"Funding a Startup" by Jayan Ramankutty


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Jayan Ramankutty (Founder/CEO - Yume Networks) talks about issues on raising capital for your startup.

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  • "Funding a Startup" by Jayan Ramankutty

    1. 1. Funding a start-up: How to raise your first round Jayan Ramankutty Founder/CEO YuMe Networks BITSAA.org, June 25 th 2006
    2. 2. Outline <ul><li>Investment Sources </li></ul><ul><li>State of the VC Industry </li></ul><ul><li>Funding Process & Decision Making </li></ul><ul><li>Seed-Stage Valuation </li></ul><ul><li>Entrepreneur’s checklist </li></ul><ul><li>Preparing for the next step </li></ul>
    3. 3. Investment Sources <ul><li>Angel Investors </li></ul><ul><ul><li>Wealthy individuals with industry background </li></ul></ul><ul><ul><li>Usually a small investment (< $1M) in a very early-stage company (demo, 2-3 employees) </li></ul></ul><ul><li>Financial VCs </li></ul><ul><ul><li>Most common type of VC, an investment firm, capital raised from institutions and individuals </li></ul></ul><ul><ul><li>Fund sizes: ~$25M to 10’s of billions </li></ul></ul><ul><ul><li>Exit through - IPOs, Mergers and Acquisitions (M&A) </li></ul></ul><ul><li>Strategic VCs </li></ul><ul><ul><li>Typically a (small) division of a large technology company. Examples: Intel, Cisco, Siemens, AT&T </li></ul></ul><ul><ul><li>Corporate funding for strategic investment </li></ul></ul><ul><ul><li>Not exclusively or primarily concerned with return on investment </li></ul></ul>
    4. 4. Sources of Funds <ul><li>Source: Ten3 Coach </li></ul>
    5. 5. State of the VC Industry Source: PWC NVCA Report Q1 ‘06 $0 $100 $80 $60 $40 $20 Total Investment in Billions Investment # of Deals 1999 - 8000 6000 4000 2000 Q1 2006 Investment of $5.6B for 761 deals 2000 2001 2002 2003 2004 2005 Investment reaches a state of equilibrium
    6. 6. State of the VC industry Life Sciences $1.5B $5.6B, 716 deals in Q1 06 Software $1.2B Internet $0.8B Telecom $0.6B Media & Entt $0.4B $1.3B, 215 first-time financing deals Source: PWC NVCA Report Q1 ‘06
    7. 7. Stages of funding Financing is provided for a company expected to &quot;go public“ within six months to a year. Later Funds are provided for the major expansion of a company which has increasing sales volume. Third Working capital is provided for the expansion of a company to support growing accounts receivable and inventories . Second Growth & Expansion Funding Stages Financing is provided to companies that require funds to initiate commercial-scale manufacturing and sales . First Financing is provided to newly formed companies for use in completing product development and in initial marketing . Seed A small amount of capital is provided to entrepreneur to prove a concept for a potentially profitable business opportunity. Pre-Seed Initial Funding Stages
    8. 8. Investment Criteria Source: Ten3 Coach Expected rate of return Track record of the entrepreneur Quality of product Investor liked entrepreneur (s) upon meeting Perceived financial rewards Growth potential of the market Sales potential of the product Expertise of the entrepreneur (s) Enthusiasm of the entrepreneur (s) Trustworthiness of the entrepreneur (s) Criteria 7 10 8 9 10 7 9 5 4 8 6 6 5 3 2 4 3 1 1 2 Ranking by VCs Ranking by Angels
    9. 9. Opportunity Evaluation <ul><li>6 in 1000 business plans get funded on an average </li></ul><ul><li>5% of business plans are read beyond the executive summary </li></ul><ul><li>10% of proposals pass initial screening </li></ul><ul><li>10% of pre-screened proposals pass due diligence & receive funding </li></ul>2. Initial Screen 1. Opportunity Introduction Start 3. Due Diligence <ul><li>Management Team </li></ul><ul><li>Business Plan </li></ul><ul><li>Valuation </li></ul><ul><li>Ownership </li></ul><ul><li>Control </li></ul><ul><li>Mgmt </li></ul><ul><li>Legal Contract </li></ul>4. Negotiation <ul><li>Presentation </li></ul><ul><li>Exec Summary </li></ul><ul><li>Milestones </li></ul><ul><li>CF forecast </li></ul>FUNDING <ul><li>Mgmt, Personnel </li></ul><ul><li>Marketing </li></ul><ul><li>Production </li></ul><ul><li>Financials </li></ul><ul><li>References </li></ul>
    10. 10. Seed Stage Valuation <ul><li>Historically seed stage funding is limited to $1M+ (higher risk – lower funding) </li></ul><ul><li>Seed valuations tend to be subjective </li></ul><ul><ul><li>Quality of the leadership </li></ul></ul><ul><ul><li>Strength of intellectual property </li></ul></ul><ul><ul><li>Time-to-market expectations </li></ul></ul><ul><ul><li>Cap-ex and burn rates expectations </li></ul></ul><ul><ul><li>Sector volatility </li></ul></ul>
    11. 11. Financial Chronology of Amazon.com <ul><li>Source: Ten3 Coach </li></ul>
    12. 12. Entrepreneur’s checklist <ul><li>Understand short-term and long-term financial needs of the company </li></ul><ul><li>Provide accurate forecasts of revenue, market share and margins </li></ul><ul><li>Have clear milestones for development </li></ul><ul><li>Understand selling and buying process </li></ul><ul><li>Understand competition and market trends </li></ul>
    13. 13. Preparing for the next step <ul><li>First “big” round of financing (> $3M) </li></ul><ul><li>Financing dependent on progress made with seed capital </li></ul><ul><li>Before Series-A </li></ul><ul><ul><li>Assemble a quality team </li></ul></ul><ul><ul><li>Meet development milestones and targets </li></ul></ul><ul><ul><ul><li>Develop “proof of concept” </li></ul></ul></ul>
    14. 14. Upcoming BITSAA events
    15. 15. Plan E Educational Events <ul><li>Mission </li></ul><ul><ul><li>Provide a forum for building relationships between aspiring and successful BITSian entrepreneurs </li></ul></ul><ul><ul><li>Stimulate entrepreneurial thinking amongst BITSians </li></ul></ul><ul><li>Objectives </li></ul><ul><ul><li>Conduct ten or more educational cum networking events by May 2007 </li></ul></ul><ul><ul><li>Attract five BITSian startup ideas for an idea pitching event by May 2007 </li></ul></ul>
    16. 16. Plan E Educational Events <ul><li>Event Format </li></ul><ul><ul><li>Each event will have one theme/topic and will have one to two speakers or three to four panelists to cover enough breadth as well as potentially differing viewpoints </li></ul></ul><ul><li>Next Event </li></ul><ul><ul><li>Topic </li></ul></ul><ul><ul><ul><li>From idea to success: The Pinnacle Systems Story: From start to $350 million and a successful exit </li></ul></ul></ul><ul><ul><li>Speaker </li></ul></ul><ul><ul><ul><li>Ajay Chopra, Venture Consultant - Trinity Ventures, Founder - Pinnacle Systems </li></ul></ul></ul><ul><ul><li>Date </li></ul></ul><ul><ul><ul><li>Jul 15, 2006 </li></ul></ul></ul>