Curiosity 1.o
Devansh Sharma
Global Product and Innovation Leader l Doctorate Scholar @ IIM L l Author @ The Winning Product l IIM Calcutta l Angel Investor l
Agar mann mein Curiosity le kar jee rahe ho to…Zinda ho tum!
Let’s solve the VC funding Puzzle
As per a research by HBR, the leads flow follows the following pattern
- Leads through other VCs, Colleagues, Work Acquaintances – 30%
- Leads through referrals by other Investors – 20%
- Referrals from existing portfolio Co. – 8%
- Leads through Cold Emails – 10%
- Leads from direct contacts with Entrepreneurs – 30%
So what it means to entrepreneurs?
It’s not only you who are searching for VCs, VCs are also searching for you. Period!
Rather than sending the cold emails, it would be better if you could work on your networking skills as that’s what the points above reflect.
Then the big question. How to network?
Well this is easier said and done, will devote the next column especially on this.
Another number to look for is – Out of thousands of companies which apply for funding, less than 1% get funded. A typical VC starts with more than 110 opportunities and finally end up investing into 1 start up.
So odds are 1 in 110!
Typical Investment Cycle consists of following steps
Step 1: Filtering the Opportunities
Step 2: Meeting the Management
Step 3: Due Diligence
Step 4: Negotiation of Term Sheet
Step 5: Funding
Getting a VC interested in your start up is just the first step and there are many more hurdles to cross before getting to the final mark.
A typical investment cycle on an average takes around 100 days to go from citing opportunity to closing the deal
One thing which stands out for Startups is having a great management Team, Founders
In the words of Warren Buffett
“You should invest in a business that even a fool can run, because someday a fool will.”
While the VCs have a little different opinion
More VCs believe in investing in the founding team then investing in the great business but its icing on the cake if you get both
Let’s get down to Numbers
Matrices for Valuation
Let’s start with a shout to all my fellow MBAs, all those nights we had spent on DCF means very little to the Investors. There are hardly any investors who are forecasting the future cash flows today and rightly so.
No-one could have predicted that Infosys would be one of the largest IT company when Mr. Murthy along with his other cofounders had started it with one client. The investment world doesn’t work that way.
The matrices being used today are very different from the ones which we learnt in MBA colleges
- Cash on Return
- Cash return Vs cash invested
- Internal rate of return
More on this in Curiosity 2.0
Peep into the Curiosity 2.0
- Networking for Founders
- Valuation
- Term Sheet
- Business Plan