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Aloke Bajpai
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The Art of Fundraising
Aloke Bajpai CEO & Co-‐Founder, ixigo.com
About myself
¡ Founded ixigo in 2006 ¡ Bootstrapped 1.5 years with money from 3Fs ¡ Seed + Bridge : ~$1M
¤ Seed Round in 2008 : BAF Spectrum Singapore ¤ Bridge Round in 2009 : exisQng investors
¡ Financial + Strategic Round in 2011 : SAIF + MakeMyTrip : $18.5 M (primary + secondary)
¡ Have seen 4 term-‐sheets for ixigo. Rejected 1, closed 2 & 1 fell-‐through
Should you raise money at all ? ¡ Working-‐capital vs. Long-‐term investments ¡ Debt vs. Equity ¡ Lifestyle business vs. Scalable venture ¡ Ability to give liquidity to investors ¡ Valley of death
When do you raise money
Fundraise hierarchy
individual angel investors / incubators
angel groups / accelerators
seed funds
early-‐stage funds
mid-‐stage / strategic
late-‐stage / strategic
Stage
Idea / Prototype
MVP
Product-‐Market Fit / Business Model
Users / Customers Growth
Topline Growth
Profitability
When do you raise money?
¡ 3Fs + incubators + accelerators : to build MVP and discover product-‐market fit.
¡ Angels: to build a great product + get iniQal customers + team
¡ VCs: to scale and grow fast to build a bigger company
¡ Raise when the sector is hot, Raise when investors chase you, Raise when you have great things going
Because => when you really really need money, you may not find investors.
How does it work ?
Imagine that Raj and Ganesh own 50% in a company valued at $8M pre-‐money and $5M is being invested by a VC.
Raj, 31%
Ganesh, 31%
Investors, 38%
Raj, 50% Ganesh, 50%
How much should you raise ?
¡ Prior to prototype : zero / minimal ¡ 3Fs / Angels : enough to get to first revenue or first 100,000 monthly users + a few hires
¡ Seed / Series A: enough to get to a point where you can validate your business model and show repeatable success
¡ Series B, C : enough to build dominance
How much equity to give?
¡ Based on how much diluQon you can anQcipate and tolerate for future rounds.
¡ 14” pizza, 1/4 slice > 6” pizza Dilu@on ¡ Prior to prototype : minimal ¡ Post 3Fs / Angels : try to keep investors <10% ¡ Post seed : try to keep investors <26% ¡ Post Series A: try to keep investors <40% ¡ Keep 5-‐10% for ESOP
Valua@on ?
¡ Based on how much you wish to raise and how much you wish to give for it
¡ Sanity check based on comparable deals / companies in your space
¡ How large is the space ? What sort of exit can be anQcipated ? Then apply the rate-‐of-‐return constraints depending on size of exit anQcipated – For the VC to make at least a 10x return in 6 years by selling the company for >=$100M, the post money has to be <=$10M for the Series A round.
Valua@on ?
VCs pay a premium for ¡ Hot sector (“I go'a be in this space”) ¡ Bemer teams (“The best guys in this space”) ¡ Market leadership (“They are #1 already”) ¡ Faster growth (“They are growing twice as fast as the #1”)
¡ Huge market (“This can become a $1B company”) ¡ …. beaQng other VCs to the deal. (“If we don’t invest, they will”)
Whom should you raise from? ¡ Smart money beats dumb money ¡ Research backgrounds of people ¡ Fitment in terms of stage / size of investment is criQcal for discussion to progress
¡ It’s like a marriage – make sure you get along with the individual
¡ Understanding of space / your type of companies is important – ask them quesQons
¡ Take feedback from exisQng investee companies before accepQng term-‐sheets
Incubators & Accelerators
¡ Tlabs, Microsop Accelerator, GSF, Morpheus, The Startup Centre, The Hatch, 500 Startups (& many more), Venture Nursery etc.
¡ IITs / IIMs / Other educaQonal insQtuQons ¡ Incubator = Idea + Team + Prototype + 10-‐15 L + Co-‐working space + Shared resources + Mentors + Product discovery/pivot + Pitch to angel/seed groups
Angels & Angel-‐groups
¡ Deep Kalra, Naveen Tewari, Rajan Anandan, Vijay Shekhar Sharma, Vishal Gondal, Dinesh Agarwal etc. (10 – 50 L)
¡ Mumbai Angels, Hyderabad Angels, Chennai Angels, Indian Angel Network (25 L to 2 cr)
¡ NRIs / Foreign Angels ¡ Letsventure / AngelList ¡ Simple Terms ¡ Long Qme horizon but usually willing to exit in Series A or B rounds
Seed / Early Stage Funds
¡ SeedFund, Blume, Kae, VentureEast, Jungle Ventures, Nexus, Ojas (50L to 3 crores)
¡ SAIF, Accel, Sequoia, Helion, LightSpeed, Inventus, Kalaari etc. (1 crore to 10 crores)
¡ 5 – 8 years Qme horizon (can even extend to 10 years)
¡ Usually do follow on rounds too ¡ Elaborate terms, with some negoQaQon around them inevitable
Growth Funds
¡ $5M+ investment ¡ Almost all large VC funds in India ¡ Tiger Global, Temasek, KPCB ¡ Also ICICI, SBI, Kotak PE Arms ¡ Corporate Investment Funds (Intel, Nokia, Fidelity, Qualcomm)
¡ Corporate PE Arms (Birla, Reliance etc)
Strategic Investors ¡ Examples: Makemytrip -‐> ixigo, ebay -‐> Snapdeal, InfoEdge -‐> Zomato etc.
¡ For strategic investors ¤ Smart use of cash on their balance sheet ¤ Beung on future driver of scale / new business model ¤ SomeQmes opQon to invest more / acquire in future ¤ Bemer understanding of industry/product than VCs
¡ For startups ¤ Strategic insights at board level + business synergies ¤ Bemer access to future growth capital / exit opQons
¡ Ability to pursue independent strategies important for value maximizaQon
How to approach investors ¤ PULL is always bemer than PUSH
• Get some iniQal coverage before meeQng investors so that they have “heard about you somewhere”
¤ Network referrals work best for connecQng to key people – amend conferences, events etc.
¤ Keep the email intro pitches short and sweet (4-‐5 lines) ¤ Who are you meeQng ? Associates / Analysts need to quickly move you to Partner level when there is interest.
¤ Figure out how to get your buzz to the partners in parallel (press / PR / network / twimer)
¤ Staying on the RADAR is important to land a partner meeQng
How to approach investors ¤ Prepare a slick deck of no more than 12 slides ¤ Relevant background / prior experience in team always helps – wherever you have it, flaunt it
¤ Many VCs don’t do much homework for 1st meeQng -‐ try to give a short product demo or prototype mockup / video
¤ Demonstrate vast and deep knowledge of your landscape, ecosystem and compeQQon
¤ Follow up the next day with addiQonal links (e.g. your new product, recent press coverage or industry arQcle etc.)
Clinching term-‐sheets ¡ Be honest and transparent with investors ¡ Do not over-‐commit or over-‐sell any numbers or facts during your pitch. It is best to accept your weaknesses and shortcomings.
¡ Geung great people on board as team members, mentors, angels helps validaQon
¡ Keep relaying the good news about your company or your space + press clippings
¡ Strong organic growth and great customer feedback help in geung to term-‐sheets quick
¡ Rule of 3: It shouldn’t take more than 3 face-‐to-‐face meeQngs for a term-‐sheet to happen.
¡ From 1st conversaQon to term-‐sheet can take anything from 1 week to 6 months.
Nego@a@ng deals ¡ NegoQate the most criQcal items at term-‐sheet stage itself. Nimy-‐griues will come in the 50+ page SHA.
¡ Term-‐sheet shopping (bad idea usually unless the funds’ processes were moving in parallel)
¡ SyndicaQon ¡ Due Diligence Stage ¡ A deal doesn’t close Qll money in the bank so don’t speculate in the media before that.
¡ Budget 4-‐12 weeks post term-‐sheet signing for closing ¡ Do NOT do press before money is in the b
Recap ¡ Stay frugal Qll first few customers or product validaQon (3Fs)
¡ PR is very important for investor pull – you need to keep broadcasQng what you’re upto
¡ Rehearse a very simple 1 or 2 line elevator pitch that explains what you do and your unique value proposiQon and market size.
¡ Prepare a slick presentaQon deck for investors ¡ PaQence and perseverance to get to term-‐sheet. Even more to close and get the ca$h.
Last words of advice
¡ If you build something awesome that grows like wildfire, investors will line up on their own
¡ Most companies don’t die because of a lack of capital. They die because of team dynamics or product-‐market fit issues. Do not spend >20% Qme raising money. Keep an eye on the ball.
Thank You!
aloke AT ixigo DOT com
