EQUITY FUNDING

Over the years, FSI has developed relationships with private equity and venture capital firms and HNIs. We understand their investment criteria, focus, preferences, philosophy, and thesis. This enables us to facilitate the most appropriate investor-business fit for delivering maximum value to all parties. Some of the equity investors, we work with include:

ü  Angel investors

ü  Family offices

ü  HNIs

ü  Private equity firms

ü  Venture capital funds

ü  Strategic investors and corporate ventures

DEBT FUNDING

On the debt side, we assist our clients in raising funds from banks, non-banking finance companies, multilateral, and credit funds. Our advisory includes fund raising for acquisition funding, asset-based lending, equipment finance, project finance, re-capitalizations, senior debt, and working capital. Our expertise lies with our long-term relationships with and understanding of:

1.  Banks

2.  NBFCs

3.  Government schemes like Mudra, CGTSME, and Startup India


OUR PROCESS

           

1. Assessing your funding requirements – Our experts discuss the future roadmap to assess your exact needs in terms of the amount required and its end use. We develop mutually agreed upon milestones to prepare the financial forecast to determine the exact fund requirements.

2. Determining your investment readiness – Before investing, the investors must ensure the business is ready to raise funds and deploy these for maximum benefits. They need to see the revenue projections, break even, and return on their investments before making their decision.

3. Preparing the deck –FSI experts work with the clients to prepare the investment deck, which outlines an in-depth analysis of the company. It includes company and industry overview, business plan and financial projections, and the investment offer, which is presented to the potential investors.

4. Identifying potential investors – Based on our assessment of your funding requirements and nature of the business, we will identify potential investors that may be the most appropriate fit. This is an important step as a misfit may give rise to potential conflicts in the future, which can impact your business.

5. Due diligence – The investors will conduct a due diligence before making their investment decision. FSI assists clients in being ready for the due diligence, which is crucial to develop investor confidence in the financial projections and future potential of your business.

6. Deal negotiation and structuring – We negotiate the most advantageous terms and conditions that bring the best value to both; our clients and the investors. FSI experts also assist in deal structuring to maximize efficiency while ensuring regulatory compliance.

START-UP VALUATION

It is well-known that the more you understand about your business, the lesser the uncertainty while making crucial decisions. Undertaking a valuation exercise shows you how you can increase profitability and decrease the expenses. This in turn improves cash flows and generates higher income. Additionally, it helps in minimizing the potential risks. Here are some commonly used methods to value start-ups:

Venture capital method – It shows the pre-money valuation for start-ups that are still not generating revenues. The ROI is calculated by dividing the terminal value with the post-money valuation, which is determined by dividing the terminal value with the expected ROI.

Scorecard valuation method – This method uses the pre-money valuation of similar start-ups or seed rounds. It is used to as a scorecard to value your start-up.

Risk factor summation method – It compares 12 factors of the start-up being valued to determine what can be expected in a funded and profitable business. This method also uses the pre-money valuation as used by the scorecard valuation method.

Cost to duplicate method – This method values the hard assets of a business to determine the amount that would be needed to start a similar business in another location. The primary reasoning is that an investor would not be willing to invest more than what it requires to start a similar business elsewhere.

Discounted cash flow method – It calculates the expected future cash flows and then values these against an expected ROI. Generally, a higher discount rate is applied while valuing a start-up as the risks are greater when compared to an established company. This method requires strong capabilities of a market analyst to derive accurate assumptions about the long-term prospects of the industry and the venture.

Comparable method – This method considers the valuation of similar businesses that may have raised funds in the recent past. Since the two businesses are not exactly the same, other ratios and multipliers are also taken into consideration to arrive at the appropriate valuation.

Book value method – It considers the book value of the company’s tangible assets. This method does not take into account any growth or revenue and if often used if the start-up is going out of business.

Most often, valuation becomes important while entrepreneurs are looking to divest their stake to raise funds. However, unlike matured businesses, start-ups go through multiple funding rounds and their valuation at each stage may vary as the venture continues growing.

SEED FUNDING

This is the initial investment round and the money is often raised from friends and family. Seed funds may also be raised from angel investors in exchange for a certain percentage of the equity (generally less than 20%).

Series A – Venture capital funds are involved at this stage when the entrepreneur has a grasp on the business and may have commercially launched the product/service. Series A funds are used for establishing the product/service in the market and take the venture to its next level or to sustain the business while it is still not generating profits.

Series B – At this stage, the business has achieved stability and additional funds are required to boost further growth. The money raised in this round is generally used to expand operations, capture new market segments, increase manpower, or to fund strategic acquisitions.

Debt funding – Once the start-up has grown to a certain level and is generating positive cash flows, the business can avail of debt funds. These can be raised from a financial institution in the form of a line of credit, working capital loan, term loan, or other suitable structures.

Mezzanine debt/Bridge loans – These are short-term loans to cover any funding requirements before the last round of fundraising. The final funding round is availed to run up to an acquisition, IPO, leveraged buyout, or management buyout.

LBO – An LBO is where the company is brought out using huge amounts of borrowed funds. The borrowings can be in the form of loans or bonds with minimal cash infusion. The assets of the acquired company are used as collateral for raising the debt required to complete the buyout.

IPO – The Company’s shares are listed on a public stock exchange during an IPO and any investor can subscribe to these shares. The IPO price is often determined by merchant bankers and investment bankers that also assist in selling the shares.

FSI has a strong network of lenders, venture capital funds, and private equity firms to meet various funding requirements of our clients. Our experts use a practical approach to build a model based on consumer behaviour and other factors while tapping into the inorganic opportunities to boost business growth that enable entrepreneurs to become market leaders. FSI has a vast experience and expertise in raising funds for start-ups as well as mature businesses via its wide network of hundreds of angel investors, private equity firms, venture capital funds, banks, and NBFCs.