Planning to raise investment for start-up??

  • Match Valley
  • 19-08-2017
  • 2

Raising funds is an important aspect in any business and that becomes a crucial aspect for start-ups, particularly. Due to various favorable policies from Government and also recognizing the opportunities of business in current socio-economic scenario, it can be noticed that startups are on a rise. Even though the founders will be well equipped with the idea for start-up, the key challenge comes when this has to be converted into a business plan and funds are to be procured from investors. Here are a few things to keep in mind:

  • Plan it ahead: In many cases, organizations seek fund when they start incurring loss or when they are not fully prepared/aware of the implications of fund raising. It is always advisable to raise funds at the right time to get a good deal. Determining the right time depends on the prudence of the management. It could commence when a potential business opportunity can be tapped or to phase expansions. Investors will be interested in a business which has proven a credible operational model and have scope for expansion. In addition, there could be various legal challenges to raise the money (e.g. existing legal structure of the organization). Hence, it is better to have a discussion with professional consultants on what all steps are to be taken in advance.

  • Have experienced people on board: A credible top management will have a positive impact on the investors. Most people will also prefer to co-invest with someone who has a proven track record in management and handling finance.

  • Clean up financials: While raising funds for startup, the value of the company will come into discussion. To get the maximum value out of the deal, reduce liabilities and bring transparency to accounts. Maintaining proper books of accounts and compliance with local regulations is necessary in this aspect. The assets and liabilities of the company will definitely be taken into consideration and analyzed in detail, while arriving at a value.

  • Financial projections: There is a misconception that higher revenue projections will help in raising more fund. Conversely, the more realistic the projections are, the better chances of raising fund. In this scenario, a financial model will be very relevant. It helps in understanding the profitability and returns for a project under various scenarios. Understanding a business gives confidence to the promoter and he will be able to determine how much value can be negotiated for dilution of shares. A financial model will help to analyze and compare various parameters of the project in depth and identify the potential opportunities and threats. This will also help in answering various queries of the investor.

  • Qualitative factors: There are a lot of factors which a business can contribute, which cannot be quantified. It includes (but not limited to) improvement of economic scenario, more employment opportunities. It will be beneficial for the investor to understand the positive change they are bringing to the economy and society.

  • Amount to be raised: The promoter should have a clear idea on the amount of fund to be raised and how it is going to be utilized. This will get scrutinized and challenged at various stages of fund raising. If possible, plan the fund raising in tranches – estimate the total fund required, identify the minimum amount required for a boost, raise it, prove it and then go for the next rounds of investments. This approach will give more confidence and better planning for the promoter regarding fund utilization and more assurance to the investor regarding credibility of the promoter.

  • Competitors: Be well aware of the market and competitors. This helps in understanding the industry trend and performing a SWOT analysis, before any expansion plan.

  • Start-up valuation: Though various methods of valuation are in practice, commonly followed approach for start-up valuation is Discounted Cash Flow method. This involves estimation of projected cash flows and discounting it using the cost of capital to arrive at the enterprise value. It is ideal to be prepared with the business valuation using a standard base, as this will be discussed at various stages of fund-raising.

There are various other factors also to be considered before raising funds, which includes determination of an optimum capital structure, various funding options, current performance of the company, and so on. Considering that investing in a start-up is a highly liquid investment for an investor, diligent planning and care should be exercised. Like all major events, necessary time and effort should be spent right from the planning stage itself to get the best deal.

Contact our experts at Match Valley Capital Partners (Mob: +918593939977, E-mail: hello@matchvalley.com) for a free consultation on getting your pitch deck ready, preparing /reviewing a financial model and for startup fund raising.

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By Suketu Gaglani 6 months ago

Hi, we are a almost a year old start up that deals in US mortgage banking products. We are looking to raise funding for our company for which we are looking at creating VR and IM reports required by investors to look into our project. Please contact me at +919920384493 to discuss this further

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