The Art of Fundraising

Dr. Muhammad Usman

Sr. Assistant Professor
Bahria Business School
2022 Investment Overview
The Importance of Getting Financing or Funding

• The Nature of the Funding and Financing Process

• Few people deal with the process of raising investment capital until
they need to raise capital for their own firm.
• As a result, many entrepreneurs go about the task of raising capital haphazardly
because they lack experience in this area.
• Why Most New Ventures Need Funding
• There are three reasons most new ventures need to raise money during
their early life.
• The three reasons are shown on the following slide.
Why Most New Ventures Need Financing or
Funding
Sources of fund raising

• Personal Funds
• Debt Financing
• Crowdfunding
• Angel investors
• Venture capital
• Other avenues
Sources of Personal Financing

• Personal Funds
• The vast majority of founders contribute personal funds, along with
sweat equity, to their ventures.
• Sweat equity represents the value of the time and effort that a founder puts into a
new venture.

• Friends and Family

• Friends and family are the second source of funds for many new
ventures.
Sources of Personal Financing

• Bootstrapping
• Another source of seed money for a new venture is referred to as
bootstrapping.

• Bootstrapping is finding ways to avoid the need for external financing

or funding through creativity, ingenuity, cost-cutting, or any means
necessary.

• Many entrepreneurs bootstrap out of necessity.

Examples of Bootstrapping Methods

Buying used instead of Leasing equipment

new equipment. instead of buying.

Minimizing personal
expenses.
Obtaining payments in
Avoiding unnecessary
advance from
Expenses.
customers.
Sharing office space or
employees with other
Businesses.
Buying items cheaply but
sensibly via options Hiring interns.
such as eBay/olx.
Sources of fund raising- Crowdfunding

• You build a project; this involves creating

a video and a description, designing rewards
for participants, and providing updates
as your project progresses.
Indiegogo and Kickstarter
are two main platforms of crowdfunding
Sources of fund raising- Crowdfunding

• Rather than raising funds by selling an equity share, you take preorders
with rewards or “kickers” to encourage people to pay for something
that doesn’t exist.
• Kickers are discounts, mementos, gifts, or clever ideas such as the right
to name a character in a book
• People fund your project, which enables you to use other people’ s
money to complete it.
• Crowdfunding is most applicable for consumer deals such as devices,
accessories, games, crafts, and fashion, as well as artsy projects such
as films, videos, and charitable work. Less applicable to biotech and
software enterprises.
Sources of fund raising- Crowdfunding

• Crowdfunding is effective for funding to the tune of $50,000–

$250,000, an amount that is often too little for a venture capital
firm to invest.

• The process is not as onerous as raising venture capital—which is

often a full-time job for six months.

• There isn’t equity dilution of the company . People are pre-buying

or contributing—they are not investing and receiving an equity
stake.
Preparing to Raise Debt or Equity Financing
Preparing to Raise Debt or Equity Financing

Two Most Common Alternatives

Equity Funding Debt Financing

Means exchanging Is getting a loan.

partial ownership in a
firm, usually in the
form of stock, for
funding.
Sources of Equity Funding

Venture Capital Business Angels

Initial Public
Offerings
Sources of fund raising- Angel investors

Angel investors, are individuals who invest their personal

capital directly in start-ups.

• Venture capitalists want to make money and perhaps pay

back society , angels want to pay back society and perhaps
make money

• Angels see two ways to pay back society: helping younger

people get a start, and helping a meaningful product get to
market.
Sources of fund raising- Angel investors

• DON’T UNDERESTIMATE THEM: Angels may care less about

financial returns than professional investors. Approach them
with the same level of professionalism that you would a top-
tier venture capitalist.
• ENABLE THEM TO LIVE VICARIOUSLY: A side benefit that many
angels seek is a chance to relive their youth or an
entrepreneurial past. Even though they can’t or don’t want to
start another entity, they can enjoy watching you do it.
• SIGN UP PEOPLE THEY KNOW OR HAVE HEARD OF: Angel
investing is often about socializing as much as profiting. Thus,
if you can attract one member of the club, you can usually get
more to follow. The most powerful proxy for quality for angel
investors is that another angel they’ve heard of has invested.
Sources of fund raising- Venture capital

• Venture capital financings are not easy to obtain. Venture capitalists typically want to
invest in startups that are pursuing big opportunities with high growth potential, and that
have already shown some traction

• For example, they have a working product prototype, early customer adoption, etc.

• A startup must have a good “elevator pitch” and a strong investor pitch deck to attract
the interest of a VC.

• The foundation of a great meeting with potential investors is the research that you do
beforehand by getting answers to the following questions: What are the three most
important things you would like to learn about our organization? What attracted you to
our idea and convinced you to give us an opportunity to meet? Any special issues,
questions, or land mines I should be prepared for in the meeting?
Venture Capital (Cont.)

• Venture capital firms fund very few entrepreneurial firms in

comparison to business angels.

• Many entrepreneurs get discouraged when they are repeatedly rejected for
venture capital funding, even though they may have an excellent business plan.

• Venture capitalists are looking for the “home run” and so reject the majority of
the proposals they consider.

• Still, for the firms that qualify, venture capital is a viable alternative for equity
funding.
Venture Capital (cont.)

• An important part of obtaining venture-capital funding is going

through the due diligence process:

• Venture capitalists invest money in start-ups in “stages,” meaning that

not all the money that is invested is disbursed at the same time.

• Some venture capitalists also specialize in certain “stages” of funding.

Three forms of Funding - Matrix
Other Sources of Debt Financing

• Friends and Family

• Credit Cards
• Should be used sparingly.

• Organizations that Lend Money to Specific Groups

• Governmental programs for young startups such as, Kamyab Jawan Program
• Social Enterprizes
Top Deals of 2021
Angel Participation
Common Network Clusters
The Art of Pitching
“Mend your speech a little, lest it may mar
your fortunes” William Shakespeare, King Lear

Forget “I think, therefore I am.” For entrepreneurs, the

operative phrase is “I pitch, therefore I am.”

Pitching isn’t only for raising money—it’s for reaching

agreement, and agreement can yield many good outcomes
including sales, partnerships, and new hires.
Preparing An Elevator Speech
1 of 2

• An elevator speech is a brief, carefully constructed statement that outlines

the merits of a business opportunity.

• There are many occasions when a carefully constructed elevator speech

might come in handy.

• Most elevator speeches are 45 seconds to 2 minutes long.

Preparing an Elevator Speech
2 of 2

Step 1 Describe the opportunity or problem 20 seconds

that needs to be solved.
Describe how your product meets the 20 seconds
Step 2
opportunity or solves the problem.

Step 3 Describe your qualifications. 10 seconds

Step 4 Describe your market. 10 seconds

Total 60 seconds
Observe the 10/20/30 Rule (Detailed
Pitch)

• The 10/20/30 Rule of Presentations is that you should use

ten slides in twenty minutes with a minimum of thirty-point
text.
• Ten Slides
• The purpose of a pitch is to stimulate interest, not to cover every
aspect of your startup. Your objective is to generate enough interest
to get a next meeting.
• TITLE: Organization name; your name and title; address, e-mail, and
cell phone number . When this slide is showing, you ask the three
questions that set the stage and then explain what your startup
does
Observe the 10/20/30 Rule- continue

• Ten Slides
• PROBLEM AND OPPORTUNITY: Describe the pain that you’re alleviating. If you’re not alleviating
pain but enabling people to do things that they could never do before, this is the time to paint a
picture of the brave new world that you’re offering. E.g., space tourism.
• VALUE PROPOSITION: Explain how you alleviate pain and the meaning that you make. This is not
the place for an in-depth technical explanation.
E.g. “We are a discount travel website. We have written software that searches all other travel sites
and collates their price quotes into one report.”

• UNDERLYING MAGIC: Describe the technology , secret sauce, or magic behind your product. The
less text and the more diagrams, schematics, and flowcharts the better.
• BUSINESS MODEL: Explain how you make money: who pays you, your channels of distribution, and
your gross margins. If you have a revolutionary business model, explain it in terms of familiar ones.
This is your opportunity to drop the names of the organizations that are already using your product.
Observe the 10/20/30 Rule- continue

• Ten Slides
• GO-TO-MARKET PLAN: Explain how you are going to reach your customer
and summarize your marketing leverage points.
• COMPETITIVE ANALYSIS: Provide a complete view of the competitive
landscape.
• MANAGEMENT TEAM: Describe the key players of your management team,
board of directors, and board of advisers, as well as your major investors.
• FINANCIAL PROJECTIONS AND KEY METRICS: Provide a three-to-five-year
forecast containing not only dollars but also key metrics, such as number
of customers and conversion rate
• CURRENT STATUS, ACCOMPLISHMENTS TO DATE, TIMELINE,
• AND USE OF FUNDS: Explain the current status of your product, what the
near future looks like, and how you’ll use the money you’re trying to raise.
Observe the 10/20/30 Rule- continue

• Twenty Minutes
• Most appointments are made for an hour; however, you should be
able to give your pitch in twenty minutes
• Thirty-Point Font
• The large size of the font and the paucity of text is because slides
are to lead, not read.
Master the Fine Points

• Master the Fine Points

• NEVER. READ. YOUR. SLIDES: The text on slides is your anchor
point. The words you speak are explanatory.
• USE A DARK BACKGROUND: A dark background communicates
seriousness and substance.
• ADD YOUR LOGO TO THE MASTER PAGE/SLIDE: Every presentation
is a chance to build brand awareness for your startup, so put your
logo on the master slide page
• ANIMATE YOUR BODY, NOT YOUR SLIDES: Use your body , not
PowerPoint effects and animations, to communicate
expressiveness, emotion, and enthusiasm.
Master the Fine Points

• Master the Fine Points

• BUILD BULLETS: Use snippets of text that capture the main point.
• USE ONL Y ONE LEVEL OF BULLETS: The use of bullets with bullets means
that you’re trying to communicate too much information on a slide. Each
slide should communicate one point, with bullets to support that point.

• USE DIAGRAMS AND GRAPHS: Better a bullet than a block of text, but
better a diagram or graph than a bullet. It works ten times better than
bullets

• MAKE PRINTABLE SLIDES: Sometimes these graphic objects build upon

each other, and in the process, cover previous ones. This is okay during a
presentation but not when the file is printed, so ensure that your slides
work when printed too
Reasoning to claims

• Every time you make a statement, imagine the devil’s advocate asks a
question, “so what”
• After you answer, follow with the two most powerful words in a pitch: “For
Instance…”
• Then discuss a real-world use or scenario of a feature of your product
 Cont.

You said Devil’s advocate You replied You elaborated

asked

“We use digital “So what?” “Our product “For instance, if

signal processing in increases the clarity you’re at an event
our hearing aids.” of sounds.” with many
conversations going
on around you,
you’ll be able to
hear what people
are saying to you.”
“Mr. (big name “So what?” “What we’re doing “For instance, he
celebrity) is on our is interesting has already opened
advisory board.” enough to attract doors for us in his
top talent.” industry.”
Pitch Constantly and Provide the Right
Numbers

• Videotape yourself giving your pitch. If you can watch it

without being embarrassed, you’re ready to go.
• Generally, venture capitalists want three to five years of
projections to help them do three things
• first, understand the scale of your business
• second, examine the assumptions of your business model
• third, determine how much capital you’ll require.
Wrong way….

• Provide the Right Numbers

• One way to improve your forecasts is to build them from
the bottom up instead of from the top down.
• First, let’s review the wrong way: taking a huge number at
the top and multiplying it by an easy-to-achieve market
share. Let’s apply this method to selling dog food:
Wrong way…

• According to the Humane Society there are 85 million owned

dogs in America.
• Each dog eats two cans of dog food per day.
• The total market, therefore, is 170 million cans per day.
• Let’s assume, conservatively, that you can achieve 1 percent
market share or 1.7 million cans per day.
• Let’s also assume that each can costs one dollar.
• This means your company will have $1.7 million in revenue per
day—again being conservative. This is a mere $620 million in
annual revenue.
Right way…

• Start from the bottom at zero dollars and estimate how many customers you can reach and
close

• Using every SEO trick, partnership, and social media technique, you can get 50,000 visitors to your site
per month.
• One percent or 500 will buy all sixty cans needed for the month, so monthly revenue is 500 people x
60 cans x $1/can = $30,000.
• You may get more visitors and improve your percentage of closed sales, but this is a realistic baseline:
$30,000 per month or $360,000 per year.

Three hundred and sixty thousand dollars is a long way from $620 million. Maybe $360,000 is too
pessimistic, but your actual results will be a lot closer to $360,000 than $620 million.
Disclose Everything

• If there’ s crud in your company that you haven’t or can’t

clean up immediately, disclose it to investors early in the
fundraising process
• My recommendation is that you do a mea culpa. That is,
you accept as much blame for the failure as is justified and
confess your sins
• https://www.youtube.com/watch?v=i6O98o2FRHw

• https://www.youtube.com/watch?v=8usz6i07qYs

• https://www.youtube.com/watch?v=0ugg6KoeF6E
Acknowledge, or Create, an Enemy

• Many entrepreneurs believe that investors want to hear that your startup
has no competition. Unfortunately , sophisticated investors reach one of
two conclusions if they hear such claims:
• There’ s no competition because there’ s no market. If there were a market,
there would be others trying to win it.
• The founders are so clueless that they can’t even use Google to figure out
that other startups are doing the same thing.
• A moderate level of competition is a good thing because it validates the
possibility of a genuine market and shows that you’ve done your
homework.
• It’ s your job to show how you are superior to the competition, not that it
doesn’t exist.
Acknowledge, or Create, an Enemy

• Use a chart like the one below to explain what you and your competition
can and cannot do:
• Making a Competitive Analysis Grid
Acknowledge, or Create, an Enemy

• The reason is to increase your credibility by showing that

you’re capable of four desirable skills:

• Telling the truth.

• Assessing the competition.
• Comprehending your company’s weaknesses.
• Communicating knowledge clearly and succinctly.
Show Traction

• “Many entrepreneurs believe that saying ‘I really believe in my idea’ is

a form of traction. They are deluded if they think this is true.”

• Investors are looking for a proven team, proven technology, and

proven market. However, one factor cuts through all the hyperbole:
actual sales (traction).

• Traction counts the most because it demonstrates that people are

willing to open their wallets, take out money, and put it in your pocket.
• If you’ve been able to accomplish this, your team, technology, and market are
less important.
Cont.

• This is also why a successful crowdfunding project is powerful.

• It may not only eliminate or delay the necessity of fund-raising; it can provide proof
of the viability of your product and help attract investors.

• What is a traction: Number of registrations, Number of downloads,

Number of paying customers, Revenues, Website traffic

• Not-for-profits have different parameters:

• Schools: enrolment and student test scores
• Mosques: attendance at prayers
• Museums: numbers of visitors
• Volunteer organizations: contributions and number of volunteer hours
“How can I show traction if I don’t have
enough money to finish my product?”

• Hierarchy of traction
1. Actual sales (or the parameters discussed above for nonproduct
companies)
2. Field testing and pilot sites
3. Agreement to field test, pilot, or use before shipment
4. Establishing a contact to pursue a field test