The choice of exit route for venture-backed

companies is influenced by the number of

financing rounds, the investment duration
and the reporting requirements of the
investee
 customer acquisition, time, product,
market and team.
4 different major groups of Internet start-ups
that all have very different behaviour
Stage months challenges
1. stage 7 Customer Acquisition ,Over capacity
2. stage 4 Customer Acquisition ,Product Market Fit, Problem Solution Fit
3. stage 17 Customer Acquisition, Team building, Fundraising
4. stage 17 Customer Acquisition ,Team Building
 Type 1 - The Automizer
self-service customer technology heavy
acquisition, founding teams perform
better than other teams
consumer focused, market size is 2x bigger for
Type 1 (The Automizer)
product centric, compared to Type 2 (The
Integrator)
more likely to tackle
fast execution, existing markets
need the least capital of all
often automize a manual types
process.
Example:Google, Slideshare, Zynga,
 Type 2 - The Integrator
Lead generation with business heavy
inside sales reps, Balanced founding teams
high certainty, perform better than
product centric, technology heavy teams
early monetization, more likely to tackle existing
markets with a product that
SME focused, is cheaper
smaller markets, more likely to maintain
often take innovations small teams even when they
from consumer Internet scale
and rebuild it for monetize a high percentage
smaller enterprises. of their users

Example: PBworks, Uservoice. Xignite, Zendesk, GetSatisfaction, Flowtown, etc

 Type 3 - The Challenger
business heavy
founding teams perform better
enterprise sales,
than technology and balanced
high customer founding teams
dependency, market size is 6-7 times bigger
complex & rigid than all other types
markets, more likely to either tackle
repeatable sales existing markets with a better
process. product or tackle a new market
are more likely to either pivot a
To reach scale stage
lot or not at all
they need about 2x
more likely to have large team
more time compared to
growth at the scaling phase
1N and 3x more time
need significantly more capital
compared to Type 1
than the other types
and Type 2
monetize a high percentage of
their users
Examples: Oracle, Salesforce, MySQL, Redhat, Ariba,, BazaarVoice, BuddyMedia,
, Yammer, Postini, etc
 Type 1N - The Social Transformer
self service need 50% longer than Type 1 and Type 2
customer to reach scale stage
acquisition, business heavy
critical mass, and balanced teams perform better than
technology heavy teams
runaway user market size is 2x bigger compared to
growth, Type 2
winner take all more likely to tackle new markets
markets, more likely to have large team growth at
the scale stage
complex ux, more capital than Type 1 and Type 2
network effects, more likely to have large user growth
typically create new
ways for people to
interact.
Example: Ebay, Skype, Airbnb, Flickr, LinkedIn, Facebook, Twitter, Youtube, Dailybooth,
Mechanical Turk, MyYearbook, Prosper, Paypal, Quora, etc.
 Start-ups
A startup is a young company that is beginning to develop and
grow, is in the first stages of operation, and is usually financed by an
individual or small group of individuals
A startup is a young company which could be an entrepreneurial
venture or a new business, a partnership or temporary business
organisation designed to search for a repeatable and scalable
business model
A startup is a young company that searches for a an unknown
business model in order to disrupt existing markets or create new
ones
A startup is a young, dynamic company built on technology and
innovation wherein the founders attempt to capitalize on
developing a product or service for which they believe there is a
demand
 Definitions of start-ups
A startup business is defined as an organisation:
Incorporated for three years or less
At a funding stage of Series B or less
An entrepreneurial venture/a partnership or a temporary business organisation

A startup is defined as a business that:

Engages in development, production or distribution of new products, processes or services
New and existence for not more than five years
Revenue of up to INR 25 cr.
Not formed through splitting or restructuring
Formed through splitting or restructuring

According to an Infosys Co-founder, a startup is defined as a business:

Within the first three years of its existence
Employing 50 people or less
Revenue of INR 5 cr. or less
Skills required in the entrepreneurship
process
The key and supportive skills in the three
business areas namely
Product differentiation (Technical skills),
Functional competencies (Business Skills)
Enterprising competencies (Personal Skills
and Entrepreneurial Skills)
Only motivation was deemed as an important skill for all the stages of the entrepreneurship
process.
Marketing is very important in stage 1, 3 and 4 of the process.
Opportunity identification is deemed as very important for stage 1 and 4.
Human resources management, financial management and technical skills are deemed as
important for stages 3 and 4.
Creativity is deemed to be important for stage 1 and 3.
Communication, operations and innovation skills are deemed as key for stage 3.
1. opportunity identification,
2. marketing,
3. motivation,
4. human resources,
5. financial management,
6. gathering of resources and
7. technical skills
 Exit Strategies
Exits are the best part of being an entrepreneur
or investor.
Its when we get financially rewarded for all of
the creativity, hard work, investment and risk
we put into our companies.
 A. Initial Public Offering
the most successful and the one associated
with the highest returns, for the investor as
well as the entrepreneur
TIMING DIMENSION OF THE IPO EXIT
venture capital model -number of stages
based on the characteristics of ventures in
each stage, key developmental goals or
benchmarks typically accomplished in each
stage, and the major risks involved.
 In each stage, the entrepreneur gets the
required funding but venture capitalists
refrain from giving more money than actually
needed.
VC use stage financing to regularly monitor
the firm and thus keep the option of
discontinuing funding projects with little
probability of going public.
VCs reputation and the timing of their
IPOs
Reputable VCs are able to a greater extent to
time their exit when stock markets are
peaking and to use private financing to grow
the firms privately when markets are down
Younger, less experienced and less reputable
venture capital firms have a shorter time to
exit ----they may not go public when the
markets are optimal.
 Exit strategies-Team
founders, directors and C-level executives,
sometimes from the biggest companies in the
world
 the sooner new ventures go public, the faster
this informed capital can be redirected
toward new companies.
VCs experience, reputation or network and
exit strategy impact likelyhood to exit
successfully, access public markets faster, and
have higher asset productivity at IPOs
better-networked VC firms experience
significantly better fund performance,
 firms characterized by higher pre-exit sales
growth are more likely to go public rather
than be acquired.
private companies in high book-to-market
industries, firms in the financial service sector
and other highly leveraged industries and
deals involving greater liquidity for selling
insiders show a greater likelihood of being
acquired
 2.Trade Sales-M&A

M&A market is HIGHLY active is because acquiring

companies is now the best way for large companies to
grow
Microsoft and Cisco prefers to buy rather than build.
Cisco has acquired around 200 businesses since 1993
as of OCTOBER 2017.
Particularly the less successful ones
later stages of development
THE TIME TO EXIT AND THE STAGE OF FINANCING.
 Between the two..
IPO is an exit that may be limited to the most
promising ventures whereas acquisitions
appear to be a more general exit route,
Many firms that cannot reach the IPO stage
conclude a trade sale instead
 Management Buy-outs
Arrangement where the firms management team
purchases the assets of the firm they operate-managers
move from employees to owners. With lesser learning
curves
Combination of debt and equity managed from external
sources of buyers & financiers with debt load lesser giving
it more financial flexiblity
Share buybacks and secondary sales are other possible exit
routes, in which venture capitalists sell their shares back
to the management or to other institutional investors.

These types of exit are typically associated with partial

exits, meaning that not all shares are sold at the same time
 Partial exits-Reasons
One common cause of partial exits occurring
more often in the case of share buybacks or
secondary sales is the recording of poor
results by the company, resulting in low
returns for the investors.
Therefore, in order to certify that such
companies are still valuable, investors will
choose to remain partly involved by keeping
only some limited financial commitment
 Other options
Venture capitalists can liquidate their
investments through
secondary sale (where only the venture capitalist
sells his shares),
buyback (where the entrepreneur repurchases
the shares), or
write-off (liquidation).
A partial exit for each route is also possible
Capital Strategy Scenario Planning
 Venture Capital Investment
Debt
Loan between
Entp and VC

Equity
VC Firm purchases
ownership share of
the firm in form of
private stock Preferred Stock
provides interest yields
and seniority to
capital of event of
failure with an equity
interest if successful.
 Business Angels And Venture Capitalists
In November 2016 tea retail startup Chai Thela raised Rs 1.5 crore in
seed funding from early-stage investment firm Quarizon.
Business Angels-
tend to appear earlier in the life of the startup,
that the funds they provide are in lower quantities and
usually represent the first form of equity funding for the investee, and
they also contribute advice, and networking opportunities as well as
providing more hands-on assistance to the entrepreneur.
business angels invest their own
fill a gap left by the venture capitalists in the financing of very early-stage
startups.
Angel investors bridge the gap between building the initial product and
building the company
take a role that enables them to contribute not only strategically but also
operationally
angels help the new venture to become more ready for future
investment
 Angel investors start providing financing 10.5
months after the creation of the business on
average.
Angel-backed firms survive for at least four years
and
Raise additional financing outside the initial angel
group.
Show improved performance and growth
(measured by growth in web traffic and website
rankings)
Chaayos, run by Sunshine Tea House Pvt. Ltd, had
secured $5 million in its Series-A round of investment
led by Tiger Global in 2015.
Venture Capitalist -
venture capitalists invest other peoples money
venture funds seek to invest huge amount of capital
venture capitalists typically require board representation
during the post-investment stage
venture capital funding is often preceded by a lengthy
diligence process

Vahdam Teas Pvt. Ltd, a Delhi-based tea e-tailer, has

raised $1.4 million (Rs 9 crores) in a Series A round of
funding led by existing investor Fireside Ventures.
 Invest later and benefit from information
about the viability of the business and
The use of previously obtained funds (possibly
from angel investors)
Possibility that the venture will fail or only be
a moderate success- a living dead
investment.
Components of a typical business plan:
Company name Mission statement A guiding vision for the company.
Current market situation How big is the market? What are its critical
problems and shortcomings? How is the landscape changing? Who is the
competition? Is it a consolidated or fragmented industry? The companys
solutions Which products or methods will be developed? How long will it
take? What are its applications? What are the companys unique
advantages and are those advantages sustainable? How will the current
market change due to the companys products, methods, etc.? Patent/IP
landscape Marketing and sales strategy Pricing, Product, Placement.
How will the target market know about the product? Which sales
distribution channels will be used? 5-10 year strategic/financial plan:
Financial projections When will the company break even? Key
milestones required to meet financial projections. Key metrics to be
measured and tracked. Key assumptions and how they change based on
a competitors response. Funding requirements. Management team
Members with resumes/CV and roles. Timeline and key milestones
Risk factors and mitigation measures