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Getting angel or VC funding for your venture

Prajakt Raut has extensive experience helping startups obtain angel/VC funding. He discusses multiple funding options and that different investors invest at different venture stages due to varying risk levels. He emphasizes that investors look for large market opportunities, strong teams with clear implementation plans and milestones, and evidence that concepts can scale successfully. The key is convincing investors that your startup represents a good investment through your business model, team, and practical plans to reach milestones while requiring only the funding needed for the next stage.

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Getting angel/VC funding for your venture ________________________________________________ Prajakt Raut - founder
Prajakt Raut – founder Applyifi.com • Previously the Asia Director of TiE (2004 – 2007) – helped overseaas investors connect with startups in India • Was head of operations of the Indian Angel Network, one of the largest angel investor groups in the world • Deep experience and connects in the Indian entrepreneurial eco-system • Personal goal is to encourage and assist a 100,000 people to become entrepreneurs • Founder of The Hub for Startups – a well-respected blog for startups • Started a printing business at when he was 17, and later was founding member of a CRM solutions company • Prajakt has spent over 10 years in the advertising industry with agencies like Grey, Capital and DMB&B • Co-founded Orange Cross, a healthcare services company
About Applyifi ______________________________________________________ Applyifi helps startups create an elegant, comprehensive online pitch deck. Investors can filter deals using our 36 point scorecard that evaluates applicants on key criteria to assess the opportunity www.applyifi.com
3 key messages_______________________________________________________________________ __ 1. Multiple funding options exist 2. Different types of investors invest at different stages of a venture 3. Building a great business is not the same as having a great idea or a great product or a great service
Several options to fund your 1. Crowd-funding 2. Small-ticket co-investments 3. Donors 4. Strategic stakeholders 5. Foundations 6. Industry associations Hobby/Passion Business 1. Debt 2. Bootstrapping 3. Strategic investors 4. Customers 5. Risk capital – angel investors, VCs
Make a business plan irrespective of what option you choose Today we are focusing on business plans that are relevant for investors
A Business Plan is a useless product But it is a priceless process
Working on a Business Plan is like planning a journey
Developing a business plan o Start with a ‘story’ - ‘See the film in your mind’ o Work out rough milestones and goals o Think deeply of how you will implement it o Work out the different kinds of costs… and revenues o Start working in the excel sheet – assumptions are critical o Work on multiple ‘scenarios’ o Finally, articulate it into the ‘presentations’
What should a business plan cover? 1. Concept overview - problem - solution 2. Team 3. What is the size of the opportunity 4. What is the value proposition/positioning 5. Business model & Business Case 6. Competitive landscape 7. Operations plan overview 8. Risk factors 9. Funding needs and use of funds 10. Exit potential
Angel Investors & VCs ‘buy’ shares in your ‘company’. 1
But no one makes money by buying shares. You make money only if you sell the shares at a higher price than you bought it at.
Angel investors and VCs seek 10x + return on their investments_______________________________________________________________________________ ______ Concept of valuation 2
Different stages of entrepreneurship carry different kinds of risks. And different investors invest at different stages. 3
Stage Scale Different stages of the venture carry different risks
Risks at early stage • Concept risk • Execution risk • Scale-up risk
Risks at early stage • Concept risk • Execution risk • Scale-up risk Risks at growth stage • Execution risk • Scale-up risk
Risks at early stage • Concept risk • Execution risk • Scale-up risk Risks at growth stage • Execution risk • Scale-up risk Risks at mature stage • Scale-up risk
Risks at early stage • Concept risk • Execution risk • Scale-up risk Risks at growth stage • Execution risk • Scale-up risk Risks at mature stage • Scale-up risk • Proving concept • Jugaad • Flexibility • Fine-tuning offering • Processes • Focus • Operational efficiencies • Increasing profitability • New markets/new capabilities/new concepts
Angel Investors/Seed Stage Funds
Venture Capitalists
Private Equity Funds
Accelerators/ Angel Investors/ Seed Stage Early- stage VCs VCs / PEs Investor types Stage of investmen t Concept Risk Stage Early, Early- Growth Stage Growth Stage • Rs.25 lacs to Rs. 5 cr • Sweet spot – INR 1cr – 3cr. For investors • Rs.20 – 50 lacs for accelerators • Rs.2 cr - Rs.50 cr • Typically between Rs.10 cr – Rs.25 cr • Rs.50 cr +Typical investmen t size Discovering what works Replicating at scale what worked in a pilot.
What VCs look for is evidence that something worked AND knowledge of what worked AND that it is replicable. 4
What angel investors look for is a set of practical assumptions and a plan to test those assumptions.
What do investors look for in ventures they invest in?
Key criteria for investors 1. Is the market large? 2. Does the venture have a reasonably strong chance of being a dominant player? 3. Is the business case strong and will investors get an exit? 4. Is this the team that I can bet on?
Your focus should be to convince investors that your startup is a good investment opportunity
Investors look for competent and committed teams - Passion and deep interest in the domain - Deep understanding of the dynamics of the business around the concept - Willingness and competence to implement the concept (not just ideate) – experience is hugely valued, if not mandated
Investors look for plans with practical milestones But large aspirations
Investors look for teams with focus in the initial phase Even when entrepreneurs have identified multiple opportunities with the concept
Investors look for a strong implementation plan “According to Gartner, the market will be USD 20 bn in 2020” is not a reason to invest How you will get the first 1000 users or first 2- 3 partnerships / enterprise customers is.
Investors seek teams that have a clearly identified immediate goals and tasks What do you need to do to launch? What are you going to test?
Investors seek a plan that clearly outlines how much funding is required, where it will be used and what it can achieve You should seek from angel/early investors only as much as you require, to go till you can attract VCs In rare cases, the initial funding is sufficient enough to take the startup to sustainability
Finally, investors look for teams they can trust Be honest about risks & challenges, be open about limitations and weaknesses When you tell them where you need help, they will be able to provide inputs
In Summary • Investors invest in a solid business that addresses a large market • Investors invest in high-quality teams with large aspirations • Investors invest in clearly defined plans with practical milestones Make the investor go back feeling “What a great concept. I think the market is large and the team will deliver.”
If you liked what you heard, tell others. If you did not like it, tell me.
About me • Prajakt Raut – entrepreneur and entrepreneurship evangelist • Founder of The Hub for Startups and Applyifi.com • I blog on www.thehubforstartups.com • Twitter: @prajaktraut • Mail: prajakt.raut@applyifi.com