WADHWANI FOUNDATION | CREATING JOBS CHANGING LIVES 1

CREATING JOBS CHANGING LIVES

Next-Generation FellowshipProgram

Funding Strategy

Ignite. Week10
https://www.wfglobal.org

WADHWANI FOUNDATION |CREATING JO BSCHANGING LIVES

Overview of
the program and
your learning
journeyover the
14weeks:
Milestone 1
Explore
Week 1:ProblemPitch
Re-visit your opportunity
Re-validate your problem
Refine and Perfect your
Problem Pitch
Week 2: Customerand
Market
Identify Market Types
Estimate Market Size
Define Market Positioning
Describe CustomerPersona
Week 3:Sustainable
DifferentiationStrategy
Craft Core Value Proposition
Create Sustainable
Differentiation Strategy
Deliver Value
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Milestone 4
Launch
Milestone 3
Go-To-Market Week 9:Growth and Scale
Devise Growth Plan
Structure Scaling Strategy
Customer Acquisition
Milestone 2 Operational Excellence
Managing Money
Discover Week 7:SustainableBusiness Week10:Funding
Create Sources, Usesof Funds
Plan
Map Start-Up Cycle to Funding
Build Sales Plan
Build People Plan
Options
Create Pitch Deck
Build Financial Plan and Unit
Economics
Build Funding Plan
Week 4:BusinessModel Identify Metricsthat Matter
Build and Test your BusinessModel Week 8:GTM Strategy
Decision to Pivot or Persevere
Identify Appropriate GTM
Identify Riskiest Assumptions in Channels
Business Model
Develop Channel Partners
Week 5:MinimumLovableProduct Analyse Market Penetration
Create/ Iterate Prototype Strategy
Conduct CustomerInterviews Build Digital Marketing Plan
Analyse Feedback
Build the MLP
Week 6:SustainableBusinessPlan
Build Sales Plan
Build People Plan
Build Financial Plan and Unit
Economics
Build Funding Plan
Identify Metricsthat Matter
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 CONCEPTS
● Funding strategy and its importance
● Types of funding and how to create a funding plan
● Different funding requirements at various stages of a
startup
● Methods to assess the valuation of a company

By the end of the week,

you will be able to:
● Understand the importance of
creating a funding strategy
● Create Sources and Uses of Funds
● Map appropriate funding options with
respect to various stages of business
● Create a promising valuation for your
business

Steps:
1. Identifying funding sources
2. Mapping Start-Up Cycle to Funding
Options
3. Creating business valuation

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 Funding Your Venture
Funding Strategy:

Where do
Where are How do we Success
we want to
we now? get there? Indicators
be?

• Path to current • Future plans Strategy to achieve Key metrics to

position. • How is the fund your goals? track progress
• Key learnings raise going to
help you get
there?

A funding strategy is a written and agreed plan that that should outline how a business is going to raise
money and resources in order to carry out the objectives of the organization or group. It determines the
financial requirements of an organization or group over a length of time.

Generally, a funding strategy covers a three to five year timescale and details the plans for the end of
that period. Funding strategy should be a practical, working document that can be understood by Trustees,
staff and fundraisers. It should be based on a long-term action plan and should adhere to the aims,
timescales and resource requirements outlined in it.

Sources of Funds:

Angels Bootstrapping

Sources
of Funds
Equity Financing
FFF
with VCs

Debt Financing Grants

WADHWANI FOUNDATION | CREATING JOBS CHANGING LIVES
 Funding Your Venture
Bootstrapping: There is a different kind of business that comes out of bootstrapping
than what comes out of venture money. Remember, it's your money and every dollar
counts. When you think like an investor, the one thing that's critical is to look at
return on investment for every dollar spent. Ask yourself:
• Can we ask the customer for an advance?
• Can we get material for manufacturing on credit?
• Does this asset need to be purchased now? Could we wait?
• Are we thinking about how to get this product out faster?
• Can we start getting revenue sooner?
• Are we all going out and selling?

When you start finding solutions to these questions, you

will find that your business may become cash generating
earlier than you expected. Financial prudence is
important.

FFF: If you really believe in your business and its outcome, and you're putting
money in as well, one definite source is friends, family, and obviously fools ☺.
Be cautious, as these relationships are fragile and last a life-time. Chart out a
very clear repayment plan or equity percentage.

Grants: Grants refer to a transfer of funds to a venture without the

requirement of repayment, but with conditions, often in order to
support the venture in advancing the objectives of the grantee.
Grants are usually one-time transfers of funds and can come from
many sources. Government agencies, foundations, and corporations
are good potential sources of grants. There are a number of grants
available.
Development grants | Research grants | Productization
grants | Market grants.

WADHWANI FOUNDATION | CREATING JOBS CHANGING LIVES

 Funding Your Venture
Angels: Angel investors are wealthy private investors
focused on financing small business ventures in exchange
for equity. Unlike a venture capital firm that uses an
investment fund, angels use their own net worth. ... Angel
investors fund businesses in many industries.
There are Angel clubs, Angel networks, Angel funds. Do
your research, and understand where the Angels reside in
your region.

Debt Financing: Start-ups can also raise debt either from venture capitalists or
from banks that specialize in micros and start-up funding. Banks and Non-Banking
Financing Companies(NBFCs) grant loans. These loans so procured can be used for
various business needs like:

• Purchase of inventory and equipment

• Operating capital (working capital)
• Fund requirement for expansion etc

However, there are several drawbacks of this funding option. The interest on loan
has to be paid periodically irrespective of how your business is faring. The bankers
ask for substantial collateral and you need to prove a good credit record

Equity Financing through Venture capitalists:

Venture Capitalists are companies/funds that raise funds
from various sources and use the corpus to further fund
startups. They are ready to invest in small businesses,
funding young, unproven companies that appear to have
a great idea and a great management team.

• An A level VC is an organization with deep experience, recognition, backing,

and team members like Sequoia or Benchmark
• B level investor is a Sequoia wannabe. A good fund, who's thinking on their
own and trying to find out unique investment opportunities.
Based on your needs, chart out your Funding plan.

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 Map the Start-up Lifecycle
to Funding Options
Did you know that 94% of new businesses fail during the first year of operation? You
should know your funding options early to avoid such an outcome. Fundraising is
essential for most startups. In fact, when startups embark into the journey of
fundraising, they make strategic decisions as to which financial instruments should
they adopt that is best suited depending on the stage of their startup.

The stage of your venture determines what type of funding you can aim for…. for
example; if you are in the Idea or Validation stage, Bootstrap remains the best choice.
Other than that, you can also go for government schemes or incubators. if you are in
the Idea or Validation stage, Bootstrap remains the best choice. Other than that, you
can also go for government schemes or incubators. If your product progresses from an
Idea and Validation to the Build stage, you will suddenly find many more funding
options open to you: Angel Investors, Seed VCs, Incubator/Accelerator, and
even Customer Funding and Crowdfunding

Let’s look at the different stages in a startup lifecycle and the prevalent funding option
for each stage:

Pre-seed:- Liquidity Events:-

“Bootstrapping” or contributing
their own capital is usually the
most viable option for Startups
trying to get their venture off the
ground in the initial stages.
Seed
Funding/Angel
investing:-
Angel investors are wealthy
individuals with surplus funds
who provide capital for a
business start-up, usually in
exchange for debt or equity. If
this debt is exchanged for
ownership equity at a later date,
it is called convertible debt.
These angels usually participate
actively in the management of
your company to ensure
profitability and security of their
investment.
As you keep growing and scaling
the biggest and by far, the most
ambitious way to raise funds is –
going public – also called Initial
Public Offering or IPO. This
option raises the largest sums of
money for the company and
provides them an option to come
out of the business by helping
them liquidate their investment in
the business.
Growth Stage:-
During the growth stage or
subsequently during the Maturity
stage, when you have a
sustainable business running, you
can approach banks for debt
loans. It is easier to get bank loans
Early Stage:- now as by this time you are likely
This is the right time to take off! The promising startup needs to now to have revenues, Purchase
meet the growing demand it has generated. When your venture Orders, and a good credit history.
moves on to the early stage, and you have some traction to show, it is Series C is all about scale. It
time to move on to VCs. For VCs, the typical benchmark to invest in a includes large players such as
venture is based on how scalable the venture is. Crowdfunding, Angel hedge funds, investment banks,
funding, and Customer Funding still remain viable options and private equity firms in addition
to the VCs.

While IPO might sound like a dream come true, remember that there’s a long journey
involved before reaching there. As a first step, assess the stage you are in, do some
more research on the funding options available to you, and get ready to approach the
funding that best suits your venture.
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 Funding Plan – Sources
& uses of Funds
The initial funding sources you need to look at are your own personal savings. After
setting aside some amount for emergencies, begin by doing a thorough inventory of
your assets such as savings accounts, equity in real estate, retirement accounts,
vehicles, recreational equipment and collections. You may decide to sell some assets
for cash or to use them as collateral for a loan.

Another source of money is business or trade credit. Normally, a supplier should

extend you credit if you are a regular customer. Suppose a supplier ships something to
you, then that bill is due in 30 days. If you negotiate your terms to change this 30
days to 60 days from the receipt of goods, then you will get 30 extra days to pay.
However, this may not work until you establish your credibility.

Some business models are structured such that cash advances from customer help
finance growth. Airbnb is one such startup that was less dependent than many other
start-ups on early outside funding because it relied on up-front payments from the
customer as a financing mechanism.

How did I bootstrap my company and get my initial

funding?
Varun Khona, Co-founder & CEO, Headout

The below template will help you identify the funding options suitable for your venture:

Funding Plan
Which stage is your venture in?
(Idea/Development/Validation/Early
growth/Growth/Maturity)
How much funding do you need to take your
venture to the next stage?
How much can you cover through self-
funding/bootstrapping?
How much funding do you need from external
investors?
Who are the investors that you can approach?

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 Funding Plan – Sources
& uses of Funds
There are other innovative ways of raising funds, such as subletting office space
or renting out your machinery or equipment. As an entrepreneur, you should
always start with what you have. You need to bootstrap for as long as possible. It
is now time to dig deep and unearth all those resources. Consider leveraging your
resources as much as possible.

Once you have your funds mobilized, what is the optimal way that these funds can
be used? You need to stretch these funds to go a long way. Work out of your
home, hire freelancers or part-timers. In addition, cut personal expenses, don’t
outsource jobs that you can do yourself, and most of all, watch your money like a
hawk.

You also need to start planning on how you will use these funds.

Using the below template, write down the funding sources that are available to
you. Think creatively to come up with ideas. (Hint: personal assets, friends and
family). In Column 2, write down the terms attached to these funds. For example,
if you borrow from your aunt, she may specify that she needs the money back in
12 months. In Column 3, write down how you plan to use these funds. For
example, as part of your startup costs to rent an office space.

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 Valuation
How can you figure out what your company
is worth?

Think of value beyond monetary terms and

then think explicitly about the monetary
value of similar companies. But, like so
many things in the startup world, there’s
more than one way to figure out startup
valuation.

Evaluate these startup valuation methods to

figure out how much your company is likely
to be worth:

https://www.startups.com/library/expert-
advice/startup-valuation-methods

Market-based approach
Under this approach you:
1. identify a comparable firm (same industry, similar business and markets)

2. identify the suitable multiple to be used (detailed below)

3. choose the correct variable and multiply

Some of the most popular multiples are:

a. Price/Earnings (P/E): Under this method, the Profit After Tax is multiplied to
arrive at an estimate of equity value. While it is the most easily understood and
widely used, the main issue is using Profit After Tax, which is affected by a number of
accounting adjustments and distorted by capital structure. Besides, a consistent track
record of profits is needed for P/E to make sense.
b. Price/Sales (P/S): Compared to P/E, P/S is less distorted, easier to calculate,
and not affected by capital structure. Moreover, it is useful for firms that do not have
consistent profits, and more appropriate for certain sectors like retail.
c. Price/Book Value (P/BV): This method uses a multiple applied to the book or
accounting value of net assets of the company. P/BV is particularly relevant for
sectors where
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is entirely dependent on the value of assets,
such as banking.
 Valuation

d. EV/EBITDA: EBITDA, or Earnings Before Interest, Taxes, Depreciation, and

Amortisation is widely regarded by analysts as more reliable since it removes
distortions like effect of capital structure, varying tax rates, and non -operating
income. Since EBITDA is the earnings before interest, the appropriate value in the
numerator is taken as the Enterprise Value, or value of debt plus value of equity, plus
cash balance.

Asset-based approach
The Net Asset Value (NAV) is the easiest to understand. It is calculated simply as fair
value of the assets of the business less the external liabilities owed . The key here is
determining fair value, especially of assets since fair value may differ significantly
from acquisition value (for non-depreciating assets) and recorded value (for
depreciating assets).

Also, the true value of your company may be significantly higher than the simple
addition of the net assets. Things which you never paid for may form part of the
value, as would a unique way of doing business that gives your company an
advantage. An extension of NAV - the Replacement Cost Method - takes care of some
of these issues. Put simply, it is the value any objective person would pay to set up a
business that is exactly the same.

Income-based approach (Discounted Cash Flow Method)

This primarily involves calculating the value of the company using Discounted Cash
Flow (DCF). In short and very simply, this means calculating the present value of the
future cash flows of the company. The discounting to present value is done using the
cost of capital of the company. Depending on the objective, cash flows to the firm
(that is, before debt obligations) or cash flows to shareholders may be used. With so
many choices; how do you pick a method? Again, the answer isn't complex,
but involves common sense:
a. What data is available
b. Appropriateness of the method to the situation, industry, and the business
c. Level of detail desired

Often times, value estimates under multiple methods are prepared and the final
valuation is taken as the average of each. The only rule to remember is that
invariably, intuition, common sense, and acceptability will trump complexity, high
math, and copious data.

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Additional Resources

▪ Science & Art of Fundraising - Sanjay Mehta --

https://youtu.be/3Kxao7Y_lqM
▪ Top 10 tips to early-stage fundraising success --
https://medium.com/balderton/top-10-tips-to-get-early-stage-
fundraising-success-85661647fd39
▪ Startup Fundraising Mistakes that You Need to Avoid Like the Plague --
https://fi.co/insight/startup-fundraising-mistakes-that-you-need-to-avoid-
like-the-plague
▪ How did I Bootstrap and Get Initial Funding --
https://youtu.be/vw3uEnSKVKg

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Call toaction!
Step 1: Identify funding options and map it to the stage of your
startup

Step 2: Create your Funding Plan by identifying the sources of

funds and evaluating the usage of the available funds

Step 3: Assess how much do you value your business

Templates provided in the Handouts.

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FINAL COVER

nextgen.global@wfglobal.org

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