An overview of financing options for early stage social enterprises.

1. Unconvention|L - Jaipur
Digbijoy Shukla – Director, Ennovent Impact Circle

2. Before Going for Financing…
Are you really committed to your idea?
Do you have the courage to quit your cushy salaried job?
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Are you willing to put in whatever little capital you have, or can raise from
friends and relatives, tighten your belt and somehow execute your idea?
DO YOU HAVE SKIN IN THE GAME?????

3. Typical Enterprise Funding Landscape
Idea/ INIA
Prototype/Pilot Stage Market Entry/Revenue
Opportunity
Competitions Grants, Govt. Schemes, Incubator, Angel
Investors & Early Stage Impact Investors
Scale Up Proof of Business Model
Impact Funds, Mainstream Funds, Venture Debt, Debt

4. Sources of Capital – Early Stage Enterprises
• Self
• Family, Friends & Fools
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• Competitions
• Incubators
• Grants/Govt. Schemes
• Seed/Angel
• Venture Capital
• Debt – Bank Loan

5. Competitions (Examples)
Stage 1 funding, generally expected to require
an average of $50,000 (approx. Rs. 25,00,000),
will not exceed $100,000 (approx. Rs.50,00,000).
Stage 2 funding, generally expected to require
an average of $500,000 (approx. Rs.
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2,50,00,000) will not exceed $750,000 (approx.
Rs. 3,75,00,000). MA will make at least six
awards per year, subject to the evaluation and
recommendations of the Evaluation
Committees. More Details -
http://www.millenniumalliance.in
The Global Social Venture Competition (GSVC)
provides aspiring entrepreneurs with
mentoring, exposure, and $50,000 in prizes to
transform their ideas into businesses that will
have positive real world impact.
More Details - http://www.gsvc.org/
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6. Incubators/Accelerators (Examples)
Villgro provides entrepreneurs with Seed
Funding (Villgro offers up to USD 60,000 in seed
funding to early stage social enterprises.),
Fellowship, Mentoring, Training, Networks.
More Details: http://www.villgro.org/
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Centre for Innovation Incubation and
Entrepreneurship provides aspiring
entrepreneurs with mentoring, exposure and
seed funds. CIIE directly manages incubation
funds in excess of Rs 10 crores investing in
seed-stage start-ups across technology sectors.
More Details - http://www.ciieindia.org/
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7. Snap Shot Govt. Scheme (Source - http://www.venturecenter.co.in/funding)
Organization Scheme Funding Amount Target Purpose
Dept. of TePP Project Fund INR 15 Lakh Individuals/Entrepreneur Grant to convert
Scientific & s/Startups invention into a working
Industrial prototype
Research
Department of Small Business Innovation Upto Rs 1 Crore, upto Rs Biotech Companies / Early Stage Funding for
Bio Technology Business Research 50 Lakh as grant and rest Entrepreneurs INIA high risk, innovative
Initiative (SBIRI) Phase 2 as soft loan ideas/products for
commercialization
Department of Water Technology Initiative Up to Rs 1 crore Scientists / Technologists To develop low cost
Science and (WTI) Programme sanctioned in recent / R&D Labs domestic purification
Technology (DST) projects, grant for technologies, otions for
technologists in disposal of scientific
academic institutions / waste, initiating
grant to cover 50% cost application of nano-
of consumables for technology
Industry-Institution
partnership
Department of Depends on Project (in Entrepreneurs / Industry Loan @ 5-6% / Equity
Science and Lakhs) / Institutions Partnership for working
Technology (DST) in indigenous
technologies
National Rs 10 Lakh to Rs 30 Lakh Entrepreneurs / Angel Funding/take
Research Incubatees at Business Equity in the company
Development Incubators focus on rural and exit when a financial
Corporation innovations investor is on board

8. Grants
What is it?
In its simplest form a grant can be characterized as a “gift” provided for the
purpose of public benefit. It is not repayable to the donor nor does it give rise to
any ongoing financial obligation of the grantee to the donor. INIA
Sources of grant capital vary from:
Government Agencies
Corporate Foundations
High net worth individuals
Non profit organizations
Private foundations
Source: www.socialedge.org/blogs
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9. Grants
Technicalities?
A grant agreement – a legally binding contract between the donor and the grantee
will detail such things as: INIA
•Purpose for which the grantee is to use the grant monies;
•How the grant monies will be disbursed;
•Agreed milestones the grantee must meet to qualify if the grant is structured with
progressive disbursements over time; and
•Reporting requirements (including social performance metrics) of the grantee to
the donor;
Donors have become increasingly focused over the years in imposing increased
accountability on grantees in achieving and measuring the social impact achieved
with grant money.
Source: www.socialedge.org/blogs
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10. Grants
Questions You Should Ask!
• Will the grant money allow pursuit of established strategy or does it cause
divergence from strategy?
• Is the grant for general operations or for a specific project? INIA
• If for general operations, what period of time does the grant cover and what
additional monies (if any) are needed to complement the grant?
• If for a specific project, is the grant sufficient to cover the total cost of the
project (capital cost, operating costs plus working capital)? If not, how will the
balance of the project be funded?
• How does the grant interact with existing or future funding sources?
• Is the grant structured to maximize social impact?
• Are the milestones the donor is requesting achievable?
• Are the reporting requirements (including social performance metrics)
manageable?
• What resources are needed to meet the reporting requirements of the donor?
• What is the cost of meeting such reporting requirements?
Source: www.socialedge.org/blogs
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11. Debt
What is it?
Debt can be simply defined as money that you borrow to run your business. Generally
speaking, debt can be divided into two categories: Debt financing requires the
entrepreneur to repay the borrowed money to the lending institute. This may include
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everything from a loan to bond, credit. An important consideration with this kind of
funding option is that, it requires the entrepreneur to have exceptional credit history.
Long Term Debt Financing usually applies to assets you are purchasing for your social
enterprise, such as equipment, buildings, land, or machinery. With long term debt
financing, the scheduled repayment of the loan and the estimated useful life of the
assets extends over more than one year.
Short Term Debt Financing usually applies to money needed for the day-to-day
operations of the social enterprise, such as purchasing inventory, supplies, or paying
the wages of employees. Short term financing is often referred to as an operating loan
or short term loan because scheduled repayment takes place in less than one year.
Source: www.socialedge.org/blogs
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12. Debt
What to Watch out for?
Debt entails the payment of interest. Debt financiers require a borrower to have a
clearly defined and proven revenue model that can be relied on for servicing of
the loan and in most cases backed by collateral security. INIA
Aside from loan repayment, what are some of typical terms and conditions that
one can expect to see in a loan agreement:
• Amount
• Purpose
• Final date of maturity
• Interest rate
• Other fees
• Principal and interest payment schedule ( ie. amounts and payment dates)
• Financial, operating and reporting covenants
• Events of default
• Form of security
Remember that the cost of finance for any loan is not just the interest rate but
also must take account of any upfront or additional ongoing fees that may be
charged as part of the loan.
Source: www.socialedge.org/blogs
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13. Debt
Pros:
Good source of financing and cheap compared to equity mostly for companies
with steady growth, consistent sales & solid collateral.
Debt financing can be obtained from commercial banks, NBFCs and other financial
institutions like NSDC etc. INIA
Here the entrepreneur gets to maintain his ownership & maximum control over
business.
Cons:
Debt financing requires monthly payments on a regular basis irrespective of how
the company is doing.
This sort of financing is most often limited to businesses with a solid & successful
track record. In addition to providing collateral in a lot of cases as security.
Typically go to enterprises with at least three years of operations with proven
credit history and profitability and growth. These are available at interest rates of
16-20 %, while loans against property cost 12-18 %.
This requires the filing of formal application either online or at the lending
institute and a lot of paper work at times.
Source: www.socialedge.org/blogs
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14. Debt
Useful Tips in Managing Debt
Defer the start date of repayment by adding a "grace period." Startup loans often
have a six- to 12-month grace period before repayment starts, providing entrepreneurs
with some time to ramp up the business.
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Use interest-only payments. If your lender wants to be repaid immediately, offer to
make interest-only payments for a period of time to keep your monthly budget in
check.
Institute graduated payments. You can create a unique repayment schedule with low
payments at the start of the loan and higher payments at the end when your business
is proven.
Source: www.socialedge.org/blogs
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15. Equity – Angels/Funds
What is it?
Equity financing seeks ownership in company in exchange for money invested. Impact
Funds and Impact Investors look at a balance of social/environmental impact and returns
on their investments.
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An Impact Fund fund has limited partners (LPs), usually corporates, foundations,
endowment funds or high net-worth individuals – who give their money to the fund to
invest on their behalf.
The fund has team members (partners) who are responsible for investing from the fund.
They usually pick sectors to invest in (energy, healthcare, microfinance etc) – depending
on the experience of the team members. The experience matters since the team
member helps guide the company they invest in with their experience and connections.
Angel Investors are high net worth individuals, who invest in a start -up in return for a
minority share in the business. They are usually serial entrepreneurs or heads of major
multinational firms .
Source: www.socialedge.org/blogs
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16. Equity
What to watch out for?
Before trying to raise venture capital, decide what your business will look like in 5 -
7 years. Impact Funds invest in businesses that are likely to scale in operations
and impact, and they’d like to get their returns.
Venture Money is RIGHT for your business if:
• You are trying to build a large business over 5-7 years and
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• Your business could go public or be acquired for a large amount
• You are comfortable with involvement from partners of the VC fund – on strategic
operations of your business
Having a venture investment in your company means you are signing on to be a
high growth company and will do the things necessary to grow quickly and build
the talent base, processes, and infrastructure that is necessary to support a high
growth business. This is usually good when all goes well, but during rough times,
it’s difficult to manage.
The right venture investor can be VERY helpful to building your business. Their
experience, advice, and connections have been invaluable. But it’s a little like
marriage so choose your partner carefully; it’s pretty hard to get your venture
capitalists out of your company if you decide later that you don’t like them.
- So do your due diligence on them!! Source: www.socialedge.org/blogs
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17. Equity
Pros:
This is looked upon as the best source of financing mainly by companies with high profitability
or those with poor credit ratings.
Angel Investors & Funds bring a lot of experience, connections and domain expertise which can
add value to the business such as potential customers, key hires etc
Also help in further rounds of financing and capitalization of the company.
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Cons:
The involvement of more number of investors can mean more loss of ownership and control.
Venture Capitalists or angel investors may opt to have a say in every important business
decisions.
If there is no alignment things can go haywire!!!
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18. Convertible Debt – Early Stage Financing
What is it?
Convertible debt is simply a loan (a debt obligation) that can be turned into equity
(stock ownership), generally upon the occurrence of future financing.
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Pros:
Way to secure investment funds without setting a valuation on a company --an
uncertain and disruptive process for the early -stage or pre-revenue company--that can
protect early investors from dilution in the next round of financing.
Avoid a possibility of a down round for the first set of investors
Cons:
Convertible debt often includes terms to provide a discount or bonus upon
conversion into equity.
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19. Comparing Grants/Debt/Equity
Grants Debt Equity
Amount · Varies · Typically no more than 3-5 · Varies
times equity although highly
dependent on the type of
social enterprise
Purpose · Grant monies are often restricted to a · Operating, working and · Operating, working and
specific project rather than being able to capital expenditure INIAcapital expenditure.
be used broadly by a social enterprise for
operating and capital expenditure
Repayment and · No repayment required · Principal must be repaid · Exit strategy that allows
Servicing according to an agreed investors to realize return of
schedule along with agreed investment
interest
Covenants · Reporting · Reporting and Financial · Reporting
Events of Default · Typically limited to compliance with the · Non-payment of principal or · Downside protection
grant purpose and laws interest, non-compliance with
covenants, cross default, etc
Security · NIL · Fixed or floating asset · Typically NIL
charges may be requested by
a lender
Board · Some grant makers will require a board · NIL · Board seat or ability to
Representation seat especially if they are one of the nominate a board member to
primary funders of a social enterprise provide influence over key
strategic and management
decisions
Ownership · NIL · NIL · Yes along with voting rights in
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proportion to ownership

20. Funding Institutions vs Business Life Cycle
Growth Challenges
CAPEX IPO
Investor Pressure
Change Management
M
A Market Validation Late Stage
T Customer Acquisition Working
U No or low Revenues capital
Low or –ive Cash Flow Bank loans
R Operational Private equity
I Challenges Venture Capital
T Incubators
Y Angels
Faith Money Grants
Time/Revenue

21. Approaching Impact Investors
An idea is worth the paper it’s written on, unless backed by a business. And a business
usually is:
Tied to Solving a Large Problem, which If Solved, would Result in Huge Value to Someone,
who (collectively) Would be Willing to Pay a Large Sum for the Solution.
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Investors (especially venture investors) expect the bold questions in the statement above to be
answered with crystal clarity. In addition, they like to have the following questions answered
as well.
Why hasn’t the problem above been solved before?
What makes you and your team experts at solving the problem?
Why can’t other companies solve the problem?
Why can’t a company with $100M in capital solve the problem better than you?
Investors (especially venture investors) invest in businesses that are innovative and teams
that can execute well. If a large company like Unilver, Mahindra, or Reliance can do what
you’re proposing, they have 100x more capital than you ever will to pull it off. Be prepared to
answer why you’re likely to succeed in spite of the competition.

22. Approaching Impact Investors
A TEAM is of paramount importance to a technology startup. Without a team, there’s
a very small chance of raising venture financing, unless you’re a recognized name and
have built successful businesses in the past.
Impact Investors look for a team of founders. The reasons are simple, but often not
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obvious.
1. A team is always better than an individual. A team will have better ideas,
complimentary skills, and the ability to support one another during tough times.
2. A team reduces the level of risk, especially a good founding team that compliments
each other. Think of a team with a marketing, engineering, and sales background, not
necessarily 3 engineers .
3. A team that has worked together for a period of time has worked out teething pains.
They’ve learnt to work together and are likely to stick together.
Impact Investors bet on a team’s ability to solve the identified problem. Chances are
the initial solution is partly wrong, and a good team will figure out what’s wrong with
it and fix it.

23. Impact
What is the impact
Social
Economical
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Environmental
Whom is the Impact for
The Target Population
Specific Geography
How is Impact Delivered
Delivery of quality goods/services
Sourcing products/services from BoP
Impact Core to the Business
Is the Impact Component locked in the Business Model

24. What
What is the space
Not telecom / entertainment
Who are the market leaders
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Their size
The opportunity
Market potential from external sources
Very, very briefly
What is your product / service
Does it need seeding
How does it fit in the landscape

25. Why
Why is your product / service necessary
What pain is it removing for the customer
Is it adding a service which will enhance a product / service
Is the process different increasing productivity, reducing cost, etc.
etc. INIA
Is it doing something Different / Differently
Is it “need to have” / “nice to have”
Is there an IP
What will the customer exactly get / see

26. Who
Identify exactly who the customer is
Is it creating a new customer base
Enhancing a customer base
Is your target the real customer ? INIA
What are the parameters of your customer?
Geography
Age
Urban / rural
Etc etc.

27. Market
Market size
A billion dollar market is not YOUR market size - what is your
market potential
“1% of USD 1500 bn market” - ??
How has the market been validated by you? INIA
Specific markets / geographies / segments which will be
addressed

28. Competition
Who is your competition?
Product / service
Company
Alternate process
Size up your competition INIA
SWOT of competition
Lessons learnt from competition
Trends in competitive companies
“Never say None”
Potential buyers could continue without your product / service

29. Competition
Existing and future competition
First mover advantage – rarely sufficient
Needs more vision and could be
IP driven INIA
market entry strategy
Innovative commercial model
Your vision for the venture

30. USP
What are your differentials
What is your USP of your proposition
Any validation of your product/service
Pain point in competition being addressed by you
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Product life cycle
Specific market / selling modality
Cost differential
Is too common / too unique ?

31. Cross check idea / competition
• Who are the audiences you are addressing with your idea?
• What pain points you are addressing for these audiences?
• What evidence do you have that these pain points are real?
• What are the current solution approaches? INIA
• What’s lacking in these approaches?
• How is your solution approach better?
• How big is this difference and what is it worth to customers?
• What’s in it for other stakeholders besides end-customers?
• Why hasn’t someone else thought of your idea yet?
• Are you sure nobody has thought of your idea yet?
• What is proprietary about your idea?

32. Customer
How will you acquire customers
Reflect market realities
Customer behavior
Partnerships – conflict situations
Demo / reference sites
Current customers INIA
How did you acquire them
Sales cycle time
Why did they come to you vs competition
Why did they go to competition vs you
Quantification
average revenue / client or target
Acquisition Cost / client
No of customers to break even

33. Customer
Pricing model
Vs cost
Vs competition
Pilot
Hybrid sales model INIA
Retention of customers
Plan for retention of customers before acquiring them
Average cost of generating business is 5 times from new customers
vs existing customer !
Customer / Order profile
Are they one time / repeat orders
Stickiness for customer
Why did you lose customers
After sales support strategy

34. Delivery model
How will you deliver
Build yourself
Technology used
Service provider partnerships INIA
Branding
After sales strategy
Any relevant certifications
Permissions reqd./ received

35. Team
Who is the team behind this venture
Background and experience
Contribution till date
Brief Job role
Gaps in team
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Time contribution
Advisors
Roles
Non compete
Team and Advisor Compensation
Cash
Equity
ESOP
Mentor
Team expansion
Attract
Motivate
Retain

36. Cross check on your team
• Is the team leader strong and passionate?
• Will leader and team attract “A” players?
• Is the team appropriate for the stage of the company?
• Has the team worked together before?
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• What are the team’s values and what type of culture will they create?
• Is there a strong technical leader?
• Is there a strong marketing leader?
• Does the team have deep domain or technical expertise?
• Does the team listen and take criticism in a positive way?
• Does team have a good blend of “thinkers” and “doers”?
• If current plan doesn’t work out, will team adapt?
• Will the founders give up control if that is what the venture demands?
• Passion, Integrity, Resourcefulness, Perseverance, Risk taking ability,
Mental horsepower

37. Financials
Current / Projected for next 5 years
Topline / bottom line
Headcount
Projected
When will it break even INIA
Profitable businesses are more attractive
Self investment & funding received till date
Skin in the game
Investment sought
For what
Where will it take your venture
Next round requirement
Cash flow based workings
No debt retirement
Valuation expectation

38. Risks and Mitigating them
Are they risks to your plan
“No” is not an option
What are the risks to your plan INIA
How will they be mitigated
Examples of early set backs and their handling is a good idea

39. Exit
Investors will monetize their investment
How
When
What INIA
Building an exit option is necessary for yourself, your team, and
your investors

40. Investor Perspective
Alternative investment options
Angel investing is an alternate asset class
This space / sector is one of many
Your plan’s niches is just one of the many niches
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Your plan is in competition with another
Remember idea may be sold but investment may not happen
3BHK in Delhi vs 3BHK in Bangalore

41. Investor Pitch Template (Source: The Art of Start (Guy Kawasaki)
Slide Content Comments
Title Organization Name; your name and The audience can read the slide –
title; and contact information this is where you explain what your
organization does. (We sell solar
lamps. We run a rural BPO. We are a
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school. Cut the chase!
Problem Describe the pain that you're Avoid looking like a solution
alleviating. The goal is to get searching for a problem. Minimize
everyone nodding and “buying in”. or eliminate citations of consulting
studies about the future size of your
market.
Solution Explain how you alleviate this pain This is not the place for an in-depth
and the meaning that you make. technical explanation. Provide just
Ensure that the audience clearly the gist of how you fix the pain – for
understands what you sell and your example, “we provide solar lighting
value proposition solutions for off grid low income
people in North India .”
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42. Investor Pitch Template (Source: The Art of Start (Guy Kawasaki)
Slide Content Comments
Business Model Explain how you make money, who Generally, a unique, untested
pays you, your channels of business model is a scary
distribution, and your gross margins. proposition. If you truly have a
revolutionary business model
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explain it in terms of familiar ones.
Underlying Magic Describe the technology, secret The less text and the more diagrams,
sauce, or magic behind your product schematics, and flowcharts on the
or service. slide, the better. White papers and
objective proofs of concept are
helpful here.
Marketing & Sales Explain how you are going to reach Convince the audience that you
your customers and your marketing have an effective go-to-marketing
leverage points. strategy that won't break the bank.
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43. Investor Pitch Template (Source: The Art of Start (Guy Kawasaki)
Slide Content Comment
Competition Provide a complete view of the Never dismiss your competition.
competitive landscape. Too much is Everyone – customers, investors,
better than too little. employees – wants to hear why
you're good, not why the
competition is bad.
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Management Team Describe the key players of your Don't be a afraid to show up with
management team, board of less than a perfect team. All start-
directors, and board of advisors, as ups have holes in the team – what's
well as your major investors. truly important is whether you
understand there are holes and are
willing to fix them.
.
Financial Projections & Key Metrics Provide a five-year forecast Do a bottom up forecast. Take into
containing not only dollars but also account long sales cycles and
key metrics, such as number of seasonality. Making people
customers and conversion rate. understand the underlying
assumptions of your forecast is as
important as the numbers you've
fabricated.
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44. Investor Pitch Template (Source: The Art of Start (Guy Kawasaki)
Slide Content Comment
Current Status, Accomplishments Explain your current status of Share the details of your positive
to Date, Timeline, and Use of your product or service, what the momentum and traction. Then
Funds near future looks like, and how use this slide to close with a bias
you'll use the money you are toward action.
trying to raise. INIA
Type of Impact and Targeted at Highlight the type of Impact you Try and bring out broad numbers
Who are creating and define the target in terms of target number of
group. households, number of people
employed etc.
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45. Some Tips
Be brief and direct; get to the bottom line quickly
Identify what the business is immediately
Define the customers quickly and the customer problem clearly
Define what’s compelling and unique
Describe how you will make money INIA
Provide a phased snapshot of your company 12, 24 and 36 months out
Describe how you propose to take your product to market
Make bottom-up as well as top-down projections
Know what 4 to 5 assumptions your plan pivots on
Discuss the key risk factors
State how much money you will need and how you will use it
State your possible exit strategies
Presentation should be self explanatory – there will be investors who may not
be in the room
Clarity in text / relevant graphs more important than pictures
Blue sky points not relevant
Investors are quite knowledgeable !

46. And Finally
Put some of your skin in the game
Getting a high valuation early can be fatal
Size of the pie wins every time over share of the pie
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47. Investment Process
Very selective process – One in hundred company completes the whole round
Preliminary Business
Due Closure
Evaluation Diligence
• Meet the entrepreneur • Detailed business due • Issue the Term Sheet
• Discuss the business diligence, market
• Accounting due
opportunity estimations & analysis,
diligence
references
• Preliminary evaluation of • Legal due diligence
the business and specific • Meet the core team in
industry multiple meetings and • Definitive agreements
understand the business
• 1-2 weeks • 4-6 weeks
• Entrepreneur presents to
multiple partners
• 4-6 weeks

48. Thank You
Digbijoy Shukla INIA
Email: digbijoy.shukla@ennovent.com
Twitter:@digbijoy
Join the Global Network of Entrepreneurs, Investors,
Experts for FREE@www.ennovent.com