Steps to Start-up
Fund Raising
Steps to Start-up Fund Raising
The entrepreneur must Assessing Need for Funding
be willing to put in the
effort and have the
patience that a Assessing Investment Readiness
successful fund-raising
round requires. The
fund-raising process can Preparation of Pitchdeck
be broken down into the
following steps: Investor Targeting
Due Diligence by Interested Investors
Term Sheet
Assessing Need for Funding
• The startup needs to assess why the funding is required,
and the right amount to be raised. The startup should
develop a milestone-based plan with clear timelines
regarding what the startup wishes to do in the next 2, 4,
and 10 years. A financial forecast is a carefully
constructed projection of company development over a
given time period, taking into consideration projected
sales data as well as market and economic indicators. The
cost of Production, Prototype Development, Research,
Manufacturing, etc. should be well planned. Based on this,
the startup can decide what the next round of investment
will be for.
Assessing Investment Readiness
• While it is important to identify the requirement of
funding, it is also equally important to understand if the
startup is ready to raise funds. Any investor will take
you seriously if they are convinced about your revenue
projections and their returns. Investors are generally
looking for the following in potential investor startups:
Assessing Investment Readiness
Revenue growth and market position
Favorable return on investment
Time to break-even and profitability
Uniqueness of the startup and competitive advantage
The entrepreneurs’ vision and future plans
Reliable, passionate, and talented team
Preparation of Pitchdeck
• A pitchdeck is a detailed presentation about the startup
outlining all the important aspects of the startup.
Creating an investor pitch is all about telling a good
story. Your pitch isn’t a series of individual slides but
should flow like a story connecting each element to the
other.
What do investors look for in
startups?
• Objectives and Problem Solving
• The offering of any startup should be differentiated to
solve a unique customer problem or to meet specific
customer needs. Ideas or products that are patented
show high growth potential for investors.
What do investors look for in
startups?
• Management and Team
• The passion, experience, and skills of the founders as
well as the management team to drive the company
forward are equally crucial in addition to all the factors
mentioned above.
What do investors look for in
startups?
• Market Landscape
• Market size, obtainable market share, product adoption
rate, historical and forecasted market growth rates,
macroeconomic drivers for the market your plans to
target.
What do investors look for in
startups?
• Scalability and Sustainability
• Startups should showcase the potential to scale in the
near future, along with a sustainable and stable
business plan. They should also consider barriers to
entry, imitation costs, growth rate, and expansion plans.
What do investors look for in
startups?
• Customers and Suppliers
• Clear identification of your buyers and suppliers.
Consider customer relationships, stickiness to your
product, vendor terms as well as existing vendors.
What do investors look for in
startups?
• Competitive Analysis
• Consider the number of players in a market, the market
share, obtainable share in the near future, product
mapping to highlight similarities as well as differences
between different competitor offerings.
What do investors look for in
startups?
• Sales and Marketing
• No matter how good your product or service may be, if
it does not find any end-use, it is no good. Consider
things like a sales forecast, targeted audiences, product
mix, conversion and retention ratio, etc.
What do investors look for in
startups?
• Financial Assessment
• A detailed financial business model that showcases cash
inflows over the years, investments required key
milestones, break-even points, and growth rates.
Assumptions used at this stage should be reasonable
and clearly mentioned.
What do investors look for in
startups?
• Exit Avenues
• A startup showcasing potential future acquirers or
alliance partners becomes a valuable decision
parameter for the investor. Initial public offerings,
acquisitions, and subsequent rounds of funding are all
examples of exit options.
Investor Targeting
• Every Venture Capitalist Firm has an Investment Thesis
which is a strategy that the venture capitalist fund
follows. The Investment Thesis identifies the stage,
geography, focus of investments, and differentiation of
the firm. You can gauge the Investment Thesis of the
company by thoroughly going through the company
website, brochures, and fund description. To target the
right set of investors, it is necessary to research
Investment Thesis, their past investments in the
market, and speak with entrepreneurs who have
successfully raised equity funding.
Investor Targeting
• Identify active investors
• Their sector preferences
• Geographic location
• Average ticket size of funding
• Level of engagement and mentorship provided to investee
startups
• Pitching events offer a good opportunity to interact with
potential investors in person. Pitchdecks can be shared
with Angel Networks and VCs on their contact email IDs.
Due Diligence by Interested Investors
• Angel networks and VCs conduct thorough due diligence
of the startup before finalising any equity deal. They
look at the startup’s past financial decisions and the
team’s credentials as well as background. This is done
to ensure that the startup’s claims regarding the growth
and market numbers can be verified, as well as to
ensure that the investor can identify any objectionable
activities beforehand. If the due diligence is a success,
the funding is finalised and completed on mutually
agreeable terms.
Term Sheet
• A term sheet is a “Non-binding” list of propositions by a venture capital firm at the early stages of a deal. It
summarises the major points of engagement in the deal between the investing firm/investor and the startup.
A term sheet for a venture capital transaction in India typically consists of four structural provisions:
valuation, investment structure, management structure, and finally changes to share capital.
• Valuation
• Startup valuation is the total worth of the company as estimated by a professional valuer. There are various
methods of valuing a startup company, such as the Cost to Duplicate approach,the Market Multiple approach,
discounted cash flow (DCF) analysis, and the valuation-by-stage approach. Investors choose the relevant
approach based on the stage of investment and market maturity of the startup.
• Investment Structure
• It defines the mode of the venture capital investment in the startup, whether it is through equity, debt, or a
combination of both.
• Management Structure
• The term sheet lays down the management structure of the company, which includes a list for the board of
directors and prescribed appointment and removal procedures.
• Changes to share capital
• All investors in startups have their investment timelines, and accordingly they seek flexibility
while analysing exit options through subsequent rounds of funding. The term sheet addresses
the stakeholders’ rights and obligations for subsequent changes in the company’s share capital.
Term Sheet
• Valuation
• Startup valuation is the total worth of the company as
estimated by a professional valuer. There are various
methods of valuing a startup company, such as the Cost
to Duplicate approach,the Market Multiple approach,
discounted cash flow (DCF) analysis, and the valuation-
by-stage approach. Investors choose the relevant
approach based on the stage of investment and market
maturity of the startup.
Term Sheet
• Investment Structure
• It defines the mode of the venture capital investment in
the startup, whether it is through equity, debt, or a
combination of both.
Term Sheet
• Management Structure
• The term sheet lays down the management structure of
the company, which includes a list for the board of
directors and prescribed appointment and removal
procedures.
Term Sheet
• Changes to share capital
• All investors in start-ups have their investment
timelines, and accordingly they seek flexibility while
analysing exit options through subsequent rounds of
funding. The term sheet addresses the stakeholders’
rights and obligations for subsequent changes in the
company’s share capital.
