venture capital equity funding explained - paula mariwala, seed fund

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Decoding Early Stage Investment Introduction to Fund Raising What is Angel - VC funding? What do investors look for? What gets funded What does not get funded?

Start Up FinancingWhy do you require funding?

2Start Up FinancingPotential Sources of Funding : Personal fundsFriends and FamilyAngelInstitutional

StrategicGovernmentPublicInternal Accruals

3Start Up FinancingEquity Capital :Money for owning a slice of the companyOwnership depends on the valuation of the companyFounding team will have to welcome other partnerEquity partner can add and/or subtract valueManagement, strategic plan may be impactedNew shareholder may have his own demands for quick scale up, exit, etc.

4Equity Funding :Private Equity & Venture CapitalPrivate Equity means capital to companies not quoted on a stock market ,in exchange for an equity participation.

Venture Capital (VC) is a sub-class of Private Equity characterized by investments made for the purpose of developing, launching, and expanding new products or service offerings.

5Stages of Investment

6Start Up Financing :Capital Lifecycle Seed (< $ 1 mil)Early Stages ($1 - 10 mil)Expansion/ ($ 10+ mil)development

AngelsIncubatorsAcceleratorsVenture CapitalPrivate Equity &Merchant Banks

Source : Angel Resource Institute

Fund Raising Pattern Life Cycle of a Startup

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How VCs workInvestorInvestorInvestorVCfundInvestorStartupStartupStartup

9The first thing to understand about VCs is that theyre not investing their own money. Venture capitalists start by raising money from a bunch of investors, and then distribute it to various startups. But the investors are expecting to get their money back, generally within 10 years of committing it to the fund.What VCs do ...Sift through thousands of (good and bad) investment propositionsIdentify a few valid initiatives and finance them Support, Mentor the entrepreneurs -Financial adviceBuilding TeamsConnecting with customersStrategic DirectionFocus on Milestones

10Decoding the Investment Criteria at VC Funds

The IDEAAre you solving an important problem in a unique manner?

The SECTORCan you be the market leader?

The TEAMMotivated and Passionate Risk Takers.

FUNDINGDoes your financial model justify the amount of funding asked?

The BUSINESSIs there a potential profitable exit for the VC???

Why are early stage VCs Different?Bet on people not trendsLooking for a winnerBut not afraid of failureFantastic coaches and mentors

Nurturing, Caring but Focused on Milestones

The VC Math

Always looking for a 10X return!VC is fundamentally an institutionalized form of finding outliers!

Why 10x?The Portfolio Effect Out of Ten Start-ups Funded 2 successes at 10x or better 5 OK returns at 2x to 5x 3 write-offs, total loss of invested money

19Assessing Portfolio Risk

20Anatomy of a great Start Up VCBets on people not trendsDriven by the big ideaLooking for a WinnerNot afraid of failureUnderstand how to manage a portfolio of riskServes as a fantastic coachDoes her best work outside of the board roomNot waiting for validation from other VCs

21Most Appreciated VC Contributions

Financial Advice Corporate Strategy & Direction Sounding board for ideas Challenging status quo Contacts or market information Management recruitment Money !!!!Source: The Economic Impact of Venture Capital in Europe (EVCA and Coopers & Lybrand)

22What to look for in a VCPeople you LIKE !Trustworthy & CollaborativeCan bring value, not money only !Do not have to be experts in the sector but have to understand the business.Good network of contacts.Ask for references

23Our Formula :Its the Chemistry and not just the math that adds up to SUCCESSDoing a startup isn't easy. Funding one isn't, either. The VC Entrepreneur relationship isn't simple. There'll be good times, bad times and incredibly horrible times. Do we like each other and can we still be friends at the end of it all? For us, this chemistry is a big deal.A smile is the best yield curve

Whats HOTEcommerceMobile VAS/AppsSocial MediaTransportation HospitalityData AnalyticsHealthcare

Health, Nutrition, FitnessDatingSocial MediaOnline EducationCleantechTechnology enabled consumer businesses

What doesnt get fundedMe Too ideaPoor Business modelLong gestationEsoteric, R&D driven plansHuge marketing spends

Niche Lifestyle BusinessesToo many angels, cross holdings$$$$ for the promotersArrogant Teams

What VCs are Not Good at Long term research investments Sustainability Evolutionary development Asset maximization Billion $ capital requirements

27The Start Up MYTH++=

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THANK YOU