Startup Funding - Stages - YouTube

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Namashkar, my name is Mukul and you are welcome on Asset yogi.

Many of you keep asking me about startups.

In fact, we have done a few videos on startups.

And many of you have a constant question that is related to startup funding,

That from where do we arrange money for a startup?

So when we start some business, so firstly there is the idea,

After getting the idea, we make its prototype.

We pilot run the project, make some product,

launch our services, bring some initial customers.

Once your product or service is a bit successful,

then comes the requirement for the money.

How do we get the money? We're gonna talk about that today.

In fact, for this, we thought of bringing two experts today.

He is Mr. Abhishek Kakkar, who is from 91 springboard.

I'll tell you a bit about 91 springboards.

It's a co-working space, they have many hubs.

Mukul: I think you have 21 hubs, right?

Abhishek: yes.

Mukul: And how many cities are you present in?

Abhishek: 8 cities.

Mukul: ok.

Mukul: So he will tell us what are the stages of a startup? How is funding arranged?

And what are the exit options? What do investors look for in a start-up?

And besides that, if you have a choice, then how to select the right investors?

And should you even arrange the funding or not?

We'll talk about all these topics in detail.

So we'll take a perspective from Mr. Abhishek Kakkar, who deals with a lot of start-ups.

And then we have Mr. Abhishek Dabas; we have done a video with him before. He has a solar startup.

So he also has a start-up and had raised initial funds, so how did he do that?

How was his experience of meeting the investors?

We'll discuss all these things.

Mukul: So first I'd like to ask a question to Mr. Abhishek Kakkar

So Abhishek tell me what are the stages of funding of start-up?

Means where does it start from?

Mr. Kakkar: Thank you Mukul, you gave me this opportunity today.

When you, as an individual, are beginning to think about starting a business,

you get that idea.

It is important for you to also ensure that you have backup capital to support your private life as well.

Mukul: So you're saying initially you should have some money.

Mr. Kakkar: So when you get an idea, you're already a working professional.

You should have a personal finance backup for 9 months or one year.

When you're doing the start-up, there is heavy investment into set-up cost.

Then you want working capital, which is the operational cost that goes on a monthly basis, to cover your expenses.

You initially stabilize the product and service, make the team,

When money is spent on all that, there are no incomes.

Cash in-flow starts at a later stage.

To sustain during that period, you have to sustain yourself,

your family, your business, your employees,

and employees further support their families.

So it's very important to have high morale and be financially strong

So for the first year, your personal finance should be stable,

For that founder's savings are very important.

Mukul: So you're starting with savings initially.

Mr. Kakkar: Exactly.

Then you can look up to your family and friends.

Mukul: Ok. So initially your savings, then you look up to the family.

Mr. Kakkar: Family and friends. In fact, family & friends could include your immediate family, your relatives,

some people in your immediate network,

Mukul: In fact, we can also take the experience of Abhishek here.

If we talk about Zolt energy, How did you start? where did the initial funds come from?

Mr. Dabas: So initial funds were from my friends definitely.

Some were my friends, some were their relatives, one was

my ex-boss, who knew us for a long time.

So he had faith that these guys will do the work, they should be given the opportunity.

And there is always a soft spot for Solar cause we're talking about clean energy.

So he was seeing some meaning in that,

so we got great support.

There were 6 total people, of which 2 were my friends, 2 were acquaintances of the friends.

So like Mr. Kakkar is saying, it can be friends of your father also.

You don't need to directly know them, but recommendations and references become very important.

Mr. Kakkar: Exactly.

Mukul: Ok. so we should first raise some funds from friends and family.

First of all savings, we should have this much support that we keep 12-15 months of saving for the family, right?

Then we arrange some funds from friends and family.

Let's assume using that money, our product and set-up is ready,

What's the next stage after that?

Mr. Kakkar: Mukul, there is also the co-founder,

which is your partner and co-promotor of the business.

He is your friend and a second person who basically believes in your idea.

There is contribution through him also,

Your first investor should be the customers who will buy your product, you get money from them,

But,

Like you talked about working capital, we have various options for that.

Government has a lot of schemes.

Mukul: Right, I remembered a point here, 91 springboard also

is an incubator under Atal Mission.

Mr. Kakkar: We are supported by the Neeti Aayog through the

program Atal Innovation Mission.

Mukul: What's that?

91 springboard promotes and supports upcoming businesses,

technology-focused, IT-driven, patent driven

technology companies and products.

Mukul: So there is a fund you invest in?

Mr. Kakkar: So we provide seen capital

Mukul: Okay, so 1st savings, 2nd friends and family,

3rd we can say incubators or seed funds.

Mr.Kakkar: Accelerators, Incubators, early step seed funds,

there are angel investors.

So the next rounds in bits and pieces through these.

These days there are angel funds, angel networks.

A bunch of high net-worth individuals, who believe in investing in start-ups and they promote technology companies.

As a group, as a syndicate, they invest in the start-up.

Mukul: So can we tell something like

that there is a certain investment in seed capital?

Is there a number?

Mr. Kakkar: There is no typical number.

If you look at the market data, there is an average,

effectively as low as 100,000$,

which is an angel round of 70 lakh to 6-6.5 crores,

which is the ticket or the round size,

which we call it in our jargon, Industry jargon.

A hundred thousand dollars to 1 million dollars.

Mukul: Ok. So the next stage after this?

Mr. Kakkar: Next stage

Now if I talk about a typical business,

first 100 customers have arrived,

they are using the product regularly.

Then entrepreneur or founder thinks

that we take it to new geography.

We take it from Delhi and sell it in Mumbai also.

So they try to expand it pan India, maybe take in international.

To get a larger volume of customers they require more capital

To grow the businesses, we can consider loans from banks,

government schemes.

Mukul: Can those businesses get a loan, where they haven't reached profitability?

Mr. Kakkar: It's a bit difficult but it's very easy now.

At the same time, debt is not the only option.

Fund equity is also an option to raise capital.

There are lots of, you know initiatives from govt of India.

They provide funds for products, as well as early-stage growth,

through again, various schemes.

There are a lot of schemes of the department of science and technology.

Founders can look up that. On top of that, there are institutional funds.

Venture capital funds we call it.

They come and do the first institutional round.

which in our language, we call Series A, B, C, and so on.

Mukul: Okay.

How was your experience in it Abhishek, if we talk about rounds?

Mr. Dabas: So we have only done the first round. We did friends and family rounds.

After that basically, we had to make a decision.

To say, I liked what Abhishek said that your first investor should be the customer.

Until the customer does not give money, the industry isn't prepared for that or volume isn't enough to sustain other things,

investors support you until then.

It could be angel investor, seed investor,

institutional investor or bank loan

Eventually, money is to be given by the customer. If you've made a good product, they do give money.

Now if I give my example, when we started.

When we talk about a solar plant,

2 to 2.5 lakh was the minimum plant size.

In which the equipment, which is 70-80% of the cost,

when I install it, then I take the payment.

If it's a big company, people trust it so they can pay in advance.

But you're starting, you have to earn their trust in start.

So at that time we used to take cheque of 1000 Rs and started doing permissions.

Gradually the person started to trust you and started to support you.

Money used was ours that's why we used angel investments.

With the increase in business and work, more and more money gets stuck in it.

So that problem you defenitily have to solve.

But when we reached that stage, in today's date

we have customer support, we take 50% in advance

So we have to only spend 20-25% on equipment.

And even then when our work is done, we get back the money.

Now we have solved that need with debt.

Mukul: Okay so you have raised both types of capital.

Mr. Dabas: Yeah both types.

We did equity when the business risk was very high.

Now risk has lowered. Now we know that we earn, we're doing good work and technology is simple,

And the customer's product is working fine and they're paying

So now we're doing it with debt.

Cause there are different risks for debt. Debt is debt.

An investor is your partner but this is debt.

But there are different use cases for both. I think Abhishek can tell us in more detail.

But yeah, after the family and friends round of start,

you can call it Angel investor round cause some of the people there did not know us.

And even now we're trying to grow our business like that and also earning profits.

Mukul: And after that, you raised debt financing on one level.

Mr. Dabas: Yeah, at one level we supported it by debt.

Mukul: Ok.

That's right. So, Mr. Kakkar, you touched upon series A, B, C, D.

What are these series? ABCD of what?

Tell me that.

Mr. Kakkar: SO typically, series A is when your institutional

investor, venture capital fund in a growth stage company.

The growth stage is basically when you understand the

product-market fit, you understand how to have positive unit economics.

Then venture capital round is raised and we call it Series A

Each round is done on different valuations of the company.

different ticket size that how much money you're raising

And depending on that, different investors have a different focus.

Some investors focus on series A and B and after that

some investors take a big risk and invest much more capital

but as the rounds progress, the company progresses also.

Your track to profitability also comes into view.

You would like to expand in the market, and

investors effectively like to bet on the top player on the play.

Mukul: okay. So whoever is in the number one position, they invest in it.

Mr. Kakkar: So for that, the focus is how do we capture more market.

So depending on that, growth capital increases also.

Private equity is one way when you reach near series E, F, G.

So private equity funds, cluster of mezzanine funds,

which do equity and debt.

Mukul: Is there any difference between venture capital and private equity?

Like this type of company will get venture capital fund?

and this type of company will get private equity?

Growth related? Profit related?

Mr. Kakkar: Off late, it's getting a bit blurred.

Private equity is trying to get into early stage,

growth capital investments as well.

Mukul: And maybe venture capitals are also investing in profitable businesses.

Mr. Kakkar: Venture capital is to be invested in profitable business already,

but they also have to grow. They have to grow faster.

Mukul: They are giving growth capital also. Mr. Kakkar: Yes.

Mukul: Okay so the line is getting blurred.

Before we used to stagewise count venture capital and private equity,

that first venture capital, then private equity.

Now maybe that line is not that clear.

Mr. Kakkar: Everybody wants to get a larger piece of the cake,

and as early as possible,

to get as maximum multiples out of it.

Because we all look for you know 10x exit, that we get 10x on each exit.

So friends I'd like to break the video here.

Discussion with Abhishek Kakkar and Abhishek Dabas was getting a bit longer.

All points are important so I don't want to edit anything in it.

So I want you to watch all the points if you have a start-up,

or you are an investor.

So how is start-up funding done?

Make sure to watch both videos completely.

In fact, we shot this video in 91 springboard headquarter, Goa.

So there are lots of good points in the discussion.

In this video, we saw stages of start-up funding.

In the upcoming video, we'll see what are the exit options for investors?

How do they earn their returns after investing in a start-up?

What do investors look for in a start-up before investing?

We'll enlighten the role of media in funding as well.

How much time does funding take?

And should you really raise funding or focus on profitability?

We'll discuss all this in the upcoming video, so do watch it.

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we'll meet in the next part of the start-up funding series.

Till then keep learning, keep earning, and as always be happy.