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DEMYSTIFYING STARTUP FUNDING WHEN , WHY AND HOW OF INVESTMENT By Sudeep Singh

Demystifying startup funding

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Page 1: Demystifying startup funding

DEMYSTIFYING STARTUP FUNDING

WHEN , WHY AND HOW OF INVESTMENT

By Sudeep Singh

Page 2: Demystifying startup funding

WHAT IS BOOTSTRAPPING ?

The art of starting a self sustaining process that is supposed to proceed without an external input.

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Page 3: Demystifying startup funding

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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Page 4: Demystifying startup funding

FUNDRAISING

Page 5: Demystifying startup funding

UNDERSTANDING FUNDRAISING

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Page 6: Demystifying startup funding

WHEN ?

• IDEA IN A PRESENTATION• PROTOTYPE READY• CUSTOMER TRACTION• PAYING BUSINESS• PRODUCT MARKET FIT• MULTIPLE CUSTOMER SEGMENT• BUSINESS MODEL FIT

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Page 7: Demystifying startup funding

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

Page 8: Demystifying startup funding

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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Page 9: Demystifying startup funding

HOW DO YOU GET A LIST OF INVESTORS?

Your Network

Conference / News

STARTOSPHERE.IN

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Page 10: Demystifying startup funding

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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Page 11: Demystifying startup funding

WHAT DO INVESTORS LOOK FOR

Page 12: Demystifying startup funding

INVESTORS LOOK FOR

• Business ( not an idea )• The Team• Risk Management Plan• Clean Structure and Governance• Exit Plan

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Page 13: Demystifying startup funding

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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Page 14: Demystifying startup funding

WHAT MAKES IT BIGGER, BETTER AND LUCRATIVE TO INVEST?

SCALABILITY

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Page 15: Demystifying startup funding

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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Page 16: Demystifying startup funding

RISK MANAGEMENT

• Team Risk• Market Risk• Client Traction Risk• Execution Risk • Exit Risk

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Page 17: Demystifying startup funding

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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Page 18: Demystifying startup funding

EXIT PLAN

• Subsequent Rounds of Investments• Merger and Acquisition• Initial Public Offering

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Page 19: Demystifying startup funding

VALUATION

Page 20: Demystifying startup funding

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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Page 21: Demystifying startup funding

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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Page 22: Demystifying startup funding

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

Page 23: Demystifying startup funding
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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.

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WWW.STARTOSPHERE.IN

THANK YOU

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@stratosphere_in