Funding Options for Technology startups


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Presentation delivered at the Seminar on Entrepreneurship held at SCOPE Auditorium, Lodi Road, New Delhi, 18/11/06

Published in: Economy & Finance, Business
  • Great presentation! Before you raising funding I recommend people work through the SWIR (Startup Weakness Identification and Resolution) Canvas! You can learn a lot and plug some major wholes that will help make for a richer investible story! The SWIR Canvas can be found here:
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  • good one
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  • Very Interesting. In fact right now I'm working with a social network/direct marketing client with 12+million profiled members looking to bring in Venture capital. Although this presentation is more about seed funding, it is nonetheless interesting.
    I would suggest anyone looking for funding to have a good look at this and I'll add it to our new site
    Well done!
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  • excellent presentation
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  • excellent presentation and very very helpful you have a great awareness of the market and clearly very researched
    please accept my compliments
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Funding Options for Technology startups

  1. 1. Funding Options for Tech Startups Seminar on Entrepreneurship SCOPE Auditorium, Lodi Road New Delhi, 18/11/06
  2. 2. What is this presentation about? <ul><li>Early stage funding options </li></ul><ul><li>For tech startups </li></ul><ul><li>Focused on internet/software segment </li></ul><ul><li>Experience sharing </li></ul><ul><li>Trends in funding </li></ul>
  3. 3. Startup Funding Options <ul><li>Bootstrapping ( self financed ) </li></ul><ul><li>Private Equity ( sell stake to investor) </li></ul><ul><li>Debt ( take a loan) </li></ul>
  4. 4. Life Cycle of Startup IPO Exit Selloff Merger Ideation Prototype Launch Growth Pre-Seed Seed Early, Growth
  5. 5. Bootstrapping <ul><li>Origin of bootstrapping </li></ul><ul><li>Start operations via internal resources </li></ul><ul><ul><li>self, friends, family </li></ul></ul><ul><li>Organic growth of business </li></ul><ul><ul><li>spend what you earn </li></ul></ul><ul><li>Business type </li></ul><ul><ul><li>product </li></ul></ul><ul><ul><li>services </li></ul></ul><ul><li>Not always possible </li></ul>
  6. 6. Bootstrapping…(cont) <ul><li>Moore’s law </li></ul><ul><li>Open source software </li></ul><ul><li>Cost of running business is decreasing </li></ul><ul><li>Much cheaper making prototypes </li></ul><ul><li>Freedom for business decisions </li></ul><ul><li>Easy exit options </li></ul><ul><li>Psychological factors </li></ul><ul><ul><li>bootstrapping gives a kick </li></ul></ul>
  7. 7. Seed Funding- Angel Investors <ul><li>Angels Investors are HNW individuals </li></ul><ul><li>Successful entrepreneurs, technologists </li></ul><ul><li>Smaller investment amounts than VCs </li></ul><ul><li>Personal investment decisions </li></ul><ul><li>Often known to startup founders </li></ul><ul><li>Work like venture capitalists but in individual capacity </li></ul>
  8. 8. Venture Capital Funding <ul><li>Available during all phases in startup’s life cycle </li></ul><ul><ul><li>seed, early stage, growth </li></ul></ul><ul><li>Professionally managed funds </li></ul><ul><li>VCs bring not just money </li></ul><ul><ul><li>Experience & advisory role </li></ul></ul><ul><ul><li>Contacts & networking </li></ul></ul><ul><ul><li>Very crucial during exit/sell off stage </li></ul></ul>
  9. 9. Venture Capital Funding…(cont) <ul><li>VCs look for ROI over entire portfolio </li></ul><ul><li>VCs have a exit timeline </li></ul><ul><li>Capital intensive businesses </li></ul><ul><ul><li>No option but VCs </li></ul></ul><ul><li>Pitfalls for startups </li></ul><ul><ul><li>Unwillingness to give away equity stake </li></ul></ul><ul><ul><li>Less freedom for business decisions </li></ul></ul>
  10. 10. Funding Trends- Debt v/s Equity <ul><li>Equity </li></ul><ul><li>Equity suited for high risk businesses </li></ul><ul><li>VC funding through stock sale is glamourised </li></ul><ul><li>No repayment (or interest) obligations </li></ul><ul><li>Loss (or profit) accrues to investors </li></ul><ul><li>Also advice, experience, contacts </li></ul><ul><li>Debt </li></ul><ul><li>Greater control over business </li></ul><ul><li>Interest payments are deductible business expenses </li></ul>
  11. 11. Funding Trends- VCs v/s Angels <ul><li>Startups’ choice </li></ul><ul><ul><li>Deal with an individual (angel) or a company (VC) </li></ul></ul><ul><li>Average investment amounts are lowering </li></ul><ul><ul><li>Moore’s Law, OSS </li></ul></ul><ul><li>VCs are getting nervous </li></ul><ul><li>Proliferation of VCs leading to herd mentality </li></ul><ul><li>Number of angels increasing </li></ul><ul><ul><li>Former entrepreneurs, HNW individuals </li></ul></ul><ul><ul><li>General affluence in society </li></ul></ul>
  12. 12. Funding Model- YCombinator <ul><li>Started by Paul Graham (technologist, VC) </li></ul><ul><li>Pre-seed funding </li></ul><ul><li>Very little money (about 6K per founder) </li></ul><ul><li>They take 6% equity </li></ul><ul><li>3 month program, mostly for people graduating out </li></ul><ul><li>Philosophy of low cost businesses </li></ul><ul><ul><li>More’s Law, OSS </li></ul></ul><ul><li>Every year, 8-10 startups funded from hundreds of applicants </li></ul>
  13. 13. Funding Trends – Incubation Centers <ul><li>Available in India </li></ul><ul><li>Not exactly funding </li></ul><ul><li>An initial support system for startups </li></ul><ul><li>Subsidized office space, hardware, bandwidth </li></ul><ul><li>Available at STPI, IITs, MBA schools </li></ul>
  14. 14. Thank You Presentation on &