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BUSINESS OVERVIEW & FINANCING

-WITH DR ANIL LAMBA

For more info, mail us at courses@wiziq.com or Call +91-172-5020178


Agenda Important reflections before you start What are the financing options?

How to attract and engage investors?

Deal structure and what to expect during the investment process


A big undertaking

• Starting a business is a big commitment – Energy & Passion – Time – Financial resources (yours and your investors)

• Before thinking of financing, is worth taking a deep breath …


Key questions about you

• Why am doing this – Make money – Lifestyle – “Change the world”

• How long do you want to commit? • What level of financial risk are you prepared to take?


Key questions about the business

• Be honest with yourself about the risks / unknowns – Do customers want the product / service? – Do you have the competence to build the product and the team – Can you monetise the product / service? – How competitive is / will the space be? – How big can the overall market become?


Agenda Important reflections before you start

What are the financing options?

How to attract and engage investors?

Deal structure and what to expect during the investment process


The BUSINESS BESTSELLER “Romancing the Balance Sheet” at the cheapest price

The Author explains the financial concepts in the most lucid manner. Must for every business owner.


Overview of financing options Non-Equity Financing

Equity Financing Angel Financing

Self Finance / Bootstrapping

Venture Capital

Debt / Bank Finance

Private Equity

Public Stock Markets


Self financing / bootstrapping

• Financing growth from previous cashflow and personal funds • Obviously need to have cashflows… • Most good bootstrapped companies emerge from a service or consulting companies that are productising their offering • Pros – Bootstrapped companies almost always spend cash more effectively than equity financed companies – Already being close to existing customers, give excellent ability to understand problems and define good solutions

• Cons – Resources for product and market dev constrained by cashflows – May miss a big opportunity if other players raise finance and invest heavily


Debt / bank finance

• Relatively limited funds will be available ; likely to want security anyway • Banks only lend to predictable businesses they can understand • If your capital requirements are limited and your business is following a well trodden path, can be a useful source of finance • Not particularly useful web or high growth tech industries


Good reasons to raise equity finance Pre-requisites Unique Product Or Concept

Passionate Founding Team

Large Potential Market Opportunity

Implications‌ Intense competition likely

Need to move rapidly

VC funding supports Hiring

Rapid Product Development

Partnerships

Infrastructure

Internationalisa tion

Commercialisati on


Agenda Important reflections before you start

What are the financing options?

How to attract and engage investors?

Deal structure and what to expect during the investment process


Venture Capital – How the VC makes money •

Raise fund every 2-4 years – Pension funds, financial institutions and specialist “fund of fund” investors

Invest money over 3-5 years

~ 1/2 of investments lose money ~ 1/3 of investments break even ~ 1/6 of investments make (lots) of money

Very small management fee on funds managed

~ 1-2.5% pa

Carry

~ 20-25%x (Total Return – Total Amount Invested)


What does an investor look for? Team

Technology

Traction

Can – – –

evaluate each as Exceptional Good / credible Mediocre / incomplete

Misconception that being good / credible across the board is what VCs look for – Can always add credible attributes to the mix later

We focus on finding opportunities which rate as exceptional in one attribute


Identifying relevant VC partners

Has funds to invest

• •

Do create a shortlist Rifle is a better weapon than a shotgun

Similar process for identifying angels, look at VC funding press releases to identify prior Angel investors

Match of Size/Stage/ Geography

Excellent track record

Shortlist

No directly competitive investments

Relevant Portfolio


Agenda Important reflections before you start

What are the financing options?

How to attract and engage investors?

Deal structure and what to expect during the investment process


Types of investment

• Ordinary Share investment – Simplest form, often used by angels – All shareholders have similar rights – Company Board composed according to

• Convertible Loan – Sometimes used by both Angels and VCs – Typically when another financing is anticipated soon – Loan will convert (with a discount ~25%) into the next financing round

• Preferred Share Investment – Typical Structure used by VCs and occasionally larger Angels investing as a group


Venture Capital – “Typical Deal Terms”

• • • • • • •

Board Representation Liquidation Preference Participation rights Anti-dilution rights Element of reverse vesting Certain control and veto rights Period of exclusivity to close legals

but that’s so unfair…


Choosing the right VC - Valuation should not be the decisive factor Entrepreneur’s Equation Value at exit

Probability of getting there

% share of business at exit

Revenues / Profitability

Growth rate

Team quality

Strategic fit with buyer community

Well managed exit process

Fewest strategic errors made

Hiring (quality & speed)

Partnerships

Product development

Valuation at initial round

Valuation and dilution at subsequent rounds

Option grants


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