This document provides a crash course on raising angel funding. It discusses investor expectations and exit strategies like subsequent funding rounds, mergers and acquisitions, and IPOs. Key stages in a startup's growth like product-market fit and business model fit are linked to typical funding amounts and valuations. The process of connecting with investors and understanding term sheets is outlined. Economic terms like liquidation preferences and anti-dilution, as well as control interests are explained.

1. Manish Singhal
@manish_saarthi
30 Aug
August Fest
Crash Course on Raising Angel
Funding

2. Understanding Investor
Expectations

3. How do Equity Investors exit?

4. Modes of Exit
v Subsequent Rounds of Investments
v M&A
v Promoter Buy Back
v IPO!

5. Subsequent Rounds
0
1
2
3
4
5
6
7
8
9
Valuation
Seed
Round
Angel
Round
Series A
Series B
Series C
Product Market Fit Business Model Fit
Bridge
Round*

6. Understanding Investments

7. When ?
v Idea in a slide
v Prototype Ready
v Customer Traction
v Paying Customers
v Product-Market Fit
v Multiple customer
segment
v Business Model Fit

8. Milestones, Valuation and Raise
Milestones/Stage Age Revenue
Raise
Amount
From Whom
1 Venture Launched 0 – 0.5 0 5 – 25 L Self, Friends, Family
2 Beta Product Launched
B2C : Product used by real
customers, Few paying customers
B2B : Good Customer Pipeline, 1-2
customers in trial
0.5 – 1
yr
Small
amount
25L-75L Self, Friends, Family,
Individual Angels,
Accelerators
3 Stable version
Regular Customer growth
1 – 1.5
yrs
10 – 15 L
per year
50 L – 1.5
Cr
Self, Accelerators, Seed
Funds, Individual Angels
4 Product- Market fit found
Strong & Consistent Customer
Growth
Clear Product & Revenue for next
2-3 yrs
1 – 2 yrs 20 – 50 L
per year
1CR – 4 Cr Individual Angels, Seed
Funds, Few Venture firms
5 Business Model Fit found
Clear growth Path for next 3-5 yrs
Consistent growth in paying
customers
Potentially breakeven
1.5 – 3
yrs
2Cr – 5Cr
per year
3 Cr – 20 Cr Venture Funds
Note: The values in the above table are indicative only

9. Typical Raise
0
1
2
3
4
5
6
7
8
9
Valuation
Seed
Round
Angel
Round
Series A
Series B
Series C
Product Market Fit Business Model Fit
Bridge
Round*

10. Typical Raise
0
1
2
3
4
5
6
7
8
9
Seed
Round
Angel
Round
Series A
Series B
Series C
Product Market Fit Business Model Fit
Bridge
Round*
3CR – 20CR
5-25L
25-75L
50L-1.5CR
1CR – 4CR
50L-1.5CR

11. Type of Seed Investors
v Individuals
Ø Friends/Family
Ø Entrepreneurs/ Industry leaders
Ø Organized Angel Funds
v Incubators/Accelerators
Ø Infrastructure only
Ø Accelerator
v Seed Funds
Ø Institutional Funds
Ø Individual LP funds
v Crowd Funding
Ø Incentives & Investments
v How do you get a list of Investors
Ø Your Network
Ø Angel.co/Linkedin/Conference/News
Ø Portfolio Company introductions are valued

12. Choosing the right investor
When given a choice of investors, choose based
on
Ø Chemistry with investor
Ø Willingness to help you
Ø Relevant connections/domain knowledge

13. But Remember!
Institutional Money > Individual money
Smart Money > Any money
Any money > No money

14. Connecting with the Investors
v Find your anchor angel
v Ask for Introductions
v Build a rapport
v Interact - Engage

15. Connecting with the Investors
v Find your “angel”
v Ask for Introductions
v Build a rapport
v Interact - Engage
Many investments can happen mainly
because of Investor’s confidence &
chemistry with the entrepreneurs!

16. What do Investors Look for?

17. Key things Investors look for
v Business (Not an idea!)
v The Team
v Risk Management Plan
v Clean Structure & Governance
v Market Size
v Exit Plan

18. Valuations

19. Understanding Valuation
v “Worth” of the company typically ascertained
while raising capital
v More of an art rather than science
v Determines the % dilution the entrepreneur
will go through while raising money

20. Terminology
v Investor wants to invest 1CR for 20% of the
company
Ø Post Money Valuation = 1CR / 20% = 5 CR
Ø Pre Money Valuation = 5CR – 1CR = 4CR
v Investor wants to invest 1CR for a 3CR pre-
money valuation
Ø Post Money Valuation = 1CR + 3CR = 4CR
Ø % of the company = 1CR / 4CR = 25%

21. Valuations – Recent Examples
MoneyRaised(CR)
Annual Revenue (CR)
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
0
1
2
3
4
5
6
Series1

22. Valuations – Recent Examples
Pre-Money(CR)
Annual Revenue (CR)
0
2
4
6
8
10
12
14
0
1
2
3
4
5
6
Series1

23. %Dilution
Annual Revenue (CR)
Valuations – Recent Examples
0
5
10
15
20
25
30
35
40
0
1
2
3
4
5
6
Series1

24. Typical Dilutions
0
1
2
3
4
5
6
7
8
9
Seed
Round
Angel
Round
Series A
Series B
Series C
Product Market Fit Business Model Fit
Bridge
Round*
3CR – 20CR
5-25L
25-75L
50L-1.5CR
1CR – 4CR
50L-1.5CR
5-15%
15-25% 25-40%

25. Dilution over Lifecycle
Year 0 1 3 5
Start
Initial
Hires
Seed
Round
Create
Pool
VC
Round
Pool
Refresh
2nd VC
Round
Founders 100.0% 90.0% 68.4% 59.9% 44.9% 43.2% 32.4%
Seed Investors 0.0% 0.0% 24.0% 21.0% 15.8% 15.2% 11.4%
Initial VC Investors 0.0% 0.0% 0.0% 0.0% 25.0% 24.1% 18.1%
Later VC Investors 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 25.0%
Early Employees + Advisors 0.0% 10.0% 7.6% 6.7% 5.0% 4.8% 3.6%
Employee Pool 0.0% 0.0% 0.0% 12.5% 9.4% 13.0% 9.8%
Total 100% 100% 100% 100% 100% 100% 100%
Note: The values in the above table are indicative only

26. The Funding Process
Pitch to
Investors
Verbal
Commitment
to Invest
Term Sheet SHA Closure
Legal DD
Fix Issues
Financial DD
Drop
Issues
too
serious?
YN
All Ok?
Y
N

27. Understanding Term Sheets
v Management typically holds common stocks
v Professional investors, both angels and
venture capitalists, take preferred stock
Ø More control over decisions
Ø Better economic terms
v Interests of common stocks and preferred
stocks needs to be negotiated in the term
sheet agreement
v Ecomonic & Control Interests

28. Economic Interests
v Liquidation Preference
Ø In the event of sale / liquidation, preferred stock
holders are entitled for a pre-determined return
before common stock holders
Ø Participating clause further allows the preferred
stock holders to get further returns on pro-rata
basis
Ø If there is not enough cash, the preferred clause
can take the founders with no returns

29. Liquidation preference
v Typical clauses
Ø 1.x or Investment Amount (higher of the two)
Ø 1.5x with a cap on time or money

30. Example
Liquidation
Preference
Basic Share (CR) Participating Share (CR) Total (CR)
Simple
Prorating 10CR [20% of 50CR] NA 10CR
1x 5CR 9CR [20% of 45CR] 14CR
1.5x 7.5CR 8.5CR [20% of 42.5CR] 16CR
2x 10CR 8CR [20% of 40CR] 18CR
v Amount Invested = 5CR @ 20CR pre-money
v Investors hold 20% stake
v Company exited at 50CR

31. Economic Interests
v Anti – Dilution
Ø Clause comes into play when there is a down-
round and the first round investor has to protect
his interests
Ø Full Ratchet & Weighted Average
Ø Pay-to-play clause can help the founders get
further investments from the original investors

32. Example - Full Rachet
v Series A – 5CR@20CR, 250K shares @200INR
v Series B – 2.5CR @ 10CR for 20% stake
v Series A New Stake = 5CR /[2.5CR+10]= 40%
v 750K new shares @ 50 INR are issued
Stage Founders Series A Series B
Before A 100% - -
Series A 80% 20% -
Series B 40% 40% 20%

33. Economic Interests
v Future Participation in Financing / Sale
Ø Right of First Offer – Preferred Stock holders get
the first right to participate. Can limit the
founders to get investors who can add more
value
v Drag-Along Rights
Ø Investors can force the sale of the company
v Tag-Along Rights
Ø Management agrees not to sell without giving
investors a right for pro-rata participation in sale

34. Control Interests
v Board Composition
Ø Voting (Director)
Ø Non-Voting positions (Observer, Advisory)
Ø Investor Seat vs Majority by founders
v Veto Rights
Ø Majority of the items … Joint bank account
v Investor Rights
Ø Reports, Appointment of Auditors (internal &
external)

35. Others
v Legal & Accounting Fees
Ø Mostly all investors put the burden of the legal
fees on the entrepreneur. Can negotiate some
overall caps
v No Shop
Ø This prevents entrepreneurs from shopping
around with other investors while the dialogue is
on. Time period can range from a few weeks to a
few months.
v Due Diligence

36. Summary
v Investment is not a zero sum game
Ø Approach it with a win-win attitude
v Negotiate for protecting your long term
interests
v Lean towards smart money, only money is
not so good, good advice, good contacts also
worth their weight in gold
v Building a solid business is the best way of
attracting investments

37. Find Your Train Ticket
Albert Einstein was on a train. He could not
locate his ticket. The conductor approached
him and said, “ Everyone knows you around
here. I am sure your office can buy you
another ticket”
Einstein replied, “I am not worried about the
money, I need to find out where I am
going!”
From “Art of the Start”

38. Thank You!
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Manishsinghal.in@gmail.com @manish_saarthi