Dr. G. Sabarinathan Funding for Startups Presentation at Forstartups August 2, 2014

Agenda 1. Disclaimers 2. Funding alternatives 3. Funding Hierarchy 4. How much funding do companies need to plan for? 5. Interiorisers An Illustration 6. Attributes of funding sources 7. Planning for mobilising funds 8. Approaching funding choices 9. Equity as a funding instrument 10. Trouble with aphorisms 11. Closing thoughts Funding 4 Startups - Dr. G. Sabarinathan

Disclaimers No canned solutions Pointers to think Questions to ask 3Funding 4 Startups - Dr. G. Sabarinathan

Funding Alternatives Often equated with equity somewhat inaccurately? Many other forms that are not uncommon Formal debt Informal debt credit cards, overdrafts Spontaneous liabilities Grants: Governments, developmental agencies General purpose as well as specific Funding in kind development platforms, kits Services fees / contracts Contract development work + licensing fees as in pharma industry Promotional offers from infrastructure providers Monetising unproductive assets Funding 4 Startups - Dr. G. Sabarinathan 4

Funding hierarchy Own Funds OPM Free Money eg., grants Tied resources development kits Spontaneous Liabilities Debt Preferred Shares Equity Elements of Cost Financial Cost Control over enterprise Disclosure Tradeoff: Cost vs Added Value 5Funding 4 Startups - Dr. G. Sabarinathan IncreasingCost

How much funding? Too little funding Starves business of energy Delays establishing / consolidating market beachhead Affects early stage hiring Too much funding Distracts from focus: Penury Parsimony (often, at least) Reduces sense of urgency on revenue generation and hence customer validation of product / service Dilutes equity and so kills financial incentive for founders Extent and type of funding a function of Nature of business Founders priorities Availability Beware of Vedic pronouncements! 6Funding 4 Startups - Dr. G. Sabarinathan

Attributes of Funding Sources Not all funding sources are the same Attributes to look for Flexibility Appropriateness for industry Reliability of release of funds Effort required to secure funding / ease of mobilisation Post funding obligations Respectability and certification value Other AddedValue Motives : Financial return vs Others Quick vs patient return Attributes depend on source to a large extent 7 Funding 4 Startups - Dr. G. Sabarinathan

Planning for funding It is only as good as your business forecast Focus on refining your business outlook as meticulously as you can. Meticulousness Risk aversion SystematicThought Rigidity Develop a range of possibilities from Must Have to Absolute Luxury Fill up the need using a funding hierarchy Revisit funding planning at least once a month Early stage fund raising can occupy several hours every month Specialist intermediaries can be helpful in raising professional money Identifying investors Providing market intelligence Modulating the investment pitch Fronting for the promoter in interaction, follow-up, negotiations 8Funding 4 Startups - Dr. G. Sabarinathan

Approaching funding decisions Systematic thinking Rigid Thinking Think deeply about what the enterprise will do in terms of Product /service features Target markets / customers Development effort Marketing effort Infrastructure required human and physical Alternative approaches to all of the above Learn from role models Translate these into alternate funding plans You can plan for / control expenses, NOT revenue 9Funding 4 Startups - Dr. G. Sabarinathan

Equity as a Funding Instrument Sources Founders, Friends and Family Incubators,Accelerators Angels Networks,LoneWolves Seed stage institutional investors Early stageVC investors Emerging / Late stageVC investors Depends lot on location you are lucky to be in Bangalore! Considerations How much to raise? How often to raise it is effort intensive Terms of funding equity comes with strong investor rights Dilution Availability and timing 10Funding 4 Startups - Dr. G. Sabarinathan

The trouble with aphorisms Pair # 1 Money is the least of all worries there is plenty of it Grab as much capital as you can when you get it Pair # 2 Dont worry so much about valuation Conserve your equity it is the most valuable thing you have Pair # 3 Finance follows strategy Get your strategy right first Funding determines strategy cut the coat according to the cloth My aphorisms for you: There is no universal truth Every step of an entrepreneurial journey is highly unique Others experiences can at best inform you, CANNOT decide for you Funding 4 Startups - Dr. G. Sabarinathan

Closing Thoughts Funding decisions often have irreversible consequences Awareness of startup funding is very low in India Funding choices can significantly affect sleep levels Capital is scarce in India we are still a poor and highly regulated economy! Talk, talk, talk it can help you avoid costly mistakes Conversation Dropping guard Beauty and therefore choice can sometimes be a curse Neither a borrower nor a lender be, For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry. Hamlet Act 1, scene 3 May the Lord bless you all that you may sleep well 12Funding 4 Startups - Dr. G. Sabarinathan

THANKYOU Funding 4 Startups - Dr. G. Sabarinathan