What are the differences between angel funding, venture funding and crowd funding? In what scenarios can they be exploited for maximum benefits?

(My response below, to the above question on Quora)

Different investors participate in different stages of a venture. Angel investors invest at the very early stages – when the founders only have an idea or when the idea is being or has been developed into a prototype. They provide enough capital for the idea to be tested and proven in the market, so that another set of investors can bring in more capital after the model is proven and when the venture needs more money to take the proven model to a wider base.

Continue reading “What are the differences between angel funding, venture funding and crowd funding? In what scenarios can they be exploited for maximum benefits?”

M&A: Why small exits matter? The big value of small exits (#iSPIRT-OEQ)

iSPIRT Open Ecosystem Questions(OEQ) Series. The conversation around this exciting session was lead by Sanat Rao (iSPIRT) and the speakers were Jay Pullur (Pramati Technologies), Sanjay Shah (Invensys Skelta), Pari Natarajan (Zinnov), Karthik Reddy (Blume Ventures) & Vijay Anand (The Startup Centre).

Sanat initiated the conversation with an observation that it was only the bigger exits that are picked up by the media. Smaller exits do not get any media attention at all. , We all hear about the big bang “home runs”: WhatsApp sold for 19 billion USD to Facebook, Google acquires Nest for 3.2 billion USD, etc. However, studies show that 65% of VC funded companies in the US return 0-1x to their investors. Even among the remaining 35%, the exit valuations are relatively small: since 2010, the average M&A deal size in the US/Israel is 100 million USD. Only a small 0.1% of VC-funded companies are home runs (50X returns). And not just in India. In Israel too, from 2010-14, out of the 88 exits, two deals on Viber and Waze accounted for a whopping 25% of the total M & A value.

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Given these statistics, why do we promote the myth of a multi-billon $$ exit? Why don’t we recognize the value of these smaller exits? Should we not be promoting and helping product startups to find an exit at an earlier point in their lifecycle, rather than treating these exits as a worst case scenario? Continue reading “M&A: Why small exits matter? The big value of small exits (#iSPIRT-OEQ)”

What parameters do investors use to decide on an investment?

Different investors will have different criteria for selection, and could vary by not just the amount of capital they invest but also the stage at which they invest and the kind of companies that they invest in.
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Most investor’s decisions are based on the following:

  • Quality of the team: This is our most important criterion. We are not looking for experienced entrepreneurs. But we certainly look for understanding of the domain, business concepts & operations management, and most certainly commitment to the venture.
  • Clarity of the concept/idea: How well has the team been able to articulate what they want to do. You cannot plan it well, if you cannot communicate it well.
  • Size of the potential: Concepts addressing large markets with large potential are obviously better.

If the above two are positive, then the following few areas would be discussed:

  • Scale of aspiration of the team: Does the team have the aspiration and hunger to be a market leader?
  • Business case: Is the business case strong enough? Remember, when pitching to an investor you are competing not just with direct competition from your domain but also with startups with interesting business plans
  • Exit potential: How are we going to get a good return on our investment. I.e. what is the exit option for us.

How to Structure the Business Plan of your Startup?

A business plan should essentially cover three aspects – what are you going to do, how are you going to do it and how will you make money. Watch as Prajakt Raut highlights the key components of a good business plan.