Funding Options for Tech Startups Seminar on Entrepreneurship SCOPE Auditorium, Lodi Road New Delhi, 18/11/06

What is this presentation about? Early stage funding options For tech startups Focused on internet/software segment Experience sharing Trends in funding

Early stage funding options

For tech startups

Focused on internet/software segment

Experience sharing

Trends in funding

Startup Funding Options Bootstrapping ( self financed ) Private Equity ( sell stake to investor) Debt ( take a loan)

Bootstrapping ( self financed )

Private Equity ( sell stake to investor)

Debt ( take a loan)

Life Cycle of Startup IPO Exit Selloff Merger Ideation Prototype Launch Growth Pre-Seed Seed Early, Growth

Bootstrapping Origin of bootstrapping Start operations via internal resources self, friends, family Organic growth of business spend what you earn Business type product services Not always possible

Origin of bootstrapping

Start operations via internal resources

self, friends, family

Organic growth of business

spend what you earn

Business type

product

services

Not always possible

Bootstrapping…(cont) Moore’s law Open source software Cost of running business is decreasing Much cheaper making prototypes Freedom for business decisions Easy exit options Psychological factors bootstrapping gives a kick

Moore’s law

Open source software

Cost of running business is decreasing

Much cheaper making prototypes

Freedom for business decisions

Easy exit options

Psychological factors

bootstrapping gives a kick

Seed Funding- Angel Investors Angels Investors are HNW individuals Successful entrepreneurs, technologists Smaller investment amounts than VCs Personal investment decisions Often known to startup founders Work like venture capitalists but in individual capacity

Angels Investors are HNW individuals

Successful entrepreneurs, technologists

Smaller investment amounts than VCs

Personal investment decisions

Often known to startup founders

Work like venture capitalists but in individual capacity

Venture Capital Funding Available during all phases in startup’s life cycle seed, early stage, growth Professionally managed funds VCs bring not just money Experience & advisory role Contacts & networking Very crucial during exit/sell off stage

Available during all phases in startup’s life cycle

seed, early stage, growth

Professionally managed funds

VCs bring not just money

Experience & advisory role

Contacts & networking

Very crucial during exit/sell off stage

Venture Capital Funding…(cont) VCs look for ROI over entire portfolio VCs have a exit timeline Capital intensive businesses No option but VCs Pitfalls for startups Unwillingness to give away equity stake Less freedom for business decisions

VCs look for ROI over entire portfolio

VCs have a exit timeline

Capital intensive businesses

No option but VCs

Pitfalls for startups

Unwillingness to give away equity stake

Less freedom for business decisions

Funding Trends- Debt v/s Equity Equity Equity suited for high risk businesses VC funding through stock sale is glamourised No repayment (or interest) obligations Loss (or profit) accrues to investors Also advice, experience, contacts Debt Greater control over business Interest payments are deductible business expenses

Equity

Equity suited for high risk businesses

VC funding through stock sale is glamourised

No repayment (or interest) obligations

Loss (or profit) accrues to investors

Also advice, experience, contacts

Debt

Greater control over business

Interest payments are deductible business expenses

Funding Trends- VCs v/s Angels Startups’ choice Deal with an individual (angel) or a company (VC) Average investment amounts are lowering Moore’s Law, OSS VCs are getting nervous Proliferation of VCs leading to herd mentality Number of angels increasing Former entrepreneurs, HNW individuals General affluence in society

Startups’ choice

Deal with an individual (angel) or a company (VC)

Average investment amounts are lowering

Moore’s Law, OSS

VCs are getting nervous

Proliferation of VCs leading to herd mentality

Number of angels increasing

Former entrepreneurs, HNW individuals

General affluence in society

Funding Model- YCombinator Started by Paul Graham (technologist, VC) Pre-seed funding Very little money (about 6K per founder) They take 6% equity 3 month program, mostly for people graduating out Philosophy of low cost businesses More’s Law, OSS Every year, 8-10 startups funded from hundreds of applicants

Started by Paul Graham (technologist, VC)

Pre-seed funding

Very little money (about 6K per founder)

They take 6% equity

3 month program, mostly for people graduating out

Philosophy of low cost businesses

More’s Law, OSS

Every year, 8-10 startups funded from hundreds of applicants

Funding Trends – Incubation Centers Available in India Not exactly funding An initial support system for startups Subsidized office space, hardware, bandwidth Available at STPI, IITs, MBA schools

Available in India

Not exactly funding

An initial support system for startups

Subsidized office space, hardware, bandwidth

Available at STPI, IITs, MBA schools

Thank You Presentation on www.slideshare.net & www.amitranjan.com