The Art & Science of Fund Raising
Alok Mittal
TiEcon Delhi

October 2013
Venture Catalysts for Next-Gen Market Leaders

» 26 year old firm with offices in
California | NY Corridor | India | Israe...
Agenda

» Lifecycle of a Business and Need for Capital
» Types of Venture Funds and What to Expect?
» What Do Venture Fund...
Lifecycle of a Business
Maturity
Market Validation Stage:
BD, Fine Tune Biz
Model, Partnerships
-Product/Service live
-Ear...
Agenda

» Lifecycle of a Business and Need for Capital
» Types of Venture Funds and What to Expect?
» What Do Venture Fund...
Types of Venture Funds / Which VC to Pick

» Types of VCs
›
›
›

Stage of Investment (Early, Growth, Late)
Sector Focus (T...
What Can You Expect From a Venture Fund

» Other than money
›
›
›
›
›
›

Assistance/sounding board for strategy
Large netw...
Agenda

» Lifecycle of a Business and Need for Capital
» Types of Venture Funds and What to Expect?
» What Do Venture Fund...
Key Question Investors Ask When Investing…
Can this opportunity generate a
“large exit” in 5-6 years ?

» How large depend...
Early Stage: DNA of VC Fundable Businesses
Early stage –
risky so lots
of emphasis
on founders

Why will
you win?

• Nasce...
Team
» Passion
›
›
›

Strong belief
Risk taking appetite
Ambition

» Relevant experience
›
›

Domain / Market understandin...
Market
» Very critical component of VC decision making
› Big is important, but markets dynamics are also key
› India vs. I...
Market: Case Study
Online Photo Printing
$ 400MN

$ 80 MN

$ 60 MN

# of urban HH = 100MN

# of digi cams in India
= 20MN
...
Value Proposition

» Is there a genuine need for the product / service?
» How is it being addressed today ? Why NOW ?
» Wh...
Scalability: Biz Model
Enterprise Software: Scalability Barriers

›
›
›
›

Small Ticket Price
Fragmented market, Competiti...
Scalability : Capital
Output: Revenue,
Profits

Technology Facilitates
Capital Efficiency

Input: Effort, Capital
© Copyri...
Defensibility
»
»
»
»
»
»

Intellectual Property
Installed Base – Platform Play
Installed Base – deep entrenchment, hard t...
Exit Potential
» Possibility of standalone business (IPO)?
›
›

Is business long-term sustainable?
Will public market find...
Less likely to be Venture Fundable

» Entrepreneur
›
›
›
›

Lack of experience / knowledge in related area
Lack of sales a...
Agenda

» Lifecycle of a Business and Need for Capital
» Types of Venture Funds and What to Expect?
» What Do Venture Fund...
Venture Investment Process

15 days

30 – 45
days

Deal Identification /
Preliminary Analysis

Deal Validation

Due Dilige...
Term Sheet Overview
Letter of Intent to invest in a given opportunity on
specific terms and conditions
» Valuation
» Type ...
Legal Due Diligence Overview
The financier’s perspective

» Need to know what they are getting into – sometimes
irrespecti...
Key Transaction Drivers
» Investors want protection
›
›
›

Value Protection
Exit Protection
Governance

» Targets/Promoter...
Legal - Emerging Trends & Challenges

» Redefining ‘Control’ to include affirmative vote
items
› FDI challenges
› Treatmen...
Resource: Canaan Pitchbook
Download here:
www.canaan.com

© Copyright 2009 Canaan Partners

26
Resource: StartUp Catalyst

startupcatalyst.in
@startupcatalyst
© Copyright 2009 Canaan Partners

27
Thank You

amittal@canaan.com
vinati.kastia@azbpartners.com
Upcoming SlideShare
Loading in …5
×

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

2,491
-1

Published on

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

No Downloads
Views
Total Views
2,491
On Slideshare
0
From Embeds
0
Number of Embeds
4
Actions
Shares
0
Downloads
60
Comments
0
Likes
11
Embeds 0
No embeds

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

    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
    1. A particular slide catching your eye?

      Clipping is a handy way to collect important slides you want to go back to later.

    ×