Your SlideShare is downloading. ×
TiEcon Delhi 2013 - The Art & Science of Fund Raising by Alok Mittal
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

TiEcon Delhi 2013 - The Art & Science of Fund Raising by Alok Mittal

2,239

Published on

Published in: Economy & Finance, Business
0 Comments
11 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
2,239
On Slideshare
0
From Embeds
0
Number of Embeds
4
Actions
Shares
0
Downloads
58
Comments
0
Likes
11
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide
  • Couple of slides on my firm Canaan Partners.
  • VC unlikely to make a bet on multiple risk factors Team Technology and Product risk Competitive Risk Market and Business Model risk Exit Risk Product ready / close to being ready & customer traction Some validation of assumptions, business model, market size Presence of Business and Operations guy on team
  • Tablets. Ecommerce. Mobile Advertising.
  • Transcript

    • 1. The Art & Science of Fund Raising Alok Mittal TiEcon Delhi October 2013
    • 2. Venture Catalysts for Next-Gen Market Leaders » 26 year old firm with offices in California | NY Corridor | India | Israel » $3.5 billion under management across 9 funds » Typical first cheque: $2M - $5M » 135+ liquidity events 53 IPOs | 85 M&As » Invested in over 250 companies 2
    • 3. Agenda » Lifecycle of a Business and Need for Capital » Types of Venture Funds and What to Expect? » What Do Venture Funds Look For ? » Funding Process © Copyright 2008 Canaan Partners 3
    • 4. Lifecycle of a Business Maturity Market Validation Stage: BD, Fine Tune Biz Model, Partnerships -Product/Service live -Early revenue model -Customer feedback -Team build out Feasibility Stage: Product Development, Value Proposition -Early Customer Feedback -Select hires Concept Stage: Ideation -Initial market feedback -Market Sizing Self/Angel Mature Stage - Focus Execution - Financial predictability - Risk management Growth Stage: Scalability, Teams, Process, Profitability - Market Validated - Biz model validated - Product diversification Seed VC PE © Copyright 2008 Canaan Partners IPO Bank Financing Time Source of Funds 4
    • 5. Agenda » Lifecycle of a Business and Need for Capital » Types of Venture Funds and What to Expect? » What Do Venture Funds Look For ? » Funding Process © Copyright 2008 Canaan Partners 5
    • 6. Types of Venture Funds / Which VC to Pick » Types of VCs › › › Stage of Investment (Early, Growth, Late) Sector Focus (Tech, Healthcare, Infrastructure, Real Estate) Corporate VCs » Picking a VC › › › › › Sector, Stage Compatibility of thought/chemistry Non-monetary contribution – domain knowledge, relationships Ability to provide reserves for future investment Investment cycle of fund © Copyright 2008 Canaan Partners 6
    • 7. What Can You Expect From a Venture Fund » Other than money › › › › › › Assistance/sounding board for strategy Large network of customer contacts, advisors Active assistance in hiring senior members of team Appointment of Board, Advisors Corporate governance Enhanced credibility Most of above – varies by stage of investor. » What are the trade-offs › › › Higher Accountability / Governance (spending, reporting) Decisions being made by a balanced board rather than founder Lower equity holding (but potentially much higher value) © Copyright 2008 Canaan Partners 7
    • 8. Agenda » Lifecycle of a Business and Need for Capital » Types of Venture Funds and What to Expect? » What Do Venture Funds Look For ? » Funding Process © Copyright 2008 Canaan Partners 8
    • 9. Key Question Investors Ask When Investing… Can this opportunity generate a “large exit” in 5-6 years ? » How large depends on size, stage, VC model. • If investing $10M per company, want to get at least $50M+ back • What does this mean for the valuation of the company ? • What does that mean for VC stake in the company ? » Implications for Startups: • Revenues/Profits have to be of scale • Exit multiples should be attractive (e.g., SaaS) • Business should have potential strategic exit options (e.g. Services) © Copyright 2008 Canaan Partners 9
    • 10. Early Stage: DNA of VC Fundable Businesses Early stage – risky so lots of emphasis on founders Why will you win? • Nascent but rapidly growing market • Large existing market with disruptive play or discontinuity © Copyright 2008 Canaan Partners • Intellectual Property • First mover advantage • Network effects Build the business rapidly, with capital efficiency/operating leverage Likelihood of IPO, Trade Sale 10
    • 11. Team » Passion › › › Strong belief Risk taking appetite Ambition » Relevant experience › › Domain / Market understanding Functional Skills » Ability to sell, hire, evangelize, motivate » Execution capability › Business and operational experience © Copyright 2008 Canaan Partners 11
    • 12. Market » Very critical component of VC decision making › Big is important, but markets dynamics are also key › India vs. International markets » Small, fast growing markets are fine (ecommerce in 2011!) » Large mature markets can be very competitive. Need a disruptive play › › Breakthrough Technology Business model » How do you calculate market size ? © Copyright 2008 Canaan Partners 12
    • 13. Market: Case Study Online Photo Printing $ 400MN $ 80 MN $ 60 MN # of urban HH = 100MN # of digi cams in India = 20MN Internet Penetration = 75% Annual Spent= 200/Market Size = 200*100 = 20 bn INR = $ 400MN + ? Subscription Services Photo Storage Platform Market Size = 20*200 = 4 bn INR = $80MN Market Size = 0.75*80 = $60MN 100/- per HH per annum Mobiles with Cameras Easy Storage. How many of us print Photos today? » Competition » Degree of fragmentation, network effects » Compare growth rates, adoption rates from international » markets Additional revenue opportunities © Copyright 2008 Canaan Partners 13
    • 14. Value Proposition » Is there a genuine need for the product / service? » How is it being addressed today ? Why NOW ? » Who is best positioned to fulfill this need ? Why YOU ? » Why will the customer select you, continue to use your service/product ? » Cheaper, Better, Faster © Copyright 2008 Canaan Partners 14
    • 15. Scalability: Biz Model Enterprise Software: Scalability Barriers › › › › Small Ticket Price Fragmented market, Competition Technical sale , Long Sales Cycle Demanding Customer, Customization »What would be interesting: › › › › Large ticket Price Channel / distribution Upsell / Cross Sell; Recurring revenues Strong demand (regulation, compliance) © Copyright 2008 Canaan Partners Discontinuity: SaaS Big Data 15
    • 16. Scalability : Capital Output: Revenue, Profits Technology Facilitates Capital Efficiency Input: Effort, Capital © Copyright 2008 Canaan Partners 16
    • 17. Defensibility » » » » » » Intellectual Property Installed Base – Platform Play Installed Base – deep entrenchment, hard to remove First to Market - if Network effect Specialized knowledge / Resources Capital » NOT PRICE (unless sustainable cost advantage) © Copyright 2008 Canaan Partners 17
    • 18. Exit Potential » Possibility of standalone business (IPO)? › › Is business long-term sustainable? Will public market find the business attractive? » Are there natural acquirers for the business? › Have larger companies acquired in the space? » What are potential exit multiples? › How much value could be created from an exit event? » Have other businesses in the space created value for investors? › Any history of past successes in the space? © Copyright 2008 Canaan Partners 18
    • 19. Less likely to be Venture Fundable » Entrepreneur › › › › Lack of experience / knowledge in related area Lack of sales and operational experience in founding team Mindset: Always prioritizes profits over growth Mindset: Not open to feedback, change » Market › › Small Market / aiming to build a 20 Cr company in 5 yrs Uncertain Business model, Scalability challenges » Differentiability and Competition › Me too product / service » Capital Requirement › Risk of consuming too much capital © Copyright 2008 Canaan Partners 19
    • 20. Agenda » Lifecycle of a Business and Need for Capital » Types of Venture Funds and What to Expect? » What Do Venture Funds Look For ? » Funding Process © Copyright 2008 Canaan Partners 20
    • 21. Venture Investment Process 15 days 30 – 45 days Deal Identification / Preliminary Analysis Deal Validation Due Diligence 60 days Prelim Market Analysis Discussion : Internal + External Experts Investment Committee & Issue of Term Sheet & Closure Typically 1% of deals get through the funnel Deep Dive: Team, Market, Differentiation, Traction, Financials Fact Validation. Accounting & Legal Diligence Background checks
    • 22. Term Sheet Overview Letter of Intent to invest in a given opportunity on specific terms and conditions » Valuation » Type of Instrument (equity, preference, convertible » » » » » » debentures) Liquidation Preference Anti Dilution Provision Drag Along ROFR – Right of First Refusal, Co-Sale Rights (Tags) Affirmative Rights ESOP What happens when things go wrong?
    • 23. Legal Due Diligence Overview The financier’s perspective » Need to know what they are getting into – sometimes irrespective of percentage holding. Insider trading sensitivities. » Need to assess high, medium and low risks; i.e. show stoppers, conditions precedent and conditions subsequent » Focus areas are investment approvals, financial transparency, corporate governance, regulatory breaches, contractual liabilities, loan defaults, rights of existing investors (if any), share and land title verifications and insurance.
    • 24. Key Transaction Drivers » Investors want protection › › › Value Protection Exit Protection Governance » Targets/Promoters want operational freedom › › Protect downside, cap upside? Protection from excessive interference in day to day management Balance interests – difference of opinion versus disputes? © Copyright 2008 Canaan Partners 24
    • 25. Legal - Emerging Trends & Challenges » Redefining ‘Control’ to include affirmative vote items › FDI challenges › Treatment as ‘Promoter’ under new Company Law   » Heightened Diligence Requirements   » Anti-Corruption Diligence & R&Ws   » Corporate Governance © Copyright 2008 Canaan Partners 25
    • 26. Resource: Canaan Pitchbook Download here: www.canaan.com © Copyright 2009 Canaan Partners 26
    • 27. Resource: StartUp Catalyst startupcatalyst.in @startupcatalyst © Copyright 2009 Canaan Partners 27
    • 28. Thank You amittal@canaan.com vinati.kastia@azbpartners.com

    ×