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VC Funding

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Just because you are not eligible for a loan, it

does not mean you should automatically seek VCfunding

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

I want/need funding

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WHO COULD BE POTENTIAL INVESTORS Angel.

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

VCEarly stage/seed or later stageEquity / convertible

CorporateStrategicFinancial

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QUALITY / QUANTITYIn the initial stages, there is a low QUANTITY of

RevenueEmployeesCustomersCashflow

Repeat businessMarquee clients

How about QUALITY of the above?

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QUALITY / QUANTITY

Can you improve QUALITY of parameters toincrease attractiveness of company, forexample:

Repeat customers

Higher priced projects/productsWell known individuals as advisors/mentors

This will help you get improved multiples for

your valuation

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I NEED XXX Rs/ m USD..What could be a realistic valuation?If I cannot get the valuation I want.. Then whatnext

Review investor category- 3 Fs (family/friends/fools)

- Other external angel investors / HNIs- Venture Capital Funds

Check alternate scenarios

i.e Plan A vs Plan B vs. Plan CReview business model, eg. Hire seniorsbased on flexi-pay, hire vs. buying, service +product

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I NEED XXX Rs/ m USD..

Work to improve/create valuation over timeValuation increases geometrically with milestonesValuation based on intangibles, of team(experience, qualification, past history of success

as entrepreneur or employee), IP, quality ofrevenue etc..Try to pin down the value drivers...such as brandcustomers, increased paying customers ..

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I NEED XXX Rs/ m USD..

Prepare your Business Plan per your

requirement, i.e financials, word document,presentation etc. to be customized for investorClean up records and presentations for duediligence to minimize value lossList pipeline of customers for the next year indetail, for eg. categories could be A,B,C,D; Aindicating guaranteed with contracts, B pipeline

- almost certain, C pipeline - initial, D yet to betargeted, etc..

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A Business Plan is a Communication Tool

BUSINESS PLANS

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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)

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A BUSINESS PLAN COMMUNICATES

Many times, a readers perception of your

business/idea will be based on the business planyou prepareSubstance and form matter, more so, whenhundreds of plans are reviewed

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

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LOGICAL STRUCTURE

The plan must have structure and include:Business / ideaPeople behind idea/projectMarket size expected

Marketing strategyCompetitionFinancialsOther information to make it complete

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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 separateexecutive summary or summary business plan asan initial teaser document (3-10 pages)

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BUSINESS PLAN SET

The set should be

Self speaking: ie with limited clarification required(including with regard to abbreviations & technicalterms)Reader friendly: key information that you want toconvey should not be hidden amongst too muchdetails

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

know

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PREDICTIONS

There should be a believable story about the

future performance of the company. For eg.

Sales is expected to grow at more thanaverage industry expected rate of growth in this

services company. This is because of thequality of the management team, the investorsand the past track record of the company ingetting and retaining customers.

This is visible in the billing rates per hourwhich are higher than industry average

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PREDICTIONS

Many uncertainties exist, including that of

Revenue streamsCosts, capital and revenue in natureCapital inflow at different timesResource constraints

Can you leave it by saying . ..What will be will be.. The futures not ours to

see?

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PREDICTIONS

Some uncertainties may be thought through andreflected using tools:

Scenario analysis: Best/expected/worst caseSensitivity analysis: Changes in some key

parameters, such as raw material cost increasingby 10%Some other techniques:

Start with what you know rather than what youdo not, not everything is unknown Start with the immediate future, graduallybuilding upto the medium term

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FORECAST FINANCIALS Capture business strategy and model into a set offinancial statementsIn short term calculate detailed numbers, in longterm summarize trends expectedThe forecast must stand up to scrutiny and must be

internally consistent

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FORECAST FINANCIALS

Consistency checks

Check out key ratios and for internal consistencyBenchmark against industry parameters

Cash flow and liquidityHow will company raise fundsHow will funds be utilised

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

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