I Want / Need Funding

I want / NEED Funding

& Improving my VALUATION

Anjana Vivekwww.venturebean.com

beanie@venturebean.com

2www.venturebean.com

Just because you are not eligible for a loan, it does not mean you should automatically seek VC funding

If it was only about funding, all companies funded would be doing well and all those without funding would be floundering

I want/NEED funding

WHO COULD BE POTENTIAL INVESTORS Angel….

– Family/friends/fools (3Fs) or Other?– Debt / Equity / Mix

VC– Early stage/seed or later stage– Equity / convertible

Corporate– Strategic– Financial

CHECK OUT …INVESTMENT FLAVOURS Indian / International

Individual / Group / Corporate…

Legal / tax implications / any pitfalls..

Sweat equity / in kind as contrasted to in cash

QUALITY / QUANTITY

In the initial stages, there is a low QUANTITY of– Revenue– Employees– Customers – Cashflow– Repeat business– Marquee clients

How about QUALITY of the above?

QUALITY / QUANTITY

Can you improve QUALITY of parameters to increase attractiveness of company, for example:– Repeat customers– Higher priced projects/products– Well known individuals as advisors/mentors

This will help you get improved multiples for your valuation

…hmmm..coming to valuation..

I NEED XXX Rs/ m USD..

What could be a realistic valuation? If I cannot get the valuation I want.. Then what

next– Review investor category

- 3 F’s (family/friends/fools) - Other external angel investors / HNIs - Venture Capital Funds– Check alternate scenarios

i.e Plan A vs Plan B vs. Plan C– Review business model, eg. Hire seniors based on flexi-pay,

hire vs. buying, service + product…

Work to improve/create valuation over time Valuation increases geometrically with

milestones Valuation based on intangibles, of team

(experience, qualification, past history of success as entrepreneur or employee), IP, quality of revenue etc..

Try to pin down the value drivers...such as brand customers, increased paying customers..

Prepare your Business Plan per your requirement, i.e financials, word document, presentation etc. to be customized for investor

Clean up records and presentations for due diligence to minimize value loss

List pipeline of customers for the next year in detail, for eg. categories could be A,B,C,D; A indicating guaranteed with contracts, B pipeline - almost certain, C pipeline - initial, D yet to be targeted, etc..

• A Business Plan is a Communication Tool

BUSINESS PLANS

BEFORE YOU START

Take time out to think…

WHAT is the purpose of the business plan – Is it for internal use– Is it for investors (VC/bank/angel investor)– For other purpose (incubation)

BEFORE YOU START

Take time out to think…

WHAT are the strengths… that you bring to this business

WHAT are the constraints… that you have to either – Address or– Accept (and work keeping this in mind)

A BUSINESS PLAN COMMUNICATES… Many times, a reader’s perception of

your business/idea will be based on the business plan you prepare

Substance and form matter, more so, when hundreds of plans are reviewed

Different persons will look for different things, a banker will check if a loan can be repaid, the VC will look for value multiples on exit

LOGICAL STRUCTURE

The plan must have structure and include:Business / ideaPeople behind idea/projectMarket size expectedMarketing strategyCompetitionFinancialsOther information to make it complete

BUSINESS PLAN SET … could contain Word document (15 – 25 pages) Presentation deck (15 – 20 slides) Spreadsheet with financials (Balance

Sheet, Profit and Loss Account, Cash Flow; 3-5 years)

You may like to keep in hand a separate executive summary or summary business plan as an initial teaser document (3-10 pages)

BUSINESS PLAN SET

The set should be Self speaking: ie with limited clarification required (including with regard to abbreviations & technical terms) Reader friendly: key information that you want to convey should not be hidden amongst too much details

Do not think only of what you want to share, rather think about what your potential reader may want to know

PREDICTIONS

There should be a believable story about the future performance of the company. For eg.

“Sales is expected to grow at more than average industry expected rate of growth in this services company. This is because of the quality of the management team, the investors and the past track record of the company in getting and retaining customers.

This is visible in the billing rates per hour which are higher than industry average”

PREDICTIONS … hmmm..

Many uncertainties exist, including that of – Revenue streams– Costs, capital and revenue in nature– Capital inflow at different times– Resource constraints

Can you leave it by saying . ..“What will be will be.. The future’s not ours to see?”

PREDICTIONS … hmmm..

Some uncertainties may be thought through and reflected using tools:– Scenario analysis: Best/expected/worst case– Sensitivity analysis: Changes in some key

parameters, such as raw material cost increasing by 10%

Some other techniques:– Start with what you know rather than what

you do not, not everything is unknown…– Start with the immediate future, gradually

building upto the medium term…

FORECAST FINANCIALS Capture business strategy and model

into a set of financial statements In short term calculate detailed

numbers, in long term summarize trends expected

The forecast must stand up to scrutiny and must be internally consistent

FORECAST FINANCIALS

Consistency checks– Check out key ratios and for internal consistency– Benchmark against industry parameters

Cash flow and liquidity– How will company raise funds– How will funds be utilised

Recheck final numbers; verify that they do reflect the overall business model and plan

THANK YOU

We provide advisory services to corporates, VCs, entrepreneurs, early stage ventures in– Business model, plan and forecast review– Deal/VC funding, negotiation and valuation advisory– Funding strategy and value creation plan

We follow a network model, founded by a Chartered Accountant, former: faculty at IIMB, VP at Ernst &Young, COO at IIMB entrepreneurship centre

Class notes and reading material at www.slideshare.net/anjanavivek

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