TiE equity funding basics(Jan2012 ) bySanjay Nath_Blume Ventures
Equity Funding (focus on Angel/VC funding) January 2012 Private and Confidential
Private and Confidential Equity funding <ul><li>Equity Loan This extends an ownership position to induce the loan or may be originally a note (debt) with an option to convert from debt to equity. </li></ul><ul><li>Seed Financing Generally used by a business in the startup phase with no operating history. This depends heavily on a business plan, team, a strong marketing plan, and sound financial analysis. </li></ul><ul><li>1st Round Financing For a company getting ready to go to market. Research and Development is most likely complete and the company is ready to grow – typically in the form of a convertible bond. </li></ul><ul><li>2nd Round Financing Company is achieving early stage maturity and is looking for M&A or IPO </li></ul><ul><li>Mezzanine Financing Company is ready for IPO. Late stage PE capital will be used to support the IPO. </li></ul><ul><li>Later Stage Financing Company is now mature and is in need of funding for expansion either in facilities or product lines. Their financial state should be profitable or at least not losing money. </li></ul><ul><li>M & A Financing Two companies combine resources and if one survives it is the acquirer. If both survive then there is a merger. </li></ul>
Private and Confidential Types of shares (in the US, “stocks”) Stock typically takes the form of shares of either common stock or preferred stock . As a unit of ownership, common stock typically carries voting rights that can be exercised in corporate decisions. Preferred stock differs from common stock in that it typically does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders . Convertible preferred stock is preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date. Shares of such stock are called "convertible preferred shares" (or "convertible preference shares" in the UK) New equity issues may have specific legal clauses attached that differentiate them from previous issues of the issuer. Some shares of common stock may be issued without the typical voting rights, for instance, or some shares may have special rights unique to them and issued only to certain parties.
Private and Confidential What VCs / Angels look for <ul><li>Any startup wanting to raise equity funding must be able to address some critical elements, including </li></ul><ul><li>Clarity of Business Purpose </li></ul><ul><li>Large Markets </li></ul><ul><li>Pain Points </li></ul><ul><li>Team </li></ul><ul><li>Frugality </li></ul><ul><li>Adaptability and Ability to Listen </li></ul>
Private and Confidential Science as well as Art <ul><li>The Art … </li></ul><ul><li>Go with sophisticated investors </li></ul><ul><li>Comfort on both sides is important </li></ul><ul><li>“ Smart money” vs just money </li></ul><ul><li>Detailed financial projections – or a gut call on the team/founders? </li></ul><ul><li>Understand motivations </li></ul><ul><li>Science … </li></ul><ul><li>Clarity of Business plan </li></ul><ul><li>Customer need / pain point being solved </li></ul><ul><li>Addresseable market size </li></ul><ul><li>Team </li></ul><ul><li>Execution </li></ul><ul><li>Ability to scale up </li></ul>
Private and Confidential Introducing Blume <ul><li>Blume invests in, mentors and helps grow early stage businesses </li></ul><ul><li>that can scale rapidly in terms of revenues / consumer adoption, using technology as an enabler </li></ul><ul><li>with capital -efficient business models </li></ul><ul><li>that build on established “ sandboxes” – leveraging new media, internet, mobile platforms poised for even more rapid growth </li></ul><ul><li>driven by committed and passionate entrepreneurs, who can adapt to and thrive in dynamic market environments </li></ul><ul><li>with Blume's firs t cheques of 50 lacs – 1.5 crores (with second cheques based on milestone achievements) </li></ul>Blume Ventures is a super angel fund helping Indian startups seeking between $100,000 to $1.5 million in seed and angel funding
Profile Private and Confidential Sanjay has over 15 years of entrepreneurial, business development, management consulting and operations experience. He has been a member of the Mumbai Angels, a leading angel group in India since its inception in 2006. Sanjay was an early investor in InMobi (formerly mKhoj), one of India’s best known angel-funded success stories. He has made 10 investments across mobile, online travel, software, healthcare. Sanjay spent 7 years between PwC Consulting and IBM Global Services' Silicon Valley offices, advising and working closely with leading high tech clients like HP/ Compaq, Sun Microsystems, Intel and AT&T. Before his return to India in 2010, he co founded and ran a Legal Process Outsourcing (LPO) company. Early in his career, Sanjay supported the initial growth of Kanbay which had a successful IPO on the Nasdaq in ‘04, and was then acquired by Cap Gemini Ernst & Young for $1.25 billion in 2006. He is passionate about helping entrepreneurs and is active in associations including TiE (where he is a Charter Member) and Mumbai Angels. Sanjay is an engineer from BITS, Pilani and holds an MBA from UCLA’s Anderson School. Sanjay Nath