“Demystifying Funding for Startups” was an excellent session that sketched the basics of early stage funding. Picking the right “color of money” is important - an investor’s attitude, risk appetite, knowledge, and networks, amongst others, add value to the Startup. Likewise, picking the “wrong” investor could deplete valuable focus, time, energy and resources – a misstep Startups should avoid. To keep this session aimed towards early-stage Startups, the focus rested on FFF (Friends, Family & Fools), Angel and VC fund classes, and how they differ in terms of goals, demands and time-frames.

1. Reservoir Investment
Managers (India) LLP
Demystifying Funding for Startups
Private & Confidential

2. The Equity Funding Ecosystem
Private & Confidential 2
Angel Investor – 1- 3 Cr
Friends , Family and Fools – 1-50 Lakhs
Venture Capital – 3 – 100 Cr
Growth Capital / Private Equity – 50 Cr – 500 Cr
Hedge Funds – > 100 Cr
Mutual Funds - -> 100 Cr
FirmMaturity
Relationship

3. Three 3 rules of fund raising
•
“Investors are humans”
•
“Raise money when you can”
•
“Golden Rule : One who has the gold makes
the rules”
Private & Confidential 3

4. Friends, Family and Fools
•
The first investors
•
Often, the least rewarded
•
Very little value add
•
Investment solely on face value
•
The quickest
•
Real test of an Entrepreneur
Private & Confidential 4

5. Angel Investors
•
Comes in all size and shapes
•
HNIs typically successful entrepreneurs
•
Typical ticket size – 20L – 50L
•
Value add depends on background
•
Make decisions much quicker
•
Invests typically as a consortium
•
Unlikely to invest in further rounds
•
Works full time at other firmsPrivate & Confidential 5

6. How to approach Angels?
•
Linkedin
•
Angel networks
•
References
•
VCs
•
Online platforms like Angel List
•
Senior Management
•
Alumni
•
Accelerators Private & Confidential 6

7. Good Angel investor?
•
Business Development
– Opens doors in terms of connects
– Advice on sales strategy
– Imparts credibility
•
Helps in hiring
•
Allows entrepreneur to execute his visions
•
Willing to stay for the long haul - > 4 yrs
•
Executive coachPrivate & Confidential 7

8. Caution !!!
•
Color of money
•
Investors looking to extract their pound of
flesh
•
Too intrusive
•
Only advice
•
Talks in air -> Name dropping
•
Lack of time
•
Number focusedPrivate & Confidential 8

9. Angel Investment Terms
•
Valuation -> not more than 20%
•
Convertible notes
•
Board seat
•
Liquidation preference
•
Anti-dilution
•
Tag along
•
Promoter lock in
Private & Confidential 9

10. Venture Capital
•
Mutual funds for unlisted entities
•
Ticket size – 15 – 25 Cr
•
Typically series A / B stage
•
Institutional funds
•
Dedicated teams
•
Due Diligence
•
Must Exit in 5 yrs
•
Long decision process – ~ 6 monthsPrivate & Confidential 10

11. Should you take VC money?
•
Pressure to scale
•
Willingness to exit
•
Give up some control
•
Process orientation
•
All about revenue growth
•
Value oriented
•
Prestige
•
Ability to raise debtPrivate & Confidential 11

12. What do VCs want?
•
Large market > 1000 crs
•
Sustainable entry barriers
•
Scalability
•
Potential to exit lucratively
•
Great teams
•
Positive Customer validation
•
Asset light
•
Technology firmsPrivate & Confidential 12

13. Characteristics of a good VC
•
Punctual
•
Definite , Quick yes / no
•
Feedback
•
Relationship oriented
•
Willing to get hand dirty
•
Knows when to intervene
•
Sounding board for entrepreneurs
•
Helps in next round financingPrivate & Confidential 13

14. How to approach VCs
•
Reference
•
Reference
•
Reference
Private & Confidential 14

15. The VC investment process
•
Consultant / iBanker?
•
Reference
•
IM / Teaser
•
Call / first round meeting
•
Later, 2-3 rounds of meeting with other
partners
•
Investment committee meeting
•
Termsheet Private & Confidential 15

16. VC investment terms
•
Valuation – 10% - 30%
•
Board seat
•
Liquidation preference
•
Anti-dilution, pre-emptive rights
•
Exits
•
Std Drag along, tag along, ROFR/ROFO
•
Promoter lock in
•
CPs Private & Confidential 16

17. When should you approach VC ?
•
Customer Validation
– 5-10 paying customers in B2B
– 500- 1000 paying customers in B2C
•
LTV > CAC
•
Gross Profit > 50%
•
Key positive events
•
Churn < 10%
•
Month on Month growth rate > 20%Private & Confidential 17

18. Caution !!!
•
Investor track record
•
Lack of confidentiality
•
Know it all attitude
•
Too much data
•
Hard negotiator
•
Lack of credible feedback
•
Too long to make decisions
Private & Confidential 18

19. Value Add from VC
•
Recruitment
•
Business Development
•
Exits
•
Fund raising
•
PR
•
Strategy ???
Private & Confidential 19

20. Post Investment relationship
•
Partners
•
Honesty / Transparency
•
Regular updates
•
Introduction to industry leaders
•
Corporate strategy
•
Defensive
Private & Confidential 20

21. Questions
Private & Confidential 21

22. Private & Confidential 22

23. End of Presentation