art of fund raising
DESCRIPTION
TRANSCRIPT
Art of Fund Raising
Vivek Agarwal
Founder, Liqvid
The Steps
• Personal Decisions• Business Plan• Pitching to the Investors• Negotiation & Closure
Answer this Question,
FIRST!
What do you want your pie to look like?
1
Share of your pie
XYZ Unknown private Limited
You are the boss, owner, can pass it on to your children
You are the founder, chief objective is the value creation.
OR
Lifestyle Business vs. Corporation
Lifestyle Business• Be your own boss
– Lone wolf• Self funded• Organic growth• Slower growth• Can re-invent
themselves• No planned exit
Corporation• Founder, not boss
– Team• VC/Investors• Fund the plan• Rocket ship• If a miss, typically
flame out• Exit strategy
Equity Financing
Business Stage Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Type Risk Seed Venture Private Public
Source offunds
Own / family Family /friends /Angels
VCs VCs / Private Equity
Public, MFs, Institutions
PrimeActivity
Creating /exploring anidea
Creating a Prototype
Establishingthe model
Scaling up themodel
Established,scalable, profitGeneratingbusiness
TypicalFundsRequirement(indicative)
Very low, sub500,000
Typically 20- 50 lacs
Rs. 2 to 10crores
Depending onthe business
Depending onthe business
Types of Non- equity Funding
• Debt • Convertible debt• Subsidies / Grants !• Customers• Employees!! • Suppliers
Business Plan
• The problem you are solving – target audience
• How large is it?• How will you reach out? • Can you do it profitably?• Scale & Exit
Ideas??
Watch the size
Must match your capability level
• Smaller scope• Too small for the “big guys”
… with killer potential!• Need time to acquire capability
V / s
What is the model
Innovation Efficiency
How much should you plan
Ready. Aim. Fire. FIRE. FIRE. FIRE
OR
Pitching to the VCs
• Identify the segment – Financial, strategic, other
• Typically behavior similar across financial investors
• Fundable deals move fast• If negative response from first 3-4, regroup
and evaluate.
Equity Allocation
• Service Providers• Business Plan, space, HR, marketing, etc• Cash v/s equity
• Management Team• Fixed v/s variable v/s no salary• Share of equity• ESOP plan• Option price
Valuation Approaches
• Rules-of-Thumb / Multiples• Discounted cash flow
- Weighed Average Cost of Capital (WACC)
- Capital Cash Flows (CCF)• Scenario analysis• Decision tree analysis• Others
Rules-Of-Thumb Procedures
• Look at similar deals.• Look at ratios of similar public firms:
- Valuation / sales.
- Valuation / profit (P/E).
- Market value of equity/book value.
- Use multiples to generate projected value.
Equity Allocation for Founders
• Founders• Based on experience / cash / proposed effort• Vesting Schedule• Dealing with unequal distributions / perceptions• Get a formal agreement in Place• Deal with issues like Decision making process,
responsibilities (operational / strategic), etc – these become very important as the business grows
• Answer the question – “What if it does not work out?” » Vested / unvested shares» Put / Call option
Terms & Conditions
Equity Investments• Extent of Stake• Affirmative Rights• Liquidation preference• Control Issues –
– Operational– Board– Shareholders
But more than anything else…
It is the timing – raise money when the market is ready
