Sources of Funds, Venture Capital System, Designing a Funding Strategy, What investors look in a pitch funding, Current funding options available in GLobal Market

1. STARTUP
FUNDING &
STRATEGIES
FOR FUTURE
UNIT VI
By: Arnav Chowdhury

2. VENTURE CAPITAL SYSTEM FOR
START UP
Venture capital is a type of financing provided to early-stage, high-potential companies with high growth
potential. The venture capital system is designed to support and invest in startups and emerging businesses
in exchange for equity ownership. Here's an overview of the venture capital system for startups:
• Startup Stage: Startups at this stage have an idea or a product prototype but lack the resources to
scale. They typically seek funding to develop their product, conduct market research, and build a team.
• Venture Capital Firms: These firms raise capital from various sources, such as institutional investors,
high-net-worth individuals, and corporate entities. Venture capital firms typically have a team of
investment professionals who evaluate potential investment opportunities.
• Investment Criteria: Venture capitalists (VCs) assess several factors before investing in a startup. They
consider the startup's market potential, team capabilities, competitive advantage, scalability, and exit
strategy. Startups with disruptive technologies, innovative business models, or a unique value
proposition are more likely to attract venture capital.
© Arnav Chowdhury
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3. VENTURE CAPITAL SYSTEM FOR
START UP
• Due Diligence: VCs conduct thorough due diligence to evaluate the startup's business model, market
opportunity, intellectual property, financial projections, and risks. This process involves analyzing the
startup's product or service, market size, competitive landscape, and conducting background checks on
the founders.
• Term Sheet and Negotiation: If a venture capitalist is interested in investing, they provide a term sheet
outlining the proposed investment terms, valuation, ownership stake, board representation, and other
conditions. Negotiations take place between the VC and the startup to finalize the terms of the
investment.
• Funding Rounds: Venture capital investments are often structured as multiple funding rounds. Startups
typically start with a seed round to raise initial capital, followed by subsequent rounds, such as Series A,
B, and C, as the company progresses and demonstrates growth potential. Each round provides
additional capital to fuel the startup's growth.
© Arnav Chowdhury
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4. VENTURE CAPITAL SYSTEM FOR
START UP
• Post-Investment Support: Venture capitalists often provide more than just capital. They offer strategic
guidance, industry expertise, networking opportunities, and access to their network of contacts. VCs may
also assist with recruiting key talent, refining the business model, and scaling operations.
• Exit Strategy: Venture capitalists aim to generate a return on their investment through an exit strategy.
This can be achieved through an initial public offering (IPO), where the company goes public, or through
an acquisition by a larger company. The exit allows VCs to sell their equity stake and realize their
investment gains.
© Arnav Chowdhury
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5. DESIGNING A FUNDING
STRATEGY
• Assess Funding Needs: Determine how much capital your startup requires to achieve key milestones.
Consider factors such as product development, marketing, hiring, and operational expenses. Create a
detailed financial plan that outlines your funding requirements over a specific timeframe.
• Identify Funding Sources: Explore different funding sources based on your startup's stage, industry,
and funding needs. Common funding sources include:
• Bootstrapping: Funding the business with personal savings, revenue generated from early sales, or support from
family and friends.
• Angel Investors: High-net-worth individuals who invest their own money in early-stage startups.
• Venture Capital: Institutional investors who provide capital in exchange for equity and have a focus on high-
growth startups.
• Crowdfunding: Platforms that allow you to raise small amounts of capital from a large number of individuals.
• Grants and Government Programs: Research grants, business development grants, and government initiatives
that provide financial support to specific sectors or technologies.
• Bank Loans: Traditional loans that require collateral or a strong credit history.
© Arnav Chowdhury
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6. DESIGNING A FUNDING
STRATEGY
• Develop a Pitch: Craft a compelling pitch that effectively communicates your startup's value proposition,
market potential, and growth strategy. Tailor your pitch to the specific needs and interests of potential
investors or funding sources.
• Build Relationships: Networking is crucial in the fundraising process. Attend startup events, pitch
competitions, and industry conferences to connect with potential investors and build relationships. Seek
introductions from your network, mentors, or advisors to reach out to relevant investors.
• Prepare Documentation: Prepare essential documents that potential investors will require during due
diligence. These may include a business plan, pitch deck, financial projections, market analysis, and
legal documents such as articles of incorporation.
• Valuation and Terms: Determine the valuation of your startup based on its stage, market potential, and
comparable companies. Consider the amount of equity you are willing to offer in exchange for funding.
Be prepared to negotiate investment terms, including board seats, liquidation preferences, and anti-
dilution clauses. © Arnav Chowdhury
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7. DESIGNING A FUNDING
STRATEGY
• Funding Rounds: Depending on your funding needs and growth trajectory, plan for multiple funding
rounds. Each round should align with your company's milestones and growth objectives. Common
rounds include seed, Series A, B, and C.
• Diversify Funding Sources: Avoid over-reliance on a single funding source. Diversify your funding by
securing investments from multiple investors or funding channels. This can help reduce risk and provide
access to different expertise and networks.
• Stay Investor-Ready: Maintain accurate financial records and reporting systems to demonstrate
transparency and accountability to your investors. Continuously update your business plan and pitch
deck as your startup progresses.
• Monitor Cash Flow: Once you secure funding, carefully manage your cash flow. Regularly review your
financials, track expenses, and ensure funds are allocated efficiently to support your business growth.
© Arnav Chowdhury
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8. WHAT INVESTORS LOOK FOR IN
A PITCH FUNDING
• Strong Value Proposition: Investors want to understand your startup's unique value proposition.
Clearly articulate how your product or service solves a significant problem or addresses a market need.
Demonstrate a deep understanding of your target market and explain why your solution stands out from
competitors.
• Market Potential: Investors assess the size and growth potential of your target market. They want to
see that there is a sizable market opportunity and that your startup has a clear strategy to capture a
significant market share. Provide data, market research, and evidence of market validation to support
your claims.
• Scalability and Growth Strategy: Investors seek companies with the potential for rapid growth and
scalability. Present a well-defined growth strategy that outlines how you plan to acquire and retain
customers, scale operations, and expand into new markets. Highlight any unique business models,
distribution channels, or partnerships that give your startup a competitive advantage.
© Arnav Chowdhury
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9. WHAT INVESTORS LOOK FOR IN
A PITCH FUNDING
• Strong Team: Investors often prioritize the quality and experience of the founding team. Highlight the
skills, expertise, and track record of your team members, emphasizing how their backgrounds are
relevant to the success of your startup. Investors want to see a cohesive team with complementary skills
and a shared vision.
• Traction and Milestones: Investors look for evidence of progress and traction. Showcase any
significant achievements, such as user growth, revenue, partnerships, or key milestones reached.
Highlight early adopters, customer feedback, or successful pilot projects to demonstrate market
validation and momentum.
• Clear Financial Projections: Present well-thought-out financial projections that show a clear path to
profitability and return on investment. Investors want to see that you have a solid understanding of your
financials, including revenue streams, cost structure, and key metrics. Be realistic and transparent in
your projections, supported by data and market research.
© Arnav Chowdhury
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10. WHAT INVESTORS LOOK FOR IN
A PITCH FUNDING
• Competitive Advantage: Explain how your startup maintains a competitive edge in the market. This can
include intellectual property, proprietary technology, unique partnerships, or a strong network effect.
Address potential barriers to entry and articulate why your business is defensible and sustainable in the
long term.
• Exit Strategy: Investors want to understand how they can potentially exit their investment and realize a
return. Outline potential exit strategies, such as an IPO or acquisition, and explain the potential value
drivers that make your startup an attractive investment opportunity.
• Effective Communication and Presentation: Deliver a clear, concise, and compelling pitch. Articulate
your message in a way that is easily understandable, engaging, and memorable. Use visuals,
storytelling, and real-world examples to effectively convey your vision and build investor confidence.
• Fit and Alignment: Investors consider whether your startup aligns with their investment focus, industry
expertise, and portfolio diversification. Research and target investors who have a track record of
investing in similar industries or stages. Understand their investment criteria and tailor your pitch
© Arnav Chowdhury
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11. CURRENT FUNDING OPTIONS
AVAILABLE IN GLOBAL MARKET
© Arnav Chowdhury
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Funding Option Description Advantages Disadvantages
Bootstrapping
Funding a business with your own personal
savings, or with the help of friends and family.
No debt, no interest payments. Limited amount of capital.
Loans
Borrowing money from a bank, credit union, or
other financial institution.
Can access large amounts of
capital.
Repayment terms can be restrictive.
Crowdfunding
Raising money from a large number of people,
typically through online platforms.
Can access a large pool of potential
investors.
Can be time-consuming and
complex.
Angel investors
Wealthy individuals who invest their own
money in early-stage businesses.
Can provide access to capital and
expertise.
Can be difficult to find angel
investors who are interested in your
business.
Venture capital
Professional investors who invest money in
early-stage businesses.
Can provide access to large
amounts of capital and expertise.
Can be difficult to get venture capital
funding.
Government grants
Grants are offered by governments to
businesses that are working on innovative
projects or that are located in underserved
areas.
Can provide free money to help your
business grow.
Grants can be difficult to obtain.
Incubators and
accelerators
These programs provide businesses with a
variety of resources, such as office space,
mentorship, and access to capital.
Can provide valuable resources and
support to help your business grow.
Incubator and accelerator programs
can be competitive to get into.
Social impact investing
This is a type of investment that is made with
the intention of having a positive social or
environmental impact.
Can invest in businesses that are
making a positive impact on the
world.
Social impact investments can be
illiquid and difficult to exit.