VC Funding

Just because you are not eligible for a loan, it

does not mean you should automatically seek VC
funding

If it was only about funding, all companies funded
would be doing well and all those without funding
would be floundering
I want/need funding
WHO COULD BE POTENTIAL INVESTORS
Angel.
Family/friends/fools (3Fs) or Other?
Debt / Equity / Mix

VC
Early stage/seed or later stage
Equity / convertible

Corporate
Strategic
Financial




3
CHECK OUT INVESTMENT FLAVOURS
Indian / International

Individual / Group / Corporate

Legal / tax implications / any pitfalls..

Sweat equity / in kind as contrasted to in cash





4
QUALITY / QUANTITY
In the initial stages, there is a low QUANTITY of
Revenue
Employees
Customers
Cashflow
Repeat business
Marquee clients
How about QUALITY of the above?

5
QUALITY / QUANTITY

Can you improve QUALITY of parameters to
increase attractiveness of company, for
example:
Repeat customers
Higher priced projects/products
Well known individuals as advisors/mentors
This will help you get improved multiples for
your valuation



6
I NEED XXX Rs/ m USD..

What could be a realistic valuation?
If I cannot get the valuation I want.. Then what
next
Review investor category
- 3 Fs (family/friends/fools)
- Other external angel investors / HNIs
- Venture Capital Funds
Check alternate scenarios
i.e Plan A vs Plan B vs. Plan C
Review business model, eg. Hire seniors
based on flexi-pay, hire vs. buying, service +
product
7
I NEED XXX Rs/ m USD..

Work to improve/create valuation over time
Valuation increases geometrically with milestones
Valuation based on intangibles, of team
(experience, qualification, past history of success
as entrepreneur or employee), IP, quality of
revenue etc..
Try to pin down the value drivers...such as brand
customers, increased paying customers..
8
I NEED XXX Rs/ m USD..

Prepare your Business Plan per your
requirement, i.e financials, word document,
presentation etc. to be customized for investor
Clean up records and presentations for due
diligence to minimize value loss
List pipeline of customers for the next year in
detail, for eg. categories could be A,B,C,D; A
indicating guaranteed with contracts, B pipeline
- almost certain, C pipeline - initial, D yet to be
targeted, etc..
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10
A Business Plan is a Communication Tool
BUSINESS PLANS
BEFORE YOU START
Take time out to think

WHAT is the purpose of the business plan
Is it for internal use
Is it for investors (VC/bank/angel investor)
For other purpose (incubation)


11
BEFORE YOU START
Take time out to think

WHAT are the strengths that you bring to
this business

WHAT are the constraints that you have to
either
Address or
Accept (and work keeping this in mind)



12
A BUSINESS PLAN COMMUNICATES
Many times, a readers perception of your
business/idea will be based on the business plan
you prepare
Substance and form matter, more so, when
hundreds of plans are reviewed
Different persons will look for different things, a
banker will check if a loan can be repaid, the VC
will look for value multiples on exit




13
LOGICAL STRUCTURE

The plan must have structure and include:
Business / idea
People behind idea/project
Market size expected
Marketing strategy
Competition
Financials
Other information to make it complete

14
BUSINESS PLAN SET
could contain

Word document (15 25 pages)
Presentation deck (15 20 slides)
Spreadsheet with financials (Balance Sheet,
Profit and Loss Account, Cash Flow; 3-5 years)
You may like to keep in hand a separate
executive summary or summary business plan as
an initial teaser document (3-10 pages)

15
BUSINESS PLAN SET
The set should be
Self speaking: ie with limited clarification required
(including with regard to abbreviations & technical
terms)
Reader friendly: key information that you want to
convey should not be hidden amongst too much
details

Do not think only of what you want to share, rather
think about what your potential reader may want to
know
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PREDICTIONS
There should be a believable story about the
future performance of the company. For eg.

Sales is expected to grow at more than
average industry expected rate of growth in this
services company. This is because of the
quality of the management team, the investors
and the past track record of the company in
getting and retaining customers.

This is visible in the billing rates per hour
which are higher than industry average
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PREDICTIONS
Many uncertainties exist, including that of
Revenue streams
Costs, capital and revenue in nature
Capital inflow at different times
Resource constraints

Can you leave it by saying . ..
What will be will be.. The futures not ours to
see?
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PREDICTIONS
Some uncertainties may be thought through and
reflected using tools:

Scenario analysis: Best/expected/worst case
Sensitivity analysis: Changes in some key
parameters, such as raw material cost increasing
by 10%
Some other techniques:

Start with what you know rather than what you
do not, not everything is unknown
Start with the immediate future, gradually
building upto the medium term
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FORECAST FINANCIALS
Capture business strategy and model into a set of
financial statements
In short term calculate detailed numbers, in long
term summarize trends expected
The forecast must stand up to scrutiny and must be
internally consistent

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FORECAST FINANCIALS
Consistency checks
Check out key ratios and for internal consistency
Benchmark against industry parameters
Cash flow and liquidity
How will company raise funds
How will funds be utilised
Recheck final numbers; verify that they do reflect
the overall business model and plan
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