Demystifying startup funding
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Transcript of Demystifying startup funding
DEMYSTIFYING STARTUP FUNDING
WHEN , WHY AND HOW OF INVESTMENT
By Sudeep Singh
WHAT IS BOOTSTRAPPING ?
The art of starting a self sustaining process that is supposed to proceed without an external input.
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PROCESS OF BOOTSTRAPPING
• MANAGE FOR CASH FLOW,NOT PROFITABILITY• BUILD A BOTTOM UP FORECAST• SHIP , THEN TEST• FORGET THE PROVEN TEAM• FOCUS ON FUNCTION , NOT FORM• PICK YOUR BATTLES• GO DIRECT• POSITION AGAINST THE LEADER• TAKE THE “RED PILL”• GET A CONTROLLER• UNDERSTAFF AND OUTSOURCE• EXECUTE
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FUNDRAISING
UNDERSTANDING FUNDRAISING
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WHEN ?
• IDEA IN A PRESENTATION• PROTOTYPE READY• CUSTOMER TRACTION• PAYING BUSINESS• PRODUCT MARKET FIT• MULTIPLE CUSTOMER SEGMENT• BUSINESS MODEL FIT
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VARIOUS STAGES OF FUNDRAISINGVarious stages Age Revenu
eAmount to be Raised
From Whom
Venture Launched 0-0.6/8 yr
0 5-35 Lacs Self,Family,Relatives,Friends,CrowdFunding
Beta Product LaunchedB2B : Good Client Pipeline , A few clients in trial or on boardB2C : Product used by real clients , A few paying clients on board
0.6/8-1.5 yrs
Small Amount
25-75 Lacs Self,Family,Relatives,Friends,Angel Investors,Accelerators,CrowdFunding
Stable VersionRegular Client Growth
1.5-2 yrs
10-15 Lacs/yr
50-200 Lacs Angel Investors,Accelerators,Seed Funds
Product-Market fit foundStrong and consistent client growthClear product and revenue for next 2-3 years
1.5-2.5 yrs
20-50 Lacs/yr
100-500 Lacs Angel Investors,Seed Funds,Few Venture Funds
Business Model Fit foundClear growth path for next 3-5 yearsConsistent growth in revenue from clientsPotential Breakeven
1.5-3.5 yrs
100-500 Lacs/yr
300-2500 Lacs
Venture Funds
Note : The values in the above table are indicative only© Copyright Startosphere.in. All rights reserved
TYPE OF INVESTORS
Individual
Family / Friends
Entrepreneurs / Industry
Leaders
Organized Angel Funds
Seed Funds
Institutional Funds
Individual LP Funds
Incubators / Accelerators
Infrastructure Only
Accelerator
Crowd Funding
Incentives
Investments
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HOW DO YOU GET A LIST OF INVESTORS?
Your Network
Conference / News
STARTOSPHERE.IN
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WHO IS THE RIGHT INVESTOR ?
• Who has chemistry with the team• Who has a willingness to help and even
mentor• Who believes in the team and their ideas• Who has relevant connections• Who has domain knowledge and expertise
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WHAT DO INVESTORS LOOK FOR
INVESTORS LOOK FOR
• Business ( not an idea )• The Team• Risk Management Plan• Clean Structure and Governance• Exit Plan
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WHAT DOES IT TAKE TO MAKE A BUSINESS?
• Idea !• Client’s need/expectations• Ability to Monetize• USP / Competitive Advantage/Product
Differentiation
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WHAT MAKES IT BIGGER, BETTER AND LUCRATIVE TO INVEST?
SCALABILITY
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THE TEAM
• Chemistry • Skills / Domain Expertise• Structure and Role Definition• Founder’s skin in the game• Ownership Distribution• Previous Track Record• Access to Mentors
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RISK MANAGEMENT
• Team Risk• Market Risk• Client Traction Risk• Execution Risk • Exit Risk
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CLEAN STRUCTURE AND GOVERNANCE
• Equity Investments, Private Limited ,Public Limited and One Person Company are possible company structures
• Clean Equity Structure• Intellectual Property• Business Ethics and Board Governance
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EXIT PLAN
• Subsequent Rounds of Investments• Merger and Acquisition• Initial Public Offering
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VALUATION
MODELS OF VALUATIONS - EQUITY• Discounted Cash Flow
– Forecast of several years of revenue and expenses– Discount the resulting cash flow back to the present using an
expected rate of return• Cost to Recreate
– An estimate of what it would be to duplicate the venture– Make v/s Buy decision
• Market Multiple– Value the company by looking at recent sales or offerings of
comparable companies and then using a multiple to adjust– Typically 3x to 5x of projected revenues– Most commonly used
• Exit Based– Estimate target exit return– Calculation dilution the company will go through to achieve the target– Plan for that dilution upfront and ask for a higher stake– Very popular with institutional investors
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MODELS OF VALUATION-DEBT
• Convertible Debt– Early stage companies are difficult to evaluate– Deferred valuation tied to next round of
funding– A discount on valuation is asserted– Base valuation to minimum valuation– Monthly discount– Cap on the maximum discount– Least popular valuation process in India
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HOW IS VALUATION DETERMINED ?
• If an Investor wants to invest 100 Lacs for 25% Post Money Valuation– Post Money Valuation → 100 Lacs / 25% = 400
Lacs– Pre Money Valuation → 400 Lacs – 100 Lacs =
300 Lacs
• If an Investor wants to invest 100 Lacs for 400 lacs Pre Money Valuation– Post Money Valuation → 100 Lacs + 400 Lacs =
500 Lacs– Percentage of share in the company → 100
Lacs / 500 Lacs = 20 %© Copyright Startosphere.in. All rights reserved
Startosphere is a hybrid crowdfunding managed marketplace
for investors to identify and meet startups across industries. It also
enables the startups to raise funds for both creative projects as well as
for businesses. Our mission is to build an ecosystem
where ideas can come to life. We believe that lack of funds should not stop great starts. This way startups
would have the impetus to make their ideas a reality.
WWW.STARTOSPHERE.IN
THANK YOU
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