The document discusses key considerations for early stage financing of IT and ITES companies during an economic recession. It outlines various company stages and funding amounts needed. Key evaluation criteria for startups include scalability, operational efficiency, market size, and biggest competitor. The document also discusses challenges of fundraising during a recession and strategies for either winning or surviving the downturn, such as offering fair quality at half the price and pursuing partnerships over self-funded growth. Overall it provides guidance on moving to the next round of capital, focusing on profitability over just raising more funds.
1. IVCJ Conference for
Private Equity for IT & ITES
Early Stage Financing
29th April 2009, Taj Lands End, Mumbai
Atul Khekade
Director – Netz Capital
2.
3. Company Stages
Idea $10K - $50k
Business Plan Seed/Pre-Early
Team
Working Model 0.5% $2M - $5M
VC
Operations
PE IPO
Exit >$5M
Acquisition
4. Fund Structure
Idea
•Scalability
•Portability
•Interface
•Operational Efficiency
•Market Size
•Biggest Competitor
Team Technology Infrastructure Early Promotion
<$5K <$10K <$10K <$5K
<$30K
•Early Customers
•Self Sustaining Operations - $1M Revenues
•Gearing up for Next Round
5. Fund raising Challenges
(In recession time)
• Scalability
• Operational Efficiency/Low fixed costs
• Revised Exit Strategy/Profit making as first priority
• Recession Proof Check
• Serves a very basic need at ½ x price
• Serves emerging/recession free markets Additional
Evaluation
• Long term viable and economic model
Criteria
• VC/PE Limitations
• Scarcity of Capital
• Bad M&A and IPO market
• Painful Term Sheet, giving away majority control
6. Strategy: Winning or Surviving?
In tough times
• Highest quality, fair price • Fair quality, ½ x price
• Fixed cash outflow model • Negative cash outflow model
• Self funded Growth • Partnerships/Franchising
• Budget as per market price • Bootstrapping / Re-inventing
the budget
• Advertising • Public Relations
• Find Employees • Find/Nurture Entrepreneurs
• Sales start after operations • Sales first
7. Moving to the next round of Capital
• Is it absolutely necessary?
• A successful company is the one that makes more profits – not the
one that raises more capital.
• Thought about raising capital from customers?
– Long term commitments
– Pre launch sales
– Clearer revenue picture of the future.
Raised $100M as Tata raised $5
Raised $6.2M deposits from million on nano
from 125,000 customers forms
wiki users
8. Seeding the Leader
LEADER
Process
Consistency
Business Model
Vision
Early
Role Model
Customers
Organized
Sales Process
Media
Presentation
Friendliness
Skills
9. Growth - A reality?
• Recession – Greatest Opportunity to rise
• Opportunity for cheaper alternatives of existing products
Real Estate Automotive Travel Food Energy Entertainment
Cost effective •Second hand •Full service Franchising Green Energy •Cheaper
housing cars to low frill sources theatres
airlines
•Electric cars •Movie rentals
•Airlines to
•Car Rentals trains
10. Exit Strategy
• Profit Making as soon as possible
• Surviving till the markets recover
– Undervalued M&A
– Undervalued acquisition bids
11. Valuation
• “It is better to own 10% of a $100 million company than
owning 80% of a $5 million company”
• Company’s leader deserves controlling interest
• Valuation Criteria
– Revenue
– Competitor’s revenue
– Early entrant? Or crowded space?
– Early customers
– Market size
12. Thank You
• Atul Khekade
• Info @ netzcapital.com
• +91 98203 72810