Start-up financing in Singapore
Transcript of Start-up financing in Singapore
THE FUNDAMENTALS OF START-UP FINANCING
How the Hell can you raise money in Singapore?
Tanguy Lesselin
Agenda
• Introduction
• How much do you need
• Types of investors
• Investment criteria
• Investor pitching
• Investor hook tactics
• Valuation and terms
Funding = tons of dilemma questions
• How much do you really need?
• What % are you willing to sell?
• Raise less in order to minimize dilution?
• What duration do you need to cover?
• Bootstrap or raise funds now?
• Will I still feel “at home” in “my” company?
At what stage are you?
• Idea
• Initial team
• Prototype
• Product-market fit
• Traction
• Proven business model (*)
• Revenue scale ($1m, $5m, $20m)
* growing paying customer base with positive lifetime value contribution
# companies
Valuation
Think of financing as several steps
Seed Series A Series B Etc.
Pre money valuation 1.5m 5.0m 15.0m
Investment 0.5m 2.5m 5.0m
Post money 2.0m 7.5m 20.0m
New investor % 25% 25% 25%
Remaining for founders 75% 56% 42%
PrototypeFounding team
Product-market fitEarly customers
Scale up2m revenue1000 customers
01.2013 06.2014 01.2016
Pre revenue phase
How much you burn
How long you burn it
Number of iterations
to reach product-market fit
EFFICIENCY, SPEED, DECISION-MAKING
You should hate multiplications
$10k $20k $50k $100k
6 months $60k $120k $300k $600k
12 months $120k $240k $600k $1200k
18 months $180k $360k $900k $1800k
24 months $240k $480k $1200k $2400k
• Salaries are almost all of it
• Making the right decisions has higher value
than dumb money
• No fat, decide well, play fast game
Your funding need
• Do your cash-driven business plan, take lowest cash point and add 30 to 50%
• Do not account for revenues yet if plan to launch more than 3-6 months from now
• Make sure you get enough money to reach several major milestones and still have time to raise a new round
• Don’t be forced to raise at the wrong time
• Enough to cover 18-24 months of burn + investments
• If it is too much then iterate, because you may be able do more with less (rethink you MVP?)
Why you will always get it wrong
• Underestimate costs and overestimate revenues
• You only know the revenue sauce when you already make revenues
Build milestones based business plans with clear go/no go decision points
Innovation financing (Singapore)
IPO
PrivateEquity
Venture Capital (Series A,B,C)
Business Angels / Seed (Series AA)
3F
Incubators
Grants
You / Bootstrapping
50 - 500
10-30k
30k – 0.5m
100k – 1.0m
2.0m – 15.0m
15.0m+
Investment
N/A
100 - 300k
200k – 2m
500k – 4.0m
4.0 – 50m
50m+
Valuation
You and your team (bootstrapping)
Monthly salary Over 12 months
Founder 1 10 000 120 000
Founder 2 5 000 60 000
Founder 3 5 000 60 000
Founder 4 5 000 60 000
TOTAL 25 000 300 000
• “No salary” is the first source of financing
• Salaries make 80%+ of costs in the beginning
• Seek free / super low cost solutions
• Get a prototype to show potential clients
Bootstrapping: how long?
• As long as needed to attract investors
• Pros: efficient cash management, no early dilution, customer exposure from beginning
• Cons: slower (time and money constraints), may miss the big opportunity
• You can get help bootstrapping (Founder Institute)
Best companies get funded to take the biggest chunk of the market
Grants
• 25k – 500k
• Take them if easy to take
• Make sure you don’t add constraints to your plan: IP vs speed to market
• US VCs don’t value IP before the company has reached a stage where it good to be able to defend
Incubators
• 10k – 50k for 10-20% of equity (indicative)
• Mentorship / networking / accelerator over short or “long” time frame
• Works for idea / prototyping / Product-Market fit
• Booster for investor pitching
• Great for first time entrepreneurs
3Fs: Friends, Family and Fools
• 30k – 500k
• They trust you and want to help you
• Make sure you are serious about the project
• Be very transparent on risks
• Don’t be greedy on valuation
• Think of protecting them in future rounds
Business Angels
• 100k – 1.0m
• Seek industry experts and smart money with investor connections for future rounds
• Seek deep pocketed so you don’t need too many of them and they can bridge if needed
• May pitch BA associations (?)
Some important trends
• Government funding
• Crowd funding: Kickstarter (US)
• Start-up competitions, demos, prizes
• Incubators: JFDI, …
• Online networks: AngelList
• Multi-stage funds / investors
Idea and Market
• 2 main investor mindsets– Disrupting an existing market
– Creating a new market
• Playing Big is as easy as playing Small
• VCs seek the $100m revenue opportunities
Big and Bold
Misconceptions on market size
• Online travel agency is not USD XXX billion, it is only the size of commissions and fees (addressable market)
• Also do a bottom-up analysis to triangulate
A winning team
• A+ people
• Complementary skills
• Proven working relationship
• Ability to recruit other top people
• Ability to reach product-market fit fast
• Fact-based, ego put aside decision-making
Traction and metrics
Dependent on development stage
• Activation & Retention
• Acquisition & K factor
• Revenue & Profits
Your unfair competitive advantage
• Big market lead
• Big technology advantage
• Exclusive marketing partnership with industry leader
Process and documents
• First contact via introduction– Executive summary (1-2 pages)
• First meeting– Pitching presentation (10 slides)
– Product demo
• Before Term Sheet– Simple XLS business plan
– Team CV book
– Cap table
– Others as required
Pitching presentation
1. Elevator pitch2. Problem3. Solution (demo)4. Market size5. Business Model6. Unfair advantage7. Competition8. Marketing & Sales9. Team10.Finance and milestones
10 slides
20 minutes
30 point font
Business Angels
• Fund when you can make them dream
– before product development,
– before launch,
– before pivot implementation
• Worst case: you have a product that does not (yet?) solve customers’ problem (trapped in the middle)
Business Angels
• Predefine everything
– Valuation
– Shareholder Agreement
– Process and Timing
• Secure the first 30% quickly, adjust terms with the “first” investor
• Create a list of targets
• Get introductions and go fast
Seed / VC stages
• Get PR before starting funding
• Sexy and committed Advisory Board
• Key people pool (20% pre money for instance)
• Future team hires
• Some key milestones fully achieved
• No mess to clean up (leaving co-founder, …)
Approaching VCs is a lot of work
• Better if they approach you (PR, competition)• Investor Relationship Management
– Meet informally so you can call back later– Build a target list– Filter (investment size, geography, portfolio, fund
maturity date, …)– Call portfolio companies – Test with one or two low priority and refine pitch– Introduction contact (Partner level)– Meeting 1– Follow-on
Create a competition
• You want investors to feel the pressure
• Competition enables better valuation, easier terms, and faster closing
Fundraiser or not?
• No for Angel / Seed stage
• Potentially yes for Series A
• Probably yes for later rounds (Technology oriented investment banks)
Why?- The good ones know more investors and know them well- Help you package your start-up and pitching- Help negotiate and close
Cost of fund raiser- Retainer (from 0 to 10k per month or lump sum)- Success fee (5-6%)
Valuation?
• There is no good model (DCF, P/E, P/S…)
• Comparable (check thefunded.com and other fund raising from comparable start-ups)
• You have to be a compelling investment opportunity
Try to work backwards
5 10
100
020406080
100120
Business Angel / Seed (Today)
Series A VC (In 18 months)
Potential value at exit (say in 7 years)
VCs want to make if successful10 X
BAs want to make if successful20 X
Comparable: IPO, trade sales…
Pre
-mo
ney
val
uat
ion
What is “fair” (personal feeling)
• Information rights: open books
• Liquidation preference: 1X
• Pro rata right of first refusal
• Dragalong, tagalong
• Board: try to keep control
Some of the ones you want to avoid
• Some veto rights (new financing)
• Forced sale in 3 to 4 years– Too short to force liquidity
• Preferred dividends– Take equity-like risks if you want to own equity-like
benefits
• Ratchet – do not come back on agreed upon valuation
• Progressive cash inflows based on milestones– Milestones are irrelevant (like budgets) in a fast
moving environment
References
• Financing Map Singapore: http://sgentrepreneurs.com/wp-content/uploads/2009/03/megs-20090219.png
• Milestones based business plan (example): http://db.tt/fi4le3Rc• Capitalization Table (to simulate fund raising): http://db.tt/fi4le3Rc• Mint investor presentation:
http://www.slideshare.net/hnshah/mintcom-prelaunch-pitch-deck• How to pitch a VC:http://www.slideshare.net/dmc500hats/how-to-
pitch-a-vc-aka-startup-viagra-how-to-give-a-vc-a-hardon• Guy Kawasaki:http://www.slideshare.net/huer1278ft/the-art-of-
the-start-37633• The VC perspective:http://www.slideshare.net/benholmes/venture-
capital-an-entrepreneurs-manual