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PE and VC Funding: Embracing the New Normal

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Anjana Vivek
Anjana Vivek

Seeking Venture Capital or Private Equity Funding: What you need to know when you look for funding in the Post Covid-19 world

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PE & VC Embracing the New Normal School of Business and Management CHRIST III Annual Financial Services Symposium July 2020 Anjana Vivek
At the start Kinds of Investors Due Diligence Review Investment Process Valuation In Summary Agenda 2 2
At the Start Take time out to think/reflect WHAT are the strengths that the entrepreneurs bring to this business WHAT are the constraints they have to either Address or Accept (and work keeping this in mind) 3
At the Start Do take time out to think/reflect Are they looking for funding, now or later? Can they bootstrap if you do not get funded? Can they generate revenue if you do not get funded? What are the kinds of Funding options available today for business? What are the alternate equity investment (plus) options? VC/ PE/ Incubation? 4
At the start Kinds of Investors Due Diligence Review Investment Process Valuation In Summary Agenda 5 5
Stages of business Idea / Seed R&D / Pilot / Proof of Concept Commercialization / Scale up Early Stage Growth / Later Stage / Expansion Turnaround Acquisition, Inorganic expansion etc. Funding Strategy & Investor Selection depends on Stage Valuation & Valuation Multiples are connected to stage
Different Investors: Different Mandates HNIs, informal and formal angel groups Seed Funds Venture Capital Private Equity Banks exploring innovative ways to fund SMEs Strategic Investors Corporate Funds; (Family) Business Groups, Indian & Global Directly and/or through a special division or subsidiary For employees alone or open to public As intellectual and/or financial capital with other facilities Government supported funds Impact Investors Incubators Accelerators Co-Creators Crowd funding Online funding platforms 7 Which One Could be the Right Fit for the Venture?
What Investors Look for INVESTOR FIT: Mandate and Fund Philosophy, stage of investment cycle, other portfolio companies Team: Education, experience, multi-disciplinary, co- founder team cohesiveness Past track, of team members both in and before this venture, of business Idea/Business growth and history thus far, ability for growth and sustainability Competitive scenario Risks Financial plan and funding strategy AND IN A POST COVID-19 WORLD: RESILIENCE
Business Plan An output based on business model and strategy, expected to evolve over time To be forward looking, based on past knowledge of promoters and their work experience in the existing or new venture Assumptions to be tested to see if they will be valid for execution, i.e. to demonstrate this is not a business plan on paper alone Risks to be factored in plan Multiple scenarios are looked at revenues expected are discounted costs and expected cash flows are factored sensitivity to key parameters are checked
Trends: to trigger thinking POST COVID-19 Time for Due diligence is increasing, as virtual meetings replace physical ones, negotiations take more time Many investors prefer to focus on follow-on investment in existing portfolio companies; hence VC funding for entrepreneurs first round is impacted Entrepreneurs are being more than ever carefully scrutinized for their capability, strength and resilience Strategic investment, tie-ups and deals are increasing as ventures are consolidating, pivoting and closing down business models that are not viable post the pandemic. Financial models are carefully scrutinized for utilization, with a high focus on costs and operational efficiency
Trends: to trigger thinking POST COVID-19 Industries have been impacted, some negatively (airlines, co-working), and some positively (online education, telemedicine). This has impacted the way investors are reviewing businesses and business models As more work gets done remotely, attention is being paid to how organizations are managing the change, in operations, in sales and marketing, in handling people and managing fall outs due to stress and lack of face to face discussions and more Some investors are waiting for better times and going slow, others are ready to invest. Entrepreneurs therefore need to do a due diligence before deciding which investor to approach
Caselet: You are an investee Zyco Fund has a life Cycle of 10 years, this is a fund with overseas investors In year 7 of the fund, Zyco has offered 1 million USD for a 15% stake in Amaze Co., in Bangalore The promoters of Amaze also have another offer from Indo, an Indian Fund; they are offering Rs.10 crores for 20 % stake in the company What are the key deal aspects the Amaze founders should consider 12
Caselet Debrief - Illustrative Promoters should make an effort to understand the mandates of potential investors and their reasons for investing The impact of an international investor vs an Indian investor need to be thought through with due care The value add and brand accretion or depletion due to an potential investor need to be factored, it is not only about money and equity stake percentage The clauses and fine print in the contract need to be checked in detail 13
Caselet Debrief - Illustrative Founders should think through possible scenarios over the next 3-5 years, assuming the company does as well as projected and also assuming a scenario where projections are not met Valuation today and valuation expected tomorrow, both have a role to play in decision making Valuations expected in 3-5 years, depend on assumptions made. These need to be thought through carefully from multiple angles, operations, finance, team, competitive landscape and more 14
Caselet: You are an investor GR Fund is a fund of alumni of GR Institution The Fund invests directly and sometimes the alumni may also invest in individual capacity Blyitz, a for profit company, which is working on a BOP (Bottom of the Pyramid) model has got a commitment from an Angel Fund (AF) AF tells Blyitz that they will put in money along with another co-investor, so Blyitz approaches GR Fund Another HNI Fund managed by a professional also hears of this deal and asks for information How will you evaluate the investment proposal from Blyitz if you are a Fund Manager for GR Fund? What if you are the HNI Fund Manager, will your approach be different? 15
Caselet Debrief - Illustrative Each Investor and Fund Manager will approach it from his or her fund mandate and how the investment and disinvestment from this company will fit into this Internal aspects, such as stage in the Fund Life Cycle, current portfolio on hand, etc. will also play a key role in evaluation If multiple fund managers are involved, the differences and similarities in the mandates of the funds will need to be assessed There needs to be collective discussion as to who will lead the deal, do the due diligence and play an active role post the funding. One or more of the Funds may be involved in these aspects and more 16
At the start Kinds of Investors Due Diligence Review Investment Process Valuation In Summary Agenda 17 17
What a project must have TEAM with Execution Capability & Resilience Huge Addressable Market which can lead to rapid growth, i.e. this implies: Total addressable market is really high Company/team has potential to address this market Company/team has ambition to address this market Company/team has the capability to Execute to achieve high growth Risks are articulated .. Etc
Due diligence reviews (DDR) Investment decision is based on DDR, some illustrative reviews are below. Some aspects of these may be done in-house by the investor, others may be out-sourced to experts and professionals: People Business Market Technology Accounting Tax Legal HR Other..
An Illustrative Sales Quality Review.. Quality impacts Valuation Multiple Illustrative indicative parameters, for DDR Sales Quantity Quality of revenue - in terms of product/service/vertical/location etc. Average revenue per employee Number of customers, number of high value customers New customers added Customers lost Pipeline customers Customer acquisition strategy 20
Value Creation Review Investment should have potential for value creation not value depletion; i.e. beyond Top line (revenues) Bottom line (profits) and Cash flow To understand financial and non-financial aspects of business and investment into business and impact on growth and survival 21
Due Diligence Example E-commerce based special vertical Forecast was not reflecting expected reality Expenses uniform across optimistic to pessimistic scenarios Few expenses were static across several months/years 31st March 20X0 were in1 city; 1st April 1 20X1 to YE in 4 cities; 1st April 20X2 in 8 cities i.e. sudden jumps; not reflective of stage by stage expansion of business Recommendation: Management advised to recast numbers to reflect reality of running business and not just create an excel sheet
Due Diligence Example Service aggregator(Service also listed on digital platform) Revenue/profitability review prior to 2nd tranche release Revenue was accounted on receipt, including annuity Costing exercise showed gross profit was low for all lines of business, other than one, with a few loss making. This could be due to low scale of business; needed further examination with scenario analysis for growth Working capital constraints lead to acceptance of low profit/loss activities with cash advance, against higher profit jobs where cash would come in later in the delivery cycle Recommendation: Management advised to look into revenue recognition, undertake costing exercise and to relook at pricing strategy. Forecasts to be resubmitted based on revised plan before 2nd tranche could be released
Due Diligence Example Example of forecast reflecting possibilities Pipeline for next year detailed out with customer segmentation and probability of conversion based on past record Domain knowledge and expertise demonstrated on questioning, for example in food business about customers eating habits etc. Recommendation: Prima facie this looked as if the management had done their homework and that they had domain knowledge. A technology product review was recommended before getting into valuation and negotiation
At the start Kinds of Investors Due Diligence Review Investment Process Valuation In Summary Agenda 25 25
VC investment & exit Initial Meetings Prelimnary Project Review by Venture Capitalist Term Sheet Signed by Venture Capitalist & Promoters Due Diligence Review of Project Venture Capitalist with Funds Promoters with Project Legal Documents /Agreement Signed Investment made by Venture Capitalist in Project Mentoring & Monitoring of Project Divestment & Exit from Project Promoters Venture Capitalist
At the start Kinds of Investors Due Diligence Review Investment Process Valuation In Summary Agenda 27 27
Valuation Based on Tangibles and intangibles Data and assumptions Subjectivity and objectivity Many methods of computation including but not limited to Multiples of revenue, earning, user base etc Cash flow based, discounted Cost based Factor statutory, accounting, and tax implications 28
Valuation Identify valuation methods and drivers in your industry Number of customers? Revenue? GMV? Number of unique views? Average revenue per customer? Profitability? Cash Flow generated? Combination of above? Other? Team Stakeholders associated advisors, investors etc. 29
Valuation At the start value is mostly intangible, look at how this can be made tangible.. For eg. service through content, follow up calls, showcasing feedback, etc. Can you think of how one can can demo value in a business? How can one improve the value perception? 30
Valuation: Examples of Value Demonstrated Association with credible organisations, individuals (incubation, acceleration etc..) Reputed persons on advisory board Marquee/discerning customers Feedback/testimonials from reputed persons or persons in well established roles Ability to charge premium pricing Ability to address a huge market i.e. ecommerce companies, value without profits 31
32 Valuation : Startup Examples Some angel investors/ Incubators/ Accelerators, set a pre-decided equity percentage, illustrative example: Range between 7.5%-10% of company equity, for Rs.25 lakhs investment 25%-30% of the company, for the first amount of investment, which could vary between 50 lakhs to 2 crores 75% discount to valuation at next round by investor NOTE: Regulatory aspects and Tax MUST be factored In by entrepreneur before accepting any terms.
33 Valuation : Startup Examples Names/data changed to maintain confidentiality.. Mentoring: 1. Edtech Co. 1 year old Terms: month one meeting (half day), Focus on growth strategy and advisory services for leadership team: 2% equity 2. Food tech idea stage Terms: month 2 meetings (2 hour), mentoring on growth strategy, funding strategy and help in fund raising: 5% equity plus 1 % success fee of funds raised Statutory and tax issues to be addressed while equity is given Incubation by Tech company: 3. Idea stage: (i) Rs.50 lakhs was committed for 1st year, to be drawn on need basis (ii) Admin/accounting etc. support to be provided (iii) basic sustenance monthly fee of Rs.25,000 per month agreed to for each of 2 founders: 48% equity with Tech Company and balance equally by two founders
34 Valuation: Startup Examples 4. Investment in media/entertainment company in 2014! (numbers changed to maintain confidentiality) HewS closed $10 million valuation from InvestorA Reading press reports, Investor 2 wanted to participate and asked the promoters to suggest a valuation HewS Team and InvestorA decided at random: 20% increase in 1 week, leading to valuation of $12 million; On flight as InvestorA travelled to meet Investor2, he decided he would not just be a messenger, he would value add, so he decided to up valuation to $18 m During negotiations, Investor2 gave final offer of $15 m Thus in about 10 days the company valuation went up by 50%, from $10 m to $15 m Founders ended up with more money than they had planned for and had to think of ways to spend this!
35 Valuation: Startup Examples Names/data changed to maintain confidentiality.. Service business: Value add measures: 5. Two year co. Rebranded, reclassified domain, pre-funding; on advise that revenue multiple would go up from 3 to 5. 6. Three year co. Changed business model to increasing outsourcing of some service delivery aspects. Cost of inputs increased, gross margins reduced, however operational efficiency increased, net profit margins increased and valuation multiples; i.e. revenue and PBT multiples increased. Investor negotiation: 7. Early stage idea: Jim had high technical knowledge, limited financial knowledge. Investor Z convinced Jim that he could partner and grow the company to high value in 3 years and negotiated for half the business. Jim got into this without understanding how shares could get further diluted in later rounds of funding. At the end, Jim was left with less than 10% of the company he started, however valuation was high.
At the start Kinds of Investors Due Diligence Review Investment Process Valuation In Summary Agenda 36 36
In Summary: Caution Entrepreneurs must demonstrate long term survival capability and build a Financial Model that captures elements of the business model Parties involved must look out for concern issues, hidden agendas; must evaluate on value-based parameters including but not limited to fund source, governance, ethics and reputation One needs to keep an eye on the law, tax and statutory regulations; these also impact valuation and deal negotiation ..Think, do due diligence (whether investor or entrepreneur).. And then proceed
For more /anjanavivek https://www.linkedin.com/in/anjanavivek/ Thank you

More Related Content

PE and VC Funding: Embracing the New Normal

  • 1. PE & VC Embracing the New Normal School of Business and Management CHRIST III Annual Financial Services Symposium July 2020 Anjana Vivek
  • 2. At the start Kinds of Investors Due Diligence Review Investment Process Valuation In Summary Agenda 2 2
  • 3. At the Start Take time out to think/reflect WHAT are the strengths that the entrepreneurs bring to this business WHAT are the constraints they have to either Address or Accept (and work keeping this in mind) 3
  • 4. At the Start Do take time out to think/reflect Are they looking for funding, now or later? Can they bootstrap if you do not get funded? Can they generate revenue if you do not get funded? What are the kinds of Funding options available today for business? What are the alternate equity investment (plus) options? VC/ PE/ Incubation? 4
  • 5. At the start Kinds of Investors Due Diligence Review Investment Process Valuation In Summary Agenda 5 5
  • 6. Stages of business Idea / Seed R&D / Pilot / Proof of Concept Commercialization / Scale up Early Stage Growth / Later Stage / Expansion Turnaround Acquisition, Inorganic expansion etc. Funding Strategy & Investor Selection depends on Stage Valuation & Valuation Multiples are connected to stage
  • 7. Different Investors: Different Mandates HNIs, informal and formal angel groups Seed Funds Venture Capital Private Equity Banks exploring innovative ways to fund SMEs Strategic Investors Corporate Funds; (Family) Business Groups, Indian & Global Directly and/or through a special division or subsidiary For employees alone or open to public As intellectual and/or financial capital with other facilities Government supported funds Impact Investors Incubators Accelerators Co-Creators Crowd funding Online funding platforms 7 Which One Could be the Right Fit for the Venture?
  • 8. What Investors Look for INVESTOR FIT: Mandate and Fund Philosophy, stage of investment cycle, other portfolio companies Team: Education, experience, multi-disciplinary, co- founder team cohesiveness Past track, of team members both in and before this venture, of business Idea/Business growth and history thus far, ability for growth and sustainability Competitive scenario Risks Financial plan and funding strategy AND IN A POST COVID-19 WORLD: RESILIENCE
  • 9. Business Plan An output based on business model and strategy, expected to evolve over time To be forward looking, based on past knowledge of promoters and their work experience in the existing or new venture Assumptions to be tested to see if they will be valid for execution, i.e. to demonstrate this is not a business plan on paper alone Risks to be factored in plan Multiple scenarios are looked at revenues expected are discounted costs and expected cash flows are factored sensitivity to key parameters are checked
  • 10. Trends: to trigger thinking POST COVID-19 Time for Due diligence is increasing, as virtual meetings replace physical ones, negotiations take more time Many investors prefer to focus on follow-on investment in existing portfolio companies; hence VC funding for entrepreneurs first round is impacted Entrepreneurs are being more than ever carefully scrutinized for their capability, strength and resilience Strategic investment, tie-ups and deals are increasing as ventures are consolidating, pivoting and closing down business models that are not viable post the pandemic. Financial models are carefully scrutinized for utilization, with a high focus on costs and operational efficiency
  • 11. Trends: to trigger thinking POST COVID-19 Industries have been impacted, some negatively (airlines, co-working), and some positively (online education, telemedicine). This has impacted the way investors are reviewing businesses and business models As more work gets done remotely, attention is being paid to how organizations are managing the change, in operations, in sales and marketing, in handling people and managing fall outs due to stress and lack of face to face discussions and more Some investors are waiting for better times and going slow, others are ready to invest. Entrepreneurs therefore need to do a due diligence before deciding which investor to approach
  • 12. Caselet: You are an investee Zyco Fund has a life Cycle of 10 years, this is a fund with overseas investors In year 7 of the fund, Zyco has offered 1 million USD for a 15% stake in Amaze Co., in Bangalore The promoters of Amaze also have another offer from Indo, an Indian Fund; they are offering Rs.10 crores for 20 % stake in the company What are the key deal aspects the Amaze founders should consider 12
  • 13. Caselet Debrief - Illustrative Promoters should make an effort to understand the mandates of potential investors and their reasons for investing The impact of an international investor vs an Indian investor need to be thought through with due care The value add and brand accretion or depletion due to an potential investor need to be factored, it is not only about money and equity stake percentage The clauses and fine print in the contract need to be checked in detail 13
  • 14. Caselet Debrief - Illustrative Founders should think through possible scenarios over the next 3-5 years, assuming the company does as well as projected and also assuming a scenario where projections are not met Valuation today and valuation expected tomorrow, both have a role to play in decision making Valuations expected in 3-5 years, depend on assumptions made. These need to be thought through carefully from multiple angles, operations, finance, team, competitive landscape and more 14
  • 15. Caselet: You are an investor GR Fund is a fund of alumni of GR Institution The Fund invests directly and sometimes the alumni may also invest in individual capacity Blyitz, a for profit company, which is working on a BOP (Bottom of the Pyramid) model has got a commitment from an Angel Fund (AF) AF tells Blyitz that they will put in money along with another co-investor, so Blyitz approaches GR Fund Another HNI Fund managed by a professional also hears of this deal and asks for information How will you evaluate the investment proposal from Blyitz if you are a Fund Manager for GR Fund? What if you are the HNI Fund Manager, will your approach be different? 15
  • 16. Caselet Debrief - Illustrative Each Investor and Fund Manager will approach it from his or her fund mandate and how the investment and disinvestment from this company will fit into this Internal aspects, such as stage in the Fund Life Cycle, current portfolio on hand, etc. will also play a key role in evaluation If multiple fund managers are involved, the differences and similarities in the mandates of the funds will need to be assessed There needs to be collective discussion as to who will lead the deal, do the due diligence and play an active role post the funding. One or more of the Funds may be involved in these aspects and more 16
  • 17. At the start Kinds of Investors Due Diligence Review Investment Process Valuation In Summary Agenda 17 17
  • 18. What a project must have TEAM with Execution Capability & Resilience Huge Addressable Market which can lead to rapid growth, i.e. this implies: Total addressable market is really high Company/team has potential to address this market Company/team has ambition to address this market Company/team has the capability to Execute to achieve high growth Risks are articulated .. Etc
  • 19. Due diligence reviews (DDR) Investment decision is based on DDR, some illustrative reviews are below. Some aspects of these may be done in-house by the investor, others may be out-sourced to experts and professionals: People Business Market Technology Accounting Tax Legal HR Other..
  • 20. An Illustrative Sales Quality Review.. Quality impacts Valuation Multiple Illustrative indicative parameters, for DDR Sales Quantity Quality of revenue - in terms of product/service/vertical/location etc. Average revenue per employee Number of customers, number of high value customers New customers added Customers lost Pipeline customers Customer acquisition strategy 20
  • 21. Value Creation Review Investment should have potential for value creation not value depletion; i.e. beyond Top line (revenues) Bottom line (profits) and Cash flow To understand financial and non-financial aspects of business and investment into business and impact on growth and survival 21
  • 22. Due Diligence Example E-commerce based special vertical Forecast was not reflecting expected reality Expenses uniform across optimistic to pessimistic scenarios Few expenses were static across several months/years 31st March 20X0 were in1 city; 1st April 1 20X1 to YE in 4 cities; 1st April 20X2 in 8 cities i.e. sudden jumps; not reflective of stage by stage expansion of business Recommendation: Management advised to recast numbers to reflect reality of running business and not just create an excel sheet
  • 23. Due Diligence Example Service aggregator(Service also listed on digital platform) Revenue/profitability review prior to 2nd tranche release Revenue was accounted on receipt, including annuity Costing exercise showed gross profit was low for all lines of business, other than one, with a few loss making. This could be due to low scale of business; needed further examination with scenario analysis for growth Working capital constraints lead to acceptance of low profit/loss activities with cash advance, against higher profit jobs where cash would come in later in the delivery cycle Recommendation: Management advised to look into revenue recognition, undertake costing exercise and to relook at pricing strategy. Forecasts to be resubmitted based on revised plan before 2nd tranche could be released
  • 24. Due Diligence Example Example of forecast reflecting possibilities Pipeline for next year detailed out with customer segmentation and probability of conversion based on past record Domain knowledge and expertise demonstrated on questioning, for example in food business about customers eating habits etc. Recommendation: Prima facie this looked as if the management had done their homework and that they had domain knowledge. A technology product review was recommended before getting into valuation and negotiation
  • 25. At the start Kinds of Investors Due Diligence Review Investment Process Valuation In Summary Agenda 25 25
  • 26. VC investment & exit Initial Meetings Prelimnary Project Review by Venture Capitalist Term Sheet Signed by Venture Capitalist & Promoters Due Diligence Review of Project Venture Capitalist with Funds Promoters with Project Legal Documents /Agreement Signed Investment made by Venture Capitalist in Project Mentoring & Monitoring of Project Divestment & Exit from Project Promoters Venture Capitalist
  • 27. At the start Kinds of Investors Due Diligence Review Investment Process Valuation In Summary Agenda 27 27
  • 28. Valuation Based on Tangibles and intangibles Data and assumptions Subjectivity and objectivity Many methods of computation including but not limited to Multiples of revenue, earning, user base etc Cash flow based, discounted Cost based Factor statutory, accounting, and tax implications 28
  • 29. Valuation Identify valuation methods and drivers in your industry Number of customers? Revenue? GMV? Number of unique views? Average revenue per customer? Profitability? Cash Flow generated? Combination of above? Other? Team Stakeholders associated advisors, investors etc. 29
  • 30. Valuation At the start value is mostly intangible, look at how this can be made tangible.. For eg. service through content, follow up calls, showcasing feedback, etc. Can you think of how one can can demo value in a business? How can one improve the value perception? 30
  • 31. Valuation: Examples of Value Demonstrated Association with credible organisations, individuals (incubation, acceleration etc..) Reputed persons on advisory board Marquee/discerning customers Feedback/testimonials from reputed persons or persons in well established roles Ability to charge premium pricing Ability to address a huge market i.e. ecommerce companies, value without profits 31
  • 32. 32 Valuation : Startup Examples Some angel investors/ Incubators/ Accelerators, set a pre-decided equity percentage, illustrative example: Range between 7.5%-10% of company equity, for Rs.25 lakhs investment 25%-30% of the company, for the first amount of investment, which could vary between 50 lakhs to 2 crores 75% discount to valuation at next round by investor NOTE: Regulatory aspects and Tax MUST be factored In by entrepreneur before accepting any terms.
  • 33. 33 Valuation : Startup Examples Names/data changed to maintain confidentiality.. Mentoring: 1. Edtech Co. 1 year old Terms: month one meeting (half day), Focus on growth strategy and advisory services for leadership team: 2% equity 2. Food tech idea stage Terms: month 2 meetings (2 hour), mentoring on growth strategy, funding strategy and help in fund raising: 5% equity plus 1 % success fee of funds raised Statutory and tax issues to be addressed while equity is given Incubation by Tech company: 3. Idea stage: (i) Rs.50 lakhs was committed for 1st year, to be drawn on need basis (ii) Admin/accounting etc. support to be provided (iii) basic sustenance monthly fee of Rs.25,000 per month agreed to for each of 2 founders: 48% equity with Tech Company and balance equally by two founders
  • 34. 34 Valuation: Startup Examples 4. Investment in media/entertainment company in 2014! (numbers changed to maintain confidentiality) HewS closed $10 million valuation from InvestorA Reading press reports, Investor 2 wanted to participate and asked the promoters to suggest a valuation HewS Team and InvestorA decided at random: 20% increase in 1 week, leading to valuation of $12 million; On flight as InvestorA travelled to meet Investor2, he decided he would not just be a messenger, he would value add, so he decided to up valuation to $18 m During negotiations, Investor2 gave final offer of $15 m Thus in about 10 days the company valuation went up by 50%, from $10 m to $15 m Founders ended up with more money than they had planned for and had to think of ways to spend this!
  • 35. 35 Valuation: Startup Examples Names/data changed to maintain confidentiality.. Service business: Value add measures: 5. Two year co. Rebranded, reclassified domain, pre-funding; on advise that revenue multiple would go up from 3 to 5. 6. Three year co. Changed business model to increasing outsourcing of some service delivery aspects. Cost of inputs increased, gross margins reduced, however operational efficiency increased, net profit margins increased and valuation multiples; i.e. revenue and PBT multiples increased. Investor negotiation: 7. Early stage idea: Jim had high technical knowledge, limited financial knowledge. Investor Z convinced Jim that he could partner and grow the company to high value in 3 years and negotiated for half the business. Jim got into this without understanding how shares could get further diluted in later rounds of funding. At the end, Jim was left with less than 10% of the company he started, however valuation was high.
  • 36. At the start Kinds of Investors Due Diligence Review Investment Process Valuation In Summary Agenda 36 36
  • 37. In Summary: Caution Entrepreneurs must demonstrate long term survival capability and build a Financial Model that captures elements of the business model Parties involved must look out for concern issues, hidden agendas; must evaluate on value-based parameters including but not limited to fund source, governance, ethics and reputation One needs to keep an eye on the law, tax and statutory regulations; these also impact valuation and deal negotiation ..Think, do due diligence (whether investor or entrepreneur).. And then proceed
  • 38. For more /anjanavivek https://www.linkedin.com/in/anjanavivek/ Thank you