Capacity Building Program on

Small Business Development for

Aspiring & Existing Entrepreneurs

Who will finance your business and how?

Dr Ashish Kumar
Finance and Accounting Area, IIM Jammu
Apr 03, 2024
Session Plan

• Fund Raising – Firm Life Cycle and Options

• Financing Issues

• Financing Options
Fund Raising

• Type – Equity and Debt

• Firm’s Life Stage

• Source
Sources

• Equity

• Debt
Funding Sources and CLC
Inception Introduction Growth Maturity

Provide Product /
Need Develop the Idea Expansion Expansion
Commercialization

Stable and
Valuation Negligible Very Low High Growth Moderate
Growth

“FFF” Funds
“FFF” Funds A/VC/PE Funds IPOs/Subsequent Issues
Sources Incubation Support
Incubation Support Bank Loans Retained Earnings
Angel Funds
Government Support IPOs Debt
Government Funds
Session Plan

• Fund Raising – Firm Life Cycle and Options

• Financing Issues

• Financing Options
What’s the biggest challenge for existing
or aspiring entrepreneurs?
Biggest Challenge

How to get funding for your venture or

business?
Why most Indian MSMEs/SMEs fail to raise equity
funds and/or reach IPO stage?
Reasons

• Accounting Mind-set

• Failure to Change Financing Approach

Entrepreneurial Roles – A&F

• Compliance

• Control

• Consult/Advisory
Accounting Balance Sheet
Assets Liabilities

• Fixed Assets • Current Liabilities

• Current Assets • Debt

• Financial Assets • Other Liabilities

• Intangible Assets • Equity

Financial Balance Sheet
Assets Liabilities

• Assets in Place • Debt

• Growth Assets • Equity

13
Reasons

• Accounting Mind-set

• Failure to Change Financing Approach

Should the entrepreneur view debt and equity
financing by the same lens?
Valuation

The key to raising equity financing is Valuation

Drivers
Session Plan

• Fund Raising – Firm Life Cycle and Options

• Financing Issues

• Financing Options
Financing Options
• Debt

• Government Schemes/Grants

• Equity
• Government
• Angel Investors
• VC/PE Funds
• IPO
Government Schemes – Objectives
• Direct Financial Assistance

• Facilitate Funding

• Mentorship

• Indirect fund-based support – Tax Exemptions

• Network Opportunities

• Access to Vital Resources

Government Schemes
• Startup India Initiative
• Startup India Seed Fund Scheme
• Pradhan Mantri MUDRA Yojna
• Atal Innovation Mission
• Credit Guarantee Trust Fund
• Venture Capital Assistance Scheme
• The Standup India Scheme
• Design Clinic Scheme
• Raw Material Assistance Scheme
• Single Point Registration Scheme
Startup India Initiative

• Started by Hon’ Prime Minister Narendra Modi in 2016

• Key advantages – Tax exemptions, Access to funds, Fast-track patent

registrations; Easy business wind-up option in 90 days

• Eligibility – Registered Firm (Partnership, Private Limited, LLP);

Turnover shouldn’t exceed 100 crores in any FY; Must apply within 10
years of inception
Startup India Seed Fund Scheme
• Financial assistance to early-stage startups for
• Market entry,
• Product trials,
• Commercialization,
• Prototype development, and
• Proof of concept
• Individual grants of up to ₹20 lakh
• Industry agnostic and doesn’t require physical incubation
• Eligibility criterion
• Startup must be recognized by DPIIT
• Indian promoters must hold shares equal to or more than 51%
• Startup must apply within two years of its incorporation for this scheme.
Pradhan Mantri MUDRA Yojna
• Launched in 2015, PMMY is a scheme for startups and MSMEs to
help ventures sustain and grow
• Financing, Credit Guarantee, and Development Support
• Three categories
• Shishu – Up to 50,000
• Kishor – Up to 5 Lakhs
• Tarun – Between 5-10 Lakhs
• Startups must be involved in trading, manufacturing, services, or
any other non-farm business
Venture Capital Assistance Scheme
• Core focus of this scheme is Agro-industry development

• Interest-free debt financing to small and marginal farmers

• Three categories
• Overdraft facility and term loan

• Facilitate Agri-based venture setup

• Longer repayment period of up to 5 years.

• Helps startups set up an Agro-business by arranging meets, visits, and training.

The Standup India Scheme
• Encourage entrepreneurship ventures by scheduled tribes (STs),
scheduled castes (SCs), and women

• Banks will provide loans of between ₹10 lakhs to ₹1 crore to at least one
venture per branch every year
• At least one classified entrepreneur

• With at least 51% ownerships among classified segment

• Flexible loan repayment time of seven years

• However, only first-time entrepreneurs can apply for this scheme

Other Funding Options

• Crowdfunding

• Bootstrapping

• Accelerators

• Angel Investing/Venture Capital/Private Equity

• IPOs
Key Angel Investors in India, 2022
• Kunal Shah (Founder, Freecharge and CRED) – 67 angel investments
• Kunal Bahl and Rohit Bansal (Co-founders, Snapdeal) – 64 investments
• Aman Gupta (Founder, Boat) – 16 investments
• Karthik Bhat (Force Ventures) – 16 investments
• Sandeep Naliwal (Founder, crypto platform Polygon) – 15 investments
• Sujeet Kumar (Founder, Udaan) – 15 angel investments
• Gokul Rajaram (Sr. Executive, DoorDash) – 13 angel investments
• Varun Alagh (Co-founder, Mamaearth) – 13 angel investments
• Maninder Gulati (Chief Strategy Officer, Oyo) – 11 angel investments
Key Angel Groups/Networks
• Mumbai Angels Network
• AngelList India
• ah!Ventures
• Agility Investors MP
• Lead Angels Network
• Let’s Venture
• Venture Catalysts
Accelerators
•A business accelerator, a for-profit entity, provides
infrastructure support, strategic support and mentoring,
and/or access to investors.

• Boot camps or Microseed Funds

• Entrepreneurs offer small amount of equity to participate

• Entrepreneurs pitch their ideas on accelerator days

Startup Accelerators, India
• 500 startups Startup Accelerator
• TLabs Startup Accelerator
• Cisco Startup Accelerator
• Indian Angel Network Startup Accelerator
• DevX Startup Accelerators
• ICreate Startup Incubator
• Prime Venture Partners (Angel Prime) Startup Accelerator
• CIIE- IIM Ahmedabad Startup Incubator
• DLabs Startup Incubator
• GSF Accelerator Startup Accelerator
Startup Financing Ecosystem

How do Angel Investors/VC/PEs evaluate investment

opportunities?
PE/VC – Due Diligence

• Industry Due Diligence

• Customer Due Diligence

• Business Model Analysis

• Team Due Diligence

Most Common Criteria
• Market Potential
• What problem is solved?
• Is the problem sufficiently big enough?
• Business Model
• Who, What, and How
• Customer Acquisition Cost
• Repeat Customers
• Customer Life Cycle Value
• Operational Model
• Sourcing/Manufacturing Strategy
• Cost
• Price Points
Most Common Criteria
• Profitability
• Revenue and Growth
• Profitability Trends – Operating and Net
• Free Cash Flow
• Investors
• Present shareholding
• Existing investors
• Pre- and Post-money Valuation
• Team
• Entrepreneur (s)
• Key members
Key to Valuation – Industry Analysis

• What is the size of the industry? What are drivers of growth?

• Who are the major players, and what are their competitive advantages?
Is branding important?

• What is the industry sales channel – B2B, B2C?

• Business Value Chain and Players

• Customer Segmentation
Key to Valuation – Company Analysis
• What is your selling proposition?

• Do you have a brand or play in commodity space?

• Sales and Growth Trends

• Biggest customers – 60-70% sales

• Key Financials and Trends

• Key Assets including Patent, etc.

• Key People
Why Angel or VC or PE investors don’t
care much about profitability?
Key Financial Metrics For Investors
Yearly trends in
• Revenue
• Customer Acquisition Cost
• Operating Expenses
• Profitability
• Free Cash Flow
• Cash Burn Rate
Things to remember
• Create a Pitch for Investors
• Understand valuation drivers not value
• Demonstrate the team development capabilities
• Look at overall deal and not only valuation
• Choose equity partners carefully
• Don’t raise too much in one go
• Never run out of cash
• Start early and build relationships
Session Plan

• Fund Raising – Firm Life Cycle and Options

• Financing Issues

• Financing Options
 Thanks

Dr Ashish Kumar
Finance and Accounting Area, IIM Jammu
+91-9958110953
[email protected]