Financing your start-up in Singapore. The basics of start-up financing. How much money do you need to raise? How much can you raise? What kind kind of investors should you target? How to accelerate the process?

1. THE FUNDAMENTALS OF
START-UP FINANCING
How the Hell can you raise
money in Singapore?
Tanguy Lesselin

2. Agenda
• Introduction
• How much do you need
• Types of investors
• Investment criteria
• Investor pitching
• Investor hook tactics
• Valuation and terms

3. INTRODUCTION

4. Money is hard to find
when you need it,
easy to find when
you don’t

7. Raising money is not an
achievement…
it is a beginning

8. Funding = tons of dilemma questions
• How much do you really need?
• What % are you willing to sell?
• Raise less in order to minimize dilution?
• What duration do you need to cover?
• Bootstrap or raise funds now?
• Will I still feel “at home” in “my” company?

9. At what stage are you?
# companies
• Idea
• Initial team Valuation
• Prototype
• Product-market fit
• Traction
• Proven business model (*)
• Revenue scale ($1m, $5m, $20m)
* growing paying customer base with positive lifetime value
contribution

10. Think of financing as several steps
01.2013 06.2014 01.2016
Seed Series A Series B Etc.
Pre money valuation 1.5m 5.0m 15.0m
Investment 0.5m 2.5m 5.0m
Post money 2.0m 7.5m 20.0m
New investor % 25% 25% 25%
Remaining for founders 75% 56% 42%
Prototype Product-market fit Scale up
Founding team Early customers 2m revenue
1000 customers

11. HOW MUCH MONEY
DO YOU NEED?

12. Pre revenue phase
How much you burn
How long you burn it
Number of iterations
to reach product-market fit
EFFICIENCY, SPEED, DECISION-MAKING

13. You should hate multiplications
$10k $20k $50k $100k
6 months $60k $120k $300k $600k
12 months $120k $240k $600k $1200k
18 months $180k $360k $900k $1800k
24 months $240k $480k $1200k $2400k
• Salaries are almost all of it
• Making the right decisions has higher value
than dumb money
• No fat, decide well, play fast game

14. Your funding need
• Do your cash-driven business plan, take lowest cash point
and add 30 to 50%
• Do not account for revenues yet if plan to launch more
than 3-6 months from now
• Make sure you get enough money to reach several major
milestones and still have time to raise a new round
• Don’t be forced to raise at the wrong time
• Enough to cover 18-24 months of burn + investments
• If it is too much then iterate, because you may be able do
more with less (rethink you MVP?)

15. Why you will always get it wrong
• Underestimate costs and overestimate revenues
• You only know the revenue sauce when you
already make revenues
Build milestones based business plans
with clear go/no go decision points

16. INVESTOR
CATEGORIES

17. Innovation financing (Singapore)
IPO Investment Valuation
Private 15.0m+ 50m+
Equity
Venture Capital 2.0m – 15.0m 4.0 – 50m
(Series A,B,C)
Business Angels /
100k – 1.0m 500k – 4.0m
Seed (Series AA)
3F 30k – 0.5m 200k – 2m
Incubators 10-30k 100 - 300k
Grants 50 - 500 N/A
You / Bootstrapping

18. You and your team (bootstrapping)
Monthly salary Over 12 months
Founder 1 10 000 120 000
Founder 2 5 000 60 000
Founder 3 5 000 60 000
Founder 4 5 000 60 000
TOTAL 25 000 300 000
• “No salary” is the first source of financing
• Salaries make 80%+ of costs in the beginning
• Seek free / super low cost solutions
• Get a prototype to show potential clients

19. Bootstrapping: how long?
• As long as needed to attract investors
• Pros: efficient cash management, no early
dilution, customer exposure from beginning
• Cons: slower (time and money constraints), may
miss the big opportunity
• You can get help bootstrapping (Founder
Institute)
Best companies get funded to take the
biggest chunk of the market

20. Grants
• 25k – 500k
• Take them if easy to take
• Make sure you don’t add constraints to your
plan: IP vs speed to market
• US VCs don’t value IP before the company has
reached a stage where it good to be able to
defend

21. Incubators
• 10k – 50k for 10-20% of equity (indicative)
• Mentorship / networking / accelerator over short
or “long” time frame
• Works for idea / prototyping / Product-Market fit
• Booster for investor pitching
• Great for first time entrepreneurs

22. 3Fs: Friends, Family and Fools
• 30k – 500k
• They trust you and want to help you
• Make sure you are serious about the project
• Be very transparent on risks
• Don’t be greedy on valuation
• Think of protecting them in future rounds

23. Business Angels
• 100k – 1.0m
• Seek industry experts and smart money with
investor connections for future rounds
• Seek deep pocketed so you don’t need too
many of them and they can bridge if needed
• May pitch BA associations (?)

24. Series AA
• Typically 500k
• A few funds in Singapore
• Convertible debt or priced

25. Venture Capital
• 2.0 – 15m
• Series A still limited in Singapore
• Look also outside of Singapore

26. Some important trends
• Government funding
• Crowd funding: Kickstarter (US)
• Start-up competitions, demos, prizes
• Incubators: JFDI, …
• Online networks: AngelList
• Multi-stage funds / investors

27. VC INVESTMENT
CRITERIA

28. Main criteria
Idea Team Product Traction

29. Idea and Market
Big and Bold
• 2 main investor mindsets
– Disrupting an existing market
– Creating a new market
• Playing Big is as easy as playing Small
• VCs seek the $100m revenue opportunities

30. Misconceptions on market size
• Online travel agency is not USD XXX billion, it
is only the size of commissions and fees
(addressable market)
• Also do a bottom-up analysis to triangulate

31. A winning team
• A+ people
• Complementary skills
• Proven working
relationship
• Ability to recruit other
top people
• Ability to reach product-market fit fast
• Fact-based, ego put aside decision-making

32. Traction and metrics
Dependent on
development stage
• Activation & Retention
• Acquisition & K factor
• Revenue & Profits

33. Your unfair competitive advantage
• Big market lead
• Big technology
advantage
• Exclusive
marketing
partnership with
industry leader

34. Criteria ranking?
Traction > Team > Product > Idea Market

35. Don’t rate average
in all criteria, be
exceptional in one
(except if it is the idea alone)

36. INVESTOR PITCHING

37. Process and documents
• First contact via introduction
– Executive summary (1-2 pages)
• First meeting
– Pitching presentation (10 slides)
– Product demo
• Before Term Sheet
– Simple XLS business plan
– Team CV book
– Cap table
– Others as required

38. Pitching presentation
1. Elevator pitch
2. Problem 10 slides
3. Solution (demo)
4. Market size 20 minutes
5. Business Model
6. Unfair advantage 30 point font
7. Competition
8. Marketing & Sales
9. Team
10.Finance and milestones

39. INVESTOR HOOK
TACTICS

40. DREAM

41. Business Angels
• Fund when you can make them dream
– before product development,
– before launch,
– before pivot implementation
• Worst case: you have a product that does not
(yet?) solve customers’ problem (trapped in
the middle)

42. Business Angels
• Predefine everything
– Valuation
– Shareholder Agreement
– Process and Timing
• Secure the first 30% quickly, adjust terms with
the “first” investor
• Create a list of targets
• Get introductions and go fast

43. Seed / VC stages
• Get PR before starting funding
• Sexy and committed Advisory Board
• Key people pool (20% pre money for instance)
• Future team hires
• Some key milestones fully achieved
• No mess to clean up (leaving co-founder, …)

44. Approaching VCs is a lot of work
• Better if they approach you (PR, competition)
• Investor Relationship Management
– Meet informally so you can call back later
– Build a target list
– Filter (investment size, geography, portfolio, fund
maturity date, …)
– Call portfolio companies
– Test with one or two low priority and refine pitch
– Introduction contact (Partner level)
– Meeting 1
– Follow-on

45. Create a competition
• You want investors to feel the pressure
• Competition enables better valuation, easier
terms, and faster closing

46. Fundraiser or not?
• No for Angel / Seed stage
• Potentially yes for Series A
• Probably yes for later rounds (Technology
oriented investment banks)
Why?
- The good ones know more investors and know them well
- Help you package your start-up and pitching
- Help negotiate and close
Cost of fund raiser
- Retainer (from 0 to 10k per month or lump sum)
- Success fee (5-6%)

47. VALUATION AND
TERMS

48. Valuation?
• There is no good model (DCF, P/E, P/S…)
• Comparable (check thefunded.com and other
fund raising from comparable start-ups)
• You have to be a compelling investment
opportunity

49. Try to work backwards
VCs want to make 10 X if successful
BAs want to make 20 X if successful
Pre-money valuation
120 100
100
80
60
40
20 5 10
0
Business Angel / Series A VC (In 18 Potential value at
Seed (Today) months) exit (say in 7 years)
Comparable:
IPO, trade sales…

50. Terms?

52. You VC

53. You VC

54. You VC

55. What is “fair” (personal feeling)
• Information rights: open books
• Liquidation preference: 1X
• Pro rata right of first refusal
• Dragalong, tagalong
• Board: try to keep control

56. Some of the ones you want to avoid
• Some veto rights (new financing)
• Forced sale in 3 to 4 years
– Too short to force liquidity
• Preferred dividends
– Take equity-like risks if you want to own equity-like
benefits
• Ratchet
– do not come back on agreed upon valuation
• Progressive cash inflows based on milestones
– Milestones are irrelevant (like budgets) in a fast
moving environment

57. You need to do your homework

58. References
• Financing Map Singapore: http://sgentrepreneurs.com/wp-
content/uploads/2009/03/megs-20090219.png
• Milestones based business plan (example): http://db.tt/fi4le3Rc
• Capitalization Table (to simulate fund raising): http://db.tt/fi4le3Rc
• Mint investor presentation:
http://www.slideshare.net/hnshah/mintcom-prelaunch-pitch-deck
• How to pitch a VC:http://www.slideshare.net/dmc500hats/how-to-
pitch-a-vc-aka-startup-viagra-how-to-give-a-vc-a-hardon
• Guy Kawasaki:http://www.slideshare.net/huer1278ft/the-art-of-
the-start-37633
• The VC perspective:http://www.slideshare.net/benholmes/venture-
capital-an-entrepreneurs-manual

60. Tanguy Lesselin
t.lesselin@cartouche.sg
+65 91 000 667