Venture Investing CBS

8/3/2019 Venture Investing CBS

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DigbijoyShukla

h"p://networktosucceed.in/


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} Anentrepreneurisapersonwhohaspossessionofanewenterprise,ventureorideaandisaccountablefor

theinherentrisksandtheoutcomeSourceWikipedia



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} ForanentrepreneurhowevertrivialitmaysounditsextremelyessenCaltotranslatehisideatopaperasoneofthefirstcriCcalstepstowardsbuildingacomprehensivebusinessplan&visionpathforhisventure.

} Thejourneyfrombeingamereideainonesheadtopaperisnotan

easyone,asitforcestheentrepreneurtothinkwithclarity,logic&seetheopportunityinitstotality.

} ThisexerciseisnotjustafundingapplicaConbutactuallyavision

documentforyourventure,severalentrepreneurshavingdonethisexercisesawforthemselvesthepotenCal&thegapsintheopportunitythattheywantedtopursue.

} Henceifyouareseriousaboutyouridea&youfeelyouareonabig

opportunitystartpuJngittopapernotforanyoneelsebutyourself.



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} Anideaisworththepaperitswri"enon,unlessbackedbyabusiness.Andabusinessusuallyis:

} TiedtoSolvingaLargeProblem,whichIfSolved,wouldResultinHugeValuetoSomeone,who(collecCvely)WouldbeWillingtoPayaLargeSumfortheSolu@on.

} InvestorsexpecttheboldquesConsinthestatementabovetobeansweredwithcrystalclarity.InaddiCon,theyliketohavethefollowingquesConsansweredaswell. Whyhasnttheproblemabovebeensolvedbefore? Whatmakesyouandyourteamexpertsatsolvingtheproblem? Whycantothercompaniessolvetheproblem? BarriertoEntry:Whycantacompanywith$100Mincapitalsolvetheproblem

be"erthanyou?

} InvestorsinvestinbusinessesthatareinnovaCveandteamsthatcanexecutewell.IfalargecompanylikeMicrosoV,Google,SAP,orReliancecandowhatyoureproposing,

theyhave100xmorecapitalthanyoueverwilltopullitoff.Bepreparedtoanswer

whyyourelikelytosucceedinspiteofthecompeCCon.



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} Areyoureallycommi"edtoyouridea?} Doyouhavethecouragetoquityourcushysalariedjob?} Areyouwillingtoputinwhateverli"lecapitalyouhave,orcanraisefromfriendsandrelaCves,Cghtenyourbeltandsomehowexecute

youridea?

DOYOUHAESKININTHEGAME?????

}Onceyourconceptisvalidated,investorscomeinwithmuchgreaterconfidenceandgiveyouamuchhighervaluaConthantheywould

haveatanearlierstage.Inotherwords,yougettokeepalarger

shareofyourcompanyforthesamemoney



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} Self} Family&Friends} Seed/Angel} entureapital} P.E.} DebtBankLoan



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} enturecapitalisahighrisk,highrewardbusiness.} ItsthemostexpensivecapitalouttheresincetheinvestorisbeJngonateamwithanidea,andnotonaprofitable

business.Foratypicalearlystagestartup,itcosts25-35%of

thestartupfor$1-3millionofinvestment.} omparaCvely,a$2Mdebtata10-15%interestrate,costs$200-300kininterestyearly,muchcheaperifyouassumethe

startupwillbeworth$10Min2years.

} Thechallengethough,ismostbankswontprovide$2Mofdebtcapitaltoayoungentrepreneur.



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} sareinthebusinessofmakingmoney.} Afundhaslimitedpartners(LPs),usuallycorporatesorhighnet-worthindividualswhogivetheirmoneytotheventure

capitalfirmtoinvestontheirbehalf.

} Thefundhasteammembers(partners)whoareresponsibleforinvesCngfromthefund.Theyusuallypicksectorstoinvestin

(soVware,Internet,healthcare,retail)dependingonthe

experienceoftheteammembers.

} Theexperiencema"erssincetheteammemberhelpsguidethecompanytheyinvestinwiththeirexperienceandconnecCons.



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} Beforetryingtoraiseventurecapital,decidewhatyourbusinesswilllooklikein3-5years.sinvestinbusinessesthatarelikelytobecomeBIGcompaniesin3-5years,whentheydliketogettheirreturns.MoneyisRIGHTforyourbusinessif:

} Youaretryingtobuilda$20Mbusinessover3-5yearsandideallya$100Mbusinessover

5-7years

Yourbusinesscangopublicorbeacquiredforalargeamount Youarecomfortablewithinvolvementfrompartnersofthefundonstrategic

operaConsofyourbusiness

Havingaventureinvestmentinyourcompanymeansyouaresigningontobeahighgrowthcompanyandwilldothethingsnecessarytogrowquicklyandbuildthetalent

base,processes,andinfrastructurethatisnecessarytosupportahighgrowthbusiness.

Thisisusuallygoodwhenallgoeswell,butduringroughCmes,itsdifficulttomanage.

} TherightventureinvestorcanbeERYhelpfultobuildingyourbusiness.Theirexperience,advice,andconnecConshavebeeninvaluable.Butitsali"lelikemarriagesochooseyour

partnercarefully;itspre"yhardtogetyourventurecapitalistsoutofyourcompanyifyou

decidelaterthatyoudontlikethem.



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} ATEAMisofparamountimportancetoatechnologystartup.Withoutateam,theresaverysmallchanceofraisingventurefinancing,unlessyourearecognizednameandhavebuiltsuccessfulbusinessesinthepast.

} slookforateamoffounders.Thereasonsaresimple,butoVennotobvious.} 1.Ateamisalwaysbe"erthananindividual.Ateamwillhavebe"erideas,

complimentaryskills,andtheabilitytosupportoneanotherduringtoughCmes.

} 2.Ateamreducesthelevelofrisk,especiallyagoodfoundingteamthatcomplimentseachother.ThinkofateamwithamarkeCng,engineering,andsalesbackground,notnecessarily3engineersJ.

} 3.AteamthathasworkedtogetherforaperiodofCmehasworkedoutteethingpains.TheyvelearnttoworktogetherandarelikelytosCcktogether.

} sbetonateamsabilitytosolvetheidenCfiedproblem.hancesaretheiniCalsoluConispartlywrong,andagoodteamwillfigureoutwhatswrongwithitandfixit.



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Funding Institutions vs Business Life Cycle

Time/Revenue

M

ATU

RI

T

Y

IPO

Market ValidationCustomer Acquisition

No or low Revenues

Low or ive Cash Flow

Operational Challenges

Growth ChallengesCAPEX

Investor Pressure

Change Management

Faith Money

Incubators

Angels

Venture Capital

Working capitalBank loans

Private equity

Late Stage



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} Whatisthespace Nottelecom/entertainment

} Whoarethemarketleaders Theirsize Theopportunity

} MarketpotenCalfromexternalsources ery,verybriefly

} Whatisyourproduct/service Doesitneedseeding

} Howdoesitfitinthelandscape



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} Whyisyourproduct/servicenecessary Whatpainisitremovingforthecustomer Isitaddingaservicewhichwillenhanceaproduct/service IstheprocessdifferentincreasingproducCvity,reducingcost,etc.etc.

} IsitdoingsomethingDifferent/Differently} Isitneedtohave/nicetohave} IsthereanIP}Whatwillthecustomerexactlyget/see



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} IdenCfyexactlywhothecustomeris IsitcreaCnganewcustomerbase Enhancingacustomerbase Isyourtargettherealcustomer?

} Whataretheparametersofyourcustomer? Geography Age Urban/rural Etcetc.



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} Marketsize AbilliondollarmarketisnotYOURmarketsize-whatisyourmarketpotenCal

1%ofUSD1500bnmarket-??} Howhasthemarketbeenvalidatedbyyou?} Specificmarkets/geographies/segmentswhichwillbeaddressed



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} WhoisyourcompeCCon? Product/service ompany Alternateprocess

} SizeupyourcompeCCon SWOTofcompeCCon LessonslearntfromcompeCCon TrendsincompeCCvecompanies

NeversayNonePotenCalbuyerscouldconCnuewithoutyourproduct/

service



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} ExisCngandfuturecompeCCon Firstmoveradvantagerarelysufficient Needsmorevisionandcouldbe

IPdriven marketentrystrategy InnovaCvecommercialmodel

} Yourvisionfortheventure



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} WhatareyourdifferenCals WhatisyourUSPofyourproposiCon AnyvalidaConofyourproduct/service PainpointincompeCConbeingaddressedbyyou Productlifecycle Specificmarket/sellingmodality ostdifferenCal

} Istoocommon/toounique?



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} Whoaretheaudiencesyouareaddressingwithyouridea?} Whatpainpointsyouareaddressingfortheseaudiences?} Whatevidencedoyouhavethatthesepainpointsarereal?} WhatarethecurrentsoluConapproaches?} Whatslackingintheseapproaches?} HowisyoursoluConapproachbe"er?} Howbigisthisdifferenceandwhatisitworthtocustomers?} Whatsinitforotherstakeholdersbesidesend-customers?} Whyhasntsomeoneelsethoughtofyourideayet?} Areyousurenobodyhasthoughtofyourideayet?} Whatisproprietaryaboutyouridea?



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} Howwillyouacquirecustomers ReflectmarketrealiCes ustomerbehavior PartnershipsconflictsituaCons Demo/referencesites

} urrentcustomers Howdidyouacquirethem SalescycleCme WhydidtheycometoyouvscompeCCon WhydidtheygotocompeCConvsyou

} QuanCficaCon averagerevenue/clientortarget AcquisiConost/client Noofcustomerstobreakeven



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} Pricingmodel scost scompeCCon Pilot

} Hybridsalesmodel} RetenConofcustomers

PlanforretenConofcustomersbeforeacquiringthem AveragecostofgeneraCngbusinessis5CmesfromnewcustomersvsexisCngcustomer!

} ustomer/OrderprofileAretheyoneCme/repeatorders

SCckinessforcustomer Whydidyoulosecustomers AVersalessupportstrategy h"p://networktosucceed.in/


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} HowwillyoudeliverBuildyourselfTechnologyusedServiceproviderpartnershipsBrandingAVersalesstrategyAnyrelevantcerCficaConsPermissionsreqd./received



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} Whoistheteambehindthisventure Backgroundandexperience ontribuConClldate Briefobrole Gapsinteam TimecontribuCon

} Advisors Roles Noncompete

} TeamandAdvisorompensaCon ashEquity

ESOP} Mentor} Teamexpansion

A"ract MoCvate Retain



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} Istheteamleaderstrongandpassionate?} Willleaderandteama"ractAplayers?} Istheteamappropriateforthestageofthecompany?} Hastheteamworkedtogetherbefore?} Whataretheteamsvaluesandwhattypeofculturewilltheycreate?} Isthereastrongtechnicalleader?} IsthereastrongmarkeCngleader?} DoestheteamhavedeepdomainortechnicalexperCse?} DoestheteamlistenandtakecriCcisminaposiCveway?} Doesteamhaveagoodblendofthinkersanddoers?} Ifcurrentplandoesntworkout,willteamadapt?} Willthefoundersgiveupcontrolifthatiswhattheventuredemands?} Passion,Integrity,Resourcefulness,Perseverance,Risktakingability,Mental

horsepower



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} urrent/Projectedfornext3years Topline/bo"omline Headcount Projected

} Whenwillitbreakeven Profitablebusinessesaremorea"racCve

} Selfinvestment&fundingreceivedClldate Skininthegame

} Investmentsought Forwhat Wherewillittakeyourventure Nextroundrequirement

ashflowbasedworkings NodebtreCrement

} aluaConexpectaCon



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} Aretheyriskstoyourplan NoisnotanopCon

} Whataretheriskstoyourplan

} HowwilltheybemiCgated Examplesofearlysetbacksandtheirhandlingisagoodidea



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} InvestorswillmoneCzetheirinvestment How When What

} BuildinganexitopConisnecessaryforyourself,yourteam,andyourinvestors



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} AlternaCveinvestmentopCons AngelinvesCngisanalternateassetclass

Thisspace/sectorisoneofmany Yourplansnichesisjustoneofthemanyniches

YourplanisincompeCConwithanother} Rememberideamaybesoldbutinvestmentmaynothappen 3BHKinDelhivs3BHKinBangalore



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} Bebriefanddirect;gettothebo"omlinequickly}

IdenCfywhatthebusinessisimmediately} Definethecustomersquicklyandthecustomerproblemclearly} Definewhatscompellingandunique} Describehowyouwillmakemoney} Provideaphasedsnapshotofyourcompany12,24and36monthsout}

Describehowyouproposetotakeyourproducttomarket} Makebo"om-upaswellastop-downprojecCons} Knowwhat4to5assumpConsyourplanpivotson} Discussthekeyriskfactors} Statehowmuchmoneyyouwillneedandhowyouwilluseit} Stateyourpossibleexitstrategies} PresentaConshouldbeselfexplanatorytherewillbeinvestorswhomaynotbeinthe

room

} larityintext/relevantgraphsmoreimportantthanpictures} Blueskypointsnotrelevant

Investorsarequiteknowledgeable!h"p://networktosucceed.in/


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} Putsomeofyourskininthegame} GeCngahighvalua@onearlycanbefatal} Sizeofthepiewinsevery@meovershareofthepie



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Prelimi

nary

Evaluati

on

BusinessDue Diligence

Closure

Meet the entrepreneurDiscuss the businessopportunity

Preliminary evaluation ofthe business and specificindustry

1-2 weeks

Detailed business duediligence, market

estimations & analysis,

references

Meet the core team inmultiple meetings andunderstand the business

Entrepreneur presents tomultiple partners

4-6 weeks

Issue the Term SheetAccounting duediligence

Legal due diligenceDefinitive agreements4-6 weeks

Very selective process One in hundred company completes the whole

round



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DigbijoyShukla

h"p://networktosucceed.in

[email protected]

h"p://twi"er.com/digbijoy

h"p://networktosucceed in/

Venture Investing CBS

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