SO, WHAT EXACTLY IS A STARTUP?
• While most startups do begin small, not all small
businesses are startups
• Fundamentally, a startup is an engine for wealth creation.
Startups are crucial engines of growth of a country’s
economy by creating wealth in society and by generating
• Typically, a startup will grow at supernormal rates while
adding tremendous value to itself. To be able to achieve
such levels of growth and to generate such value requires
the infusion of significant outside funding.
• This outside funding is typically provided by venture
capitalists who invest in high risk/ high return ventures
• Additionally, startups need to be team driven if they are to
successfully manage growth. A fast growing company needs
different skills and expertise and no individual can alone hope to
• On the other hand, someone who’s tired of routine corporate life
and wants to be independent without the constraints of working for
someone, and therefore starts a small business cannot be said to
be running a startup.
• This person is in the income substitution business i.e. is
substituting his / her income from a salaried job by being
independent. S/he doesn’t want to get into the complexities of
growing a business.
• These businesses are typically small in size and have small growth
• Do you have the appetite for high
achievement and a willingness to take risks?
• In spite of knowing that the chances that an
idea for a high tech business to eventually
become a successful company that goes public
is as low as 6 in a million! Or are you better
off in your job or income-substitution
Writing a Business Plan
• The business planning process can be quite
complicated as can be the writing of the plan itself.
• Determining the appropriate form of the plan – what
topics to put in, in what order, and with what emphasis
– is important. However what is even more important
is the content.
• The content should convey an intimate understanding
of what will make the business succeed. Investors
don’t throw money at glossy plans, so focus more on
the substance rather than the form
• There are two basic types of plans:
• “general planning and funding” document that’s useful at the
beginning of a business and to raise funds
• “operational” business plan is used to monitor and control the
growth of the company.
• In start-up situations, it is the general planning and funding
document that is of essence.
• This plan is usually written during a concept stage before any
outside funding is received.
• Don’t focus on creating an extremely detailed plan discussing
every single item: you will put off investors. Remember you are
selling the team and the unique market opportunity. So prepare
the plan accordingly.
• While there are no hard and fast rules, it’s
usually a good idea to keep a business plan to no
more than between 20-25 pages in length.
• One good way to approach a business plan is to
first develop a presentation, then a 2-3 page
Executive Summary and finally the business
• Investors don’t have the time to read a 100 page
document to understand what you are trying to
Important for VCs
• First and foremost, as mentioned many times before in this series, is the
management team. Go for 5,6 and 7 Domain Test of Team
• The plan must contain detailed resumes of the management team and
show how they’re qualified to handle their responsibilities.
• Ideally, the team must be experienced and have an understanding of the
marketplace, the technology, of running a business
• Second, you must demonstrate that you understand the market and
Industry. It is necessary to have data about the market from various
sources. Go for 1,2,3,and 4 domain test
• Third, you need to demonstrate how your offerings will be delivered to
the customers and what your revenue model (i.e. flat monthly fee, % of
transactions, license fee, etc) will be. This is the so-called business model
and must be realistic. VCs prefer a predictable revenue model; the model
must have strategies that dampen the effect of factors like seasonality. Try
to develop a recurring revenue stream – this will ensure that every sale is
not a new sale.
• Section 1.0 Introduction of Company and team(Domain 5,6,7)
• Where will the company be formed, and by whom? Where is the company based?
What is the vision and mission of the company? Who are the legal counsel and the
• Section 2.0 Market Opportunity
• What is the opportunity/need/problem in the market? Who is experiencing the
need? How big is the opportunity? How fast is the opportunity growing?
• Section 3.0 Offering and Competition
• What is being offered to address the need in the market? What are the different
components of the offering?
• Why/How is the offering unique? How will it successfully compete against
competition? Why will people buy/use the offering as opposed to competition?
• Section 4.0 Market
• Who are the customers of this offering? How will they use it? How is the market
segmented? How large are these segments? What is the value of this offering to
• Section 5.0 Business Model
• How will the offering be delivered to customers? What
does the delivery chain look like? What is the value
proposition across the chain?
• Section 6.0 Sales/Marketing Plan
• What will be the company and offering positioning? How
will the positioning be achieved? What are the
alliances/partnerships that will be established? What are
the different modules/components to be sold? What is the
sales strategy – direct/indirect? What are the price points?
• Section 7.0 Product/Service Development Plan
• What are the timelines and technologies? What is the
strategy for product development?
• Section 8.0 Road Map
• Over the next 24 months what will be the sales/marketing
objectives? What will be the company objectives? Product
development objectives? What is the exit strategy?
• Section 9.0 Current Situation
• What stage is the offering/company in now? Are any customers
testing/using the product? How much money has been invested? How
many employees are there? What are the milestones ahead? How much
money is required? For what purposes will the company use the money?
How many employees will be hired?
• Section 10.0 Financials
• Breakeven point
• What is the P&L, B/S, C/F for the next 12-24 months on a monthly basis?
What are the quarterly P&L, B/S, C/F for the first 24 months? What are the
annual P&L, B/S, C/F for years 3 to 5? When does the company break even
in operating terms? What is the organizational structure of the company?
How many people are there across functions? In all of these, the most
important is the cash-flow statement!
• In cases, where a cold-contact just has to be done, the Executive
Summary should be first sent in.
• This is a 2-3 page document that captures the profiles of the key
team members, the market need / opportunity , the unique
offering , the business model,revenue projections, and some info
on how much money is being sought and for what purpose.
• This should be a well written, professional and crisp document.
Make sure there are no spelling mistakes!
• If this is of interest, the VC will probably call you for a meeting. Go
well prepared for the discussion. As the old saying goes, "you won't
get a second chance to make a first impression"!
• Approaching a VC should be the job of the CEO. The CEO makes the
elevator pitch, the main presentations and answers all the key
questions about the company, the market, the positioning of the
company, the road-map etc
How VC work
• VC firms collect money from investors and then invest the money
in a number of carefully selected fast growing businesses.
• In the US, VC firms typically are partnership companies. In India,
VC firms follow a structure more in common with a mutual fund
structure (due to legal and tax reasons, VC partnership companies
are not viable in India.
• The VC industry in US. there is a VC fund into which various
investors invest and there’s an Investment Management company
(commonly referred to as an Asset Management Company or AMC)
which manages the investments of the fund.
• In the US, the typical investors in VC firms are the pension funds,
university endowments, insurance companies, corporations,
wealthy individuals etc.
How VC Works
• In India, typical investors are wealthy individuals, developmental &
financial institutions and some corporations. Laws do not permit pension
money or insurance money to be invested. Universities in India have no
real funds or endowments even if they were allowed to invest! It is
therefore quite hard to raise funds in India for venture capital purposes.
• The tax treatments of Indian VC firms also act as disincentives. Which is
why a large number of VC funds operating in India are really off-shore
funds - based in places like Mauritius - with overseas investors thereby
ensuring operating flexibility, tax benefits and speed.
• In India, traditional investors in VC firms have been development and
financial institutions like ICICI, IDBI, SIDBI, and the like. These VC firms
have had to deal with various operating constraints and have had difficulty
dealing with high risk investing due to the very nature of the structure
within which they had to operate.
• Indian VC firms have to be registered with SEBI (Securities and Exchange
Board of India