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Agenda

• What is Venture Capital• Valuation in Venture capital• Understanding Termsheets

Private Equity & Venture Capital

“Private Equity” means capital to companies not quoted on a stock market ,in exchange for an equity participation.

Venture Capital (VC) is a sub-class of Private Equity • characterized by investments made for the purpose of

developing, launching, and expanding new products or service offerings.

How VC’s work

Investor

Investor

Investor

VCfund

Investor

Startup

Startup

Startup

Fund Managers make Fees and Profit Share

Capital Lifecycle

Seed (< $ 1 mil) Early Stages ($ 1 - 10 mil) Expansion/ ($ 10+ mil)development

Angels Incubators Accelerators Venture Capital Private Equity &Merchant Banks

Agenda

• What is Venture Capital• Valuation in Venture capital• Understanding Termsheets

VCs imperative- 10X in each deal

• The “Portfolio Effect”– Out of Ten Start-ups Funded, with Re 1 each,

• 2 successes at 10x or better 20• 5 ‘OK’ returns at 1.5x to 4x 10• 3 write-offs, total loss of invested money 0• Total Gains on Investment of Rs 10 30

• Venture Capital is fundamentally an institutionalized form of aiming for Outliers!

• Do we know which one is 10X? We expect each one to be 10X, and then pray

Super deal - Venture Capital Perspective

1. Goal - Build a highly profitable, industry dominant company to be taken public or harvested in another way at a high P/E multiple in 5-8 years.

2. Management Team - Well rounded with proven experience in building a company. Team works well together and is led by an industry star. Team must also posses high commitment and integrity.

3. Product - Proprietary product with a sustainable competitive advantage.

4. Market - Clearly identified large and growing market with minimal current and near-term competition

Valuations- What is a Fair Deal?

Not So fair Deal

Current Revenue- 1 cr

Rev. at 5 years - 15 cr

Co. sold for - 60 cr

Investment made 2 cr

VC stake 60%

VC return 36 cr

VC return 18 times

Not So fair Deal

Current Revenue- 1 cr

Rev. at 5 years - 15 cr

Co. sold for - 60 cr

Investment made 2 cr

VC stake 15%

VC return 9 cr

VC return 4.5 timesCo. grew by 15 t imes,

VC got 18 t imes

Co. grew by 15 t imes,

VC got 4.5 t imes

Stake and Investment Lifecycle

What do we need to optimize? Size of the circle or Promoter Stake?

Valuation Soft Parameters

‘We want to raise money and hire some people and build the product. Of course, we will start with market research’

‘We have burnt the midnight oil for last two years to research this need, built the product and have left our jobs a few months ago because we just had to get started’

Valuation Soft Parameters

“We will hire a sales head as soon as we get set. We don’t mind even hiring a CEO”

‘Here is the Sales Head, my co-founder, and I remain the CEO till the company is large enough to attract a professional ’

The Billion Dollar Club

Flipkart , Snapdeal are definitely in the club. These horizontal marketplaces are estimated to do sales of more than 5 Bn $ in FY 2015.

The Billion Dollar Club

Ola Cab , Zomato , Paytm, Housing  and many more are knocking on the doors for entry in the billion dollar club . The  next five years will probably have tens of billion $ companies from India.