofyourcompanyforthesamemoney
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} Self} Family&Friends} Seed/Angel} entureapital} P.E.} DebtBankLoan
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} enturecapitalisahighrisk,highrewardbusiness.} ItsthemostexpensivecapitalouttheresincetheinvestorisbeJngonateamwithanidea,andnotonaprofitable
business.Foratypicalearlystagestartup,itcosts25-35%of
thestartupfor$1-3millionofinvestment.} omparaCvely,a$2Mdebtata10-15%interestrate,costs$200-300kininterestyearly,muchcheaperifyouassumethe
startupwillbeworth$10Min2years.
} Thechallengethough,ismostbankswontprovide$2Mofdebtcapitaltoayoungentrepreneur.
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} sareinthebusinessofmakingmoney.} Afundhaslimitedpartners(LPs),usuallycorporatesorhighnet-worthindividualswhogivetheirmoneytotheventure
capitalfirmtoinvestontheirbehalf.
} Thefundhasteammembers(partners)whoareresponsibleforinvesCngfromthefund.Theyusuallypicksectorstoinvestin
(soVware,Internet,healthcare,retail)dependingonthe
experienceoftheteammembers.
} Theexperiencema"erssincetheteammemberhelpsguidethecompanytheyinvestinwiththeirexperienceandconnecCons.
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} Beforetryingtoraiseventurecapital,decidewhatyourbusinesswilllooklikein3-5years.sinvestinbusinessesthatarelikelytobecomeBIGcompaniesin3-5years,whentheydliketogettheirreturns.MoneyisRIGHTforyourbusinessif:
} Youaretryingtobuilda$20Mbusinessover3-5yearsandideallya$100Mbusinessover
5-7years
Yourbusinesscangopublicorbeacquiredforalargeamount Youarecomfortablewithinvolvementfrompartnersofthefundonstrategic
operaConsofyourbusiness
Havingaventureinvestmentinyourcompanymeansyouaresigningontobeahighgrowthcompanyandwilldothethingsnecessarytogrowquicklyandbuildthetalent
base,processes,andinfrastructurethatisnecessarytosupportahighgrowthbusiness.
Thisisusuallygoodwhenallgoeswell,butduringroughCmes,itsdifficulttomanage.
} TherightventureinvestorcanbeERYhelpfultobuildingyourbusiness.Theirexperience,advice,andconnecConshavebeeninvaluable.Butitsali"lelikemarriagesochooseyour
partnercarefully;itspre"yhardtogetyourventurecapitalistsoutofyourcompanyifyou
decidelaterthatyoudontlikethem.
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} ATEAMisofparamountimportancetoatechnologystartup.Withoutateam,theresaverysmallchanceofraisingventurefinancing,unlessyourearecognizednameandhavebuiltsuccessfulbusinessesinthepast.
} slookforateamoffounders.Thereasonsaresimple,butoVennotobvious.} 1.Ateamisalwaysbe"erthananindividual.Ateamwillhavebe"erideas,
complimentaryskills,andtheabilitytosupportoneanotherduringtoughCmes.
} 2.Ateamreducesthelevelofrisk,especiallyagoodfoundingteamthatcomplimentseachother.ThinkofateamwithamarkeCng,engineering,andsalesbackground,notnecessarily3engineersJ.
} 3.AteamthathasworkedtogetherforaperiodofCmehasworkedoutteethingpains.TheyvelearnttoworktogetherandarelikelytosCcktogether.
} sbetonateamsabilitytosolvetheidenCfiedproblem.hancesaretheiniCalsoluConispartlywrong,andagoodteamwillfigureoutwhatswrongwithitandfixit.
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Funding Institutions vs Business Life Cycle
Time/Revenue
M
ATU
RI
T
Y
IPO
Market ValidationCustomer Acquisition
No or low Revenues
Low or ive Cash Flow
Operational Challenges
Growth ChallengesCAPEX
Investor Pressure
Change Management
Faith Money
Incubators
Angels
Venture Capital
Working capitalBank loans
Private equity
Late Stage
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} Whatisthespace Nottelecom/entertainment
} Whoarethemarketleaders Theirsize Theopportunity
} MarketpotenCalfromexternalsources ery,verybriefly
} Whatisyourproduct/service Doesitneedseeding
} Howdoesitfitinthelandscape
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} Whyisyourproduct/servicenecessary Whatpainisitremovingforthecustomer Isitaddingaservicewhichwillenhanceaproduct/service IstheprocessdifferentincreasingproducCvity,reducingcost,etc.etc.
} IsitdoingsomethingDifferent/Differently} Isitneedtohave/nicetohave} IsthereanIP}Whatwillthecustomerexactlyget/see
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} IdenCfyexactlywhothecustomeris IsitcreaCnganewcustomerbase Enhancingacustomerbase Isyourtargettherealcustomer?
} Whataretheparametersofyourcustomer? Geography Age Urban/rural Etcetc.
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} Marketsize AbilliondollarmarketisnotYOURmarketsize-whatisyourmarketpotenCal
1%ofUSD1500bnmarket-??} Howhasthemarketbeenvalidatedbyyou?} Specificmarkets/geographies/segmentswhichwillbeaddressed
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} WhoisyourcompeCCon? Product/service ompany Alternateprocess
} SizeupyourcompeCCon SWOTofcompeCCon LessonslearntfromcompeCCon TrendsincompeCCvecompanies
NeversayNonePotenCalbuyerscouldconCnuewithoutyourproduct/
service
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} ExisCngandfuturecompeCCon Firstmoveradvantagerarelysufficient Needsmorevisionandcouldbe
IPdriven marketentrystrategy InnovaCvecommercialmodel
} Yourvisionfortheventure
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} WhatareyourdifferenCals WhatisyourUSPofyourproposiCon AnyvalidaConofyourproduct/service PainpointincompeCConbeingaddressedbyyou Productlifecycle Specificmarket/sellingmodality ostdifferenCal
} Istoocommon/toounique?
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} Whoaretheaudiencesyouareaddressingwithyouridea?} Whatpainpointsyouareaddressingfortheseaudiences?} Whatevidencedoyouhavethatthesepainpointsarereal?} WhatarethecurrentsoluConapproaches?} Whatslackingintheseapproaches?} HowisyoursoluConapproachbe"er?} Howbigisthisdifferenceandwhatisitworthtocustomers?} Whatsinitforotherstakeholdersbesidesend-customers?} Whyhasntsomeoneelsethoughtofyourideayet?} Areyousurenobodyhasthoughtofyourideayet?} Whatisproprietaryaboutyouridea?
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} Howwillyouacquirecustomers ReflectmarketrealiCes ustomerbehavior PartnershipsconflictsituaCons Demo/referencesites
} urrentcustomers Howdidyouacquirethem SalescycleCme WhydidtheycometoyouvscompeCCon WhydidtheygotocompeCConvsyou
} QuanCficaCon averagerevenue/clientortarget AcquisiConost/client Noofcustomerstobreakeven
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} Pricingmodel scost scompeCCon Pilot
} Hybridsalesmodel} RetenConofcustomers
PlanforretenConofcustomersbeforeacquiringthem AveragecostofgeneraCngbusinessis5CmesfromnewcustomersvsexisCngcustomer!
} ustomer/OrderprofileAretheyoneCme/repeatorders
SCckinessforcustomer Whydidyoulosecustomers AVersalessupportstrategy h"p://networktosucceed.in/
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} HowwillyoudeliverBuildyourselfTechnologyusedServiceproviderpartnershipsBrandingAVersalesstrategyAnyrelevantcerCficaConsPermissionsreqd./received
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} Whoistheteambehindthisventure Backgroundandexperience ontribuConClldate Briefobrole Gapsinteam TimecontribuCon
} Advisors Roles Noncompete
} TeamandAdvisorompensaCon ashEquity
ESOP} Mentor} Teamexpansion
A"ract MoCvate Retain
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} Istheteamleaderstrongandpassionate?} Willleaderandteama"ractAplayers?} Istheteamappropriateforthestageofthecompany?} Hastheteamworkedtogetherbefore?} Whataretheteamsvaluesandwhattypeofculturewilltheycreate?} Isthereastrongtechnicalleader?} IsthereastrongmarkeCngleader?} DoestheteamhavedeepdomainortechnicalexperCse?} DoestheteamlistenandtakecriCcisminaposiCveway?} Doesteamhaveagoodblendofthinkersanddoers?} Ifcurrentplandoesntworkout,willteamadapt?} Willthefoundersgiveupcontrolifthatiswhattheventuredemands?} Passion,Integrity,Resourcefulness,Perseverance,Risktakingability,Mental
horsepower
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} urrent/Projectedfornext3years Topline/bo"omline Headcount Projected
} Whenwillitbreakeven Profitablebusinessesaremorea"racCve
} Selfinvestment&fundingreceivedClldate Skininthegame
} Investmentsought Forwhat Wherewillittakeyourventure Nextroundrequirement
ashflowbasedworkings NodebtreCrement
} aluaConexpectaCon
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} Aretheyriskstoyourplan NoisnotanopCon
} Whataretheriskstoyourplan
} HowwilltheybemiCgated Examplesofearlysetbacksandtheirhandlingisagoodidea
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} InvestorswillmoneCzetheirinvestment How When What
} BuildinganexitopConisnecessaryforyourself,yourteam,andyourinvestors
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} AlternaCveinvestmentopCons AngelinvesCngisanalternateassetclass
Thisspace/sectorisoneofmany Yourplansnichesisjustoneofthemanyniches
YourplanisincompeCConwithanother} Rememberideamaybesoldbutinvestmentmaynothappen 3BHKinDelhivs3BHKinBangalore
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} Bebriefanddirect;gettothebo"omlinequickly}
IdenCfywhatthebusinessisimmediately} Definethecustomersquicklyandthecustomerproblemclearly} Definewhatscompellingandunique} Describehowyouwillmakemoney} Provideaphasedsnapshotofyourcompany12,24and36monthsout}
Describehowyouproposetotakeyourproducttomarket} Makebo"om-upaswellastop-downprojecCons} Knowwhat4to5assumpConsyourplanpivotson} Discussthekeyriskfactors} Statehowmuchmoneyyouwillneedandhowyouwilluseit} Stateyourpossibleexitstrategies} PresentaConshouldbeselfexplanatorytherewillbeinvestorswhomaynotbeinthe
room
} larityintext/relevantgraphsmoreimportantthanpictures} Blueskypointsnotrelevant
Investorsarequiteknowledgeable!h"p://networktosucceed.in/
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} Putsomeofyourskininthegame} GeCngahighvalua@onearlycanbefatal} Sizeofthepiewinsevery@meovershareofthepie
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Prelimi
nary
Evaluati
on
BusinessDue Diligence
Closure
Meet the entrepreneurDiscuss the businessopportunity
Preliminary evaluation ofthe business and specificindustry
1-2 weeks
Detailed business duediligence, market
estimations & analysis,
references
Meet the core team inmultiple meetings andunderstand the business
Entrepreneur presents tomultiple partners
4-6 weeks
Issue the Term SheetAccounting duediligence
Legal due diligenceDefinitive agreements4-6 weeks
Very selective process One in hundred company completes the whole
round
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DigbijoyShukla
h"p://networktosucceed.in
h"p://twi"er.com/digbijoy
h"p://networktosucceed in/