Art of Fund Raising

Vivek Agarwal

Founder, Liqvid

The Steps

• Personal Decisions• Business Plan• Pitching to the Investors• Negotiation & Closure

Answer this Question,

FIRST!

What do you want your pie to look like?

1

Share of your pie

XYZ Unknown private Limited

You are the boss, owner, can pass it on to your children

You are the founder, chief objective is the value creation.

OR

Lifestyle Business vs. Corporation

Lifestyle Business• Be your own boss

– Lone wolf• Self funded• Organic growth• Slower growth• Can re-invent

themselves• No planned exit

Corporation• Founder, not boss

– Team• VC/Investors• Fund the plan• Rocket ship• If a miss, typically

flame out• Exit strategy

Equity Financing

Business Stage Stage 1 Stage 2 Stage 3 Stage 4 Stage 5

Type Risk Seed Venture Private Public

Source offunds

Own / family Family /friends /Angels

VCs VCs / Private Equity

Public, MFs, Institutions

PrimeActivity

Creating /exploring anidea

Creating a Prototype

Establishingthe model

Scaling up themodel

Established,scalable, profitGeneratingbusiness

TypicalFundsRequirement(indicative)

Very low, sub500,000

Typically 20- 50 lacs

Rs. 2 to 10crores

Depending onthe business

Depending onthe business

Types of Non- equity Funding

• Debt • Convertible debt• Subsidies / Grants !• Customers• Employees!! • Suppliers

Business Plan

• The problem you are solving – target audience

• How large is it?• How will you reach out? • Can you do it profitably?• Scale & Exit

Ideas??

Watch the size

Must match your capability level

• Smaller scope• Too small for the “big guys”

… with killer potential!• Need time to acquire capability

V / s

What is the model

Innovation Efficiency

How much should you plan

Ready. Aim. Fire. FIRE. FIRE. FIRE

OR

Pitching to the VCs

• Identify the segment – Financial, strategic, other

• Typically behavior similar across financial investors

• Fundable deals move fast• If negative response from first 3-4, regroup

and evaluate.

Equity Allocation

• Service Providers• Business Plan, space, HR, marketing, etc• Cash v/s equity

• Management Team• Fixed v/s variable v/s no salary• Share of equity• ESOP plan• Option price

Valuation Approaches

• Rules-of-Thumb / Multiples• Discounted cash flow

- Weighed Average Cost of Capital (WACC)

- Capital Cash Flows (CCF)• Scenario analysis• Decision tree analysis• Others

Rules-Of-Thumb Procedures

• Look at similar deals.• Look at ratios of similar public firms:

- Valuation / sales.

- Valuation / profit (P/E).

- Market value of equity/book value.

- Use multiples to generate projected value.

Equity Allocation for Founders

• Founders• Based on experience / cash / proposed effort• Vesting Schedule• Dealing with unequal distributions / perceptions• Get a formal agreement in Place• Deal with issues like Decision making process,

responsibilities (operational / strategic), etc – these become very important as the business grows

• Answer the question – “What if it does not work out?” » Vested / unvested shares» Put / Call option

Terms & Conditions

Equity Investments• Extent of Stake• Affirmative Rights• Liquidation preference• Control Issues –

– Operational– Board– Shareholders

But more than anything else…

It is the timing – raise money when the market is ready

Thank You

Vivek.agarwal@liqvid.com