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.

O

R

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 of

funds

Own / family Family /

friends /

Angels

VCs VCs / Private

Equity

Public, MFs,

Institutions

Prime

Activity

Creating /

exploring an

idea

Creating a

Prototype

Establishing

the model

Scaling up the

model

Established,

scalable, profit

Generating

business

Typical

Funds

Requirement

(indicative)

Very low, sub

500,000

Typically 20

- 50 lacs

Rs. 2 to 10

crores

Depending on

the business

Depending on

the 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