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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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