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Fundraising is an extreme Sport, Be Cautious!

CA. Tarun Chaurasia

Author is member of the Institute. He may be reached at [email protected]

a reduced deal flow was well expected in 2022. Despite markets

across the globe remaining awfully volatile with worries hanging
around rising inflation, fears of recession, rising Interest rates and
increasing uncertainty resulting from Russia & Ukraine War, India
has performed significantly well so far in 2022 in comparison to
many other Countries on several economic parameters including
India is an emerging Venture Capital Funding.
market for start-
ups and entrepreneurs as We have over 900 Alternate Investment Funds (AIFs) registered
can be witnessed in its with SEBI as of May 2022 and have a record dry powder
(deployable capital in hand). As per an estimate, nearly US$9
growth over the last six billion have been raised by India-focused funds during the
years. From a mere 471 12 months ending August 22. This is the capital waiting to be
Start-ups in 2016 to now deployed by VCs though there is a reduction in the deal flow in the
nearly 73000 start-ups in current calander year 2022 vs 2021.
2022, venture capital has
meaningfully altered the Considering that we have unprecedented number of Investors
start-up ecosystem. In its in the market with record amount of dry powder waiting to be
early years, venture capital deployed, clearly funding doesn’t seem to be an issue, yet over
90% of the proposals received by Investors gets rejected at the very
(VC) was a very small first glance on account of various reasons. The harsh reality of
industry but today, it has fundraising is unknown to many entrepreneurs. The mere fact that
grown into one of the you wish to raise venture capital doesn’t guarantee you will raise
industry’s most significant it. It is estimated that over 97% of all companies seeking funding
and widely recognized do not receive funding. Therefore, the short answer is “you don’t”
asset classes. in most cases. It’s important to note that the safest place for any
VC to park its money would be on selected mature start-ups

L
ooking back to 2021, or Investible Businesses with a proven scalable business model
Indian venture capital having achieved a traction, a clear path to profitability, and the
deal flow reached an potential to reach the public markets within a few years.
exceptional high of $38.5B in In this article, we’ll discuss some of the most common challenges
capital deployed achieving and mistakes founders and advisors make when seeking equity
a 3.8x growth over 2020 and funding.
a 2x growth in deal volume
of making it to 1500+ deals A. “Too Early” At any point in time one can find thousands of
compared to 809 in 2020. Entrepreneurs & Start-up Founders looking to raise Funds
Further India minted 44 new for their venture which are either at an idea stage or at a stage
unicorns in 2021 passing China where minimal viable product (MVP) is yet to be established
with 42 for the first time in and even if MVP has been established, the traction is terribly
terms of unicorn addition. As missing. We see many entrepreneurs dropping cold emails
the Indian start-up ecosystem to almost every possible investor they come across in the
continues to grow, we now hope that someone will invest. The big question which we
have more than 100 unicorns. are all missing here to ask is; Is it the “right time & stage” of
Looking at these numbers, the Business to raise Funds and Will Investors consider such
one can draw reference that Ventures at such an early stage.
Indian start-up ecosystem
has unquestionably reached a Traction & Scale in the Business is key in today’s market. It
maturity point in 2021, hence is the level of progression a start-up makes during its initial

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these founders have either Development Financial

led one or more companies Institutions (DFI),
to successful exits or have Insurance Companies,
Traction & Scale in
already established a Funds of Funds and
the Business is key successful track record. many more. They are all
in today’s market. These are exceptions and looking for Investment
It is the level of should not be considered opportunities that fits their
progression a start- as Industry practice. A “investment thesis” and
up makes during its Founder of an early-stage anything that does not
initial stages. start-up should resist the meet their thesis is simply
temptation to raise too gets ignored. Investment
much capital too soon. “Too thesis is basically a set
stages. It indicates that early for us” is one of the of rules & principles
their products and services common rejection reasons written & adopted in their
are viable, that they have and therefore founders Constitutional Document.
found the market fit and should never ask for money Regardless of how
the brand is growing “too soon” compelling the proposal is,
which eventually gets a deal that extends beyond
reflected in the financial B. Investment Thesis: their investment thesis
and non-financial numbers It’s not uncommon for will be rejected upfront.
including revenue, entrepreneurs to be turned It is imperative for every
profitability, active users, down multiple times when Founder & Investment
Key Agreements etc. they try to raise money Advisor to understand &
Investing in start-ups is a for their start-ups and read through the investor
risky business for investors in most cases even not profile and their investment
and as per the statistic over receiving a response at all thesis before proceeding.
90% of the Start-ups failed. from investors. One will Believe me, it’s really about
Over 90% of the funding keep facing rejections if finding the right investor
proposals received by the the problem is not fixed. A and you must know your
Funds gets rejected right common reason for getting audience well. At the
at the very first glance on rejection after rejection very least, one must visit
account of various factors from investors from the their website, LinkedIn
whereas the remaining are ones to whom the pitch profile and browse the
read through. Only one deck is circulated is that news Articles related
or two deals eventually of targeting the wrong to the Investor & their
meet the expectations of audience. You may have investments. By doing
the Investment Committee possibly circulated the pitch so, one shall get plenty of
(IC) and ultimately being deck to a wrong Investor. information concerning
readied for Investment. Investors’ profile & their
The Investors in the
Please note that Investors sweet spot for Investment.
Industry are a diverse set
don’t want to invest based By reading through their
and are actively looking
just on the founding team profile one can definitely
out for Investment
alone as they look out for improve the Fundraising
opportunities. These
a business that has the Strategy and get quality
diverse set of Investors
potential to grow fast & leads for their campaign.
includes High Net worth
exponentially. Due to the Individuals (HNI), Angel
inherent high risk, Ventures In India, for example, a
Networks, Accelerators, large number of foreign
are rarely funded at the Incubators, Family Offices,
Idea Stage, Pre-Seed Stage, domiciled funds made
Corporate Venture Capital, their first investment in
or MVP Stage. Even though Institutional Venture
there are start-ups that India in 2021/2022 by
Capital Fund, Government co-investing along with
raised money before they Start-up Schemes, Private
built anything, when the a local lead investor or
Equity Funds, Sovereign fund. These Funds invest
founders didn’t even have Wealth Funds, Pension
a concept, the important primarily outside of India
Funds, Strategic Investors, or are global Investors and
thing to remember is that

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will not have a presence Investors would or budget for the time or
or team in India but have have strict “NO”; exp professional fees for doing
partnered with a local fund Alcohol, Gambling etc this job. Do remember,
on selected investment if you try to achieve
(9) Do they have specific
opportunities. In case you everything at your own,
Investment theme
chase them, chances are there is a high likelihood
like; B2B or Impact
you’ll never hear back from that you will not succeed.
Investment etc
them (let alone rejection) It’s always advisable to
simply because they are C. Professional Help is leverage the experience of
keen to evaluate deals Key: Fundraising is an someone who knows the
independently instead they extreme sport. Don’t try job better than you do. As
have a strategic tie up with it yourself. An average part of the Fund-raising
a local fund. funding campaign lasts journey, founders would
anywhere between three require expert help at
Investment thesis of the to six months and is nearly every step of the process
Investors usually comprise the equivalent of a full- and more specifically the
of following elements and time job. It is common for following.
the least one can do is to entrepreneurs to display
educate themself before confidence & optimism • Is it the right time &
proceeding for their Fund- and they are always rolling stage for us to raise
raising journey. up their sleeves willing to Funds
get their hands dirty with • Should we attempt to
(1) Preference for Sectors: almost everything they raise debt and avoid
Sector focus Fund or come across. However, equity at this stage
Sector Agnostic. some areas of their business
(2) Deal Size: What is the may be too challenging for • How do we prepare a
usual minimum & founders to close unless robust Financial Model
maximum amount of they have the requisite with built in scenario
Investment the Investor experience, time and analysis
is willing to make resources. One such task • Preparing the Pitch
that requires expertise is Deck and a Teaser
(3) Are you a Lead raising funds as founders
Investor vs. Co-Investor should spend their time • Assessing the realistic
running their business Valuation of your
(4) What stage of the
rather than raising funds. Company
Business Investor
The process of raising
would invest in i.e. • Reading through the
capital can be time-
Early Stage or Growth profile of the Investors
Stage (Private Equity). consuming and unhealthy and their Investment
which is why it is best thesis
(5) Business Stage Can outsourced to professionals.
be further categorised It is unfortunate that most • How do we contact the
into Idea Stage, Pre- founders do not set aside Investors
Seed Stage, Seed Stage, • Subsequent Interaction
Bridge Round, Pre- with the Investors till
Series A, Series A, B, C you get funded.
D etc. It is imperative for
every Founder & D. Teaser: Investors’ offices
(6) Do they also Invest in are bustling with activity
Secondary Transactions Investment Advisor
to understand & as all kinds of proposals
(Buying out the existing are received through all
Investor in the Cap read through the communication channels
Table) investor profile and each day from all over. It’s
their investment common to see Founders
(7) Is this a Buyout Fund?
thesis before and Advisors complaining
(8) What is the negative proceeding. that they have not heard
list of Sectors where back from Investors.

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It therefor becomes and professional, avoid

important to grab investors’ fancy presentations, don’t
attention in this super withhold basic and relevant The nature of
busy environment and a information, and present
technology-based
“teaser” can work very hard facts upfront. The
well in favour of a Start- Teaser will help you filter ventures gives VCs
up. Please keep in mind out your target Audience an advantage over
that over 90% of proposals and you would be able traditional businesses
received by investors are to engage meaningfully since they disrupt the
rejected at first glance and with relevant Investors market or launch a
not even reviewed. The only however please totally novel product
conversion rate is very remember, a Teaser is not a or service.
low here which highlights replacement of a full deck
the importance of the which will still be needed based ventures gives
materials that you prepare once you hear back from VCs an advantage over
for potential investors. the Investors on the basis traditional businesses
An Investment Teaser is the Investor Teaser. The since they disrupt the
a professional document readers can drop me an market or launch a totally
used to introduce an email at tarun@pepartners. novel product or service.
investment opportunity. It’s in in case they are looking Additionally, IP creation
a short (one to two pages) for a Teaser format. often multiplies the
and to the point document investment in tech start-ups
E. Technology: If you read
that outlines the business many times over. There is
through the Investment
opportunity for investors of course a high level of risk
Thesis of Investors, you
and gives a high-level involved but VC investors
would notice that almost
description of the overall usually bet on high-
everyone is looking
business. In the Teaser, potential projects with the
up to Invest either in
you want to make sure the knowledge that they may
Technology Businesses or
right audience spots your win a few and fail in a few
Tech-Enabled Ventures
company, engages, and and those few 10X to 50X
while traditional small cap
becomes interested in the value multipliers will make
or Mid Cap Businesses
details. up for the loss. The message
have practically been
To enable an investor ignored by the Venture is loud & clear if your
to make an informed Capital Industry which start-up does not fall into
decision, it is crucial to are still dependent on the either being a technology
keep the Teaser simple traditional form of Finances Company or Tech Enabled/
and these businesses do not Tech oriented Businesses,
fit into their definition of you will be ignored by a
“Investible Businesses” large category of Investors
An Investment Teaser upfront except in a few
is a professional The risks and rewards of cases.
document used technology-based ventures
are significantly higher as Among the most glamorous
to introduce and exciting facets of finance,
an investment they focus on unproven
products, markets, and venture capital has evolved
opportunity. It’s a into a global phenomenon.
technologies. Ventures that
short (one to two With unprecedented number
do not involve technology
pages) and to the of Investors & a record dry
generally have proven
point document that business models whose powder (deployable capital)
outlines the business success depends purely available for Investment,
opportunity for on execution, scale, and Investors are looking up to
investors and gives a sometimes significant Investment opportunities and
high-level description investments. Due to strong but there is dire need to educate
of the overall competition, the returns the Founders & Entrepreneurs
business. are usually predictable. in their Fund-raising journey.
The nature of technology-  nnn

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