Fund-raising
Priyanshu

Key Questions on fund-raising
2
• When to hit the market (and raise money)?
• How much to raise?
• What type of investor?
• Negotiating the offer
• When things go wrong?

When to hit the market (and raise money)?
3
• Is there a good time?
a. As soon as I can
b. Whenever my business needs cash
c. I would avoid till it is absolutely essential
d. I will wait till my business model gets proven
e. Others
• Stages of Business evolution / Proof of concept
– Ideation
– Team-in-place
– Customer adoption
– Revenue generation
– Unit economics
– Scale
 Investors may tend to assess (and potentially value)
your business in terms of these risks of business
evolution
 These stages can even overlap with differentrounds
of funding,although multiple stages can be combined
 Most investors have a unique‘apetite’for taking these
risks,even if they usually bet across these stages

How much to raise?
• What is the optimal amount?
a. As much as I can get from this
funder(s)
b. Depends on how much my
competitor has just raised!
c. I have a target dilution in mind
d. Whatever my business needs ?
e. Others
• Some key considerations
– Early rounds are usually at lower
valuations
– Fund-raising is costly (management
bandwidth,uncertainty
,etc)
– Aggressive business plans can lead to
impatient investor(s)
 Raise enough to take you tonext
stage ofbusiness evolution plus
some buffer
 Useful tohave an honest alignment
with investors on core business
assumptions /key risks
 Having an investor keen to support
across subsequentrounds is helpful
4

What type of investor?
y?
• How to identify the ‘right’ investor?
a. Does it matter… Whoever gives me my mone
b. Not my competitor’
s investor please..
c. The best‘brand’
d. Who asks me the least questions…
e. The one who‘understands’ me
f. Others?
• Some key considerations
– Alignment on key expectations
(risk/return/impact) -‘Buying’ into the story
– Sectoral expertise & networks that can be
leveraged – potential customers, key hires,
repository of domain expertise
– How long are they willing to stay invested?
– Investment size & Support across multiple rounds
– a crowded board pulling in multiple directions is
a nightmare
– Active vs.a passive investor 8
 V
enture investment is like a
marriage – itcan be a
supportive partnership to help
you through ups & downs,but
is pretty difficult to divorce if
things don’t work out
 There may be a temptation to
go along with the investor
philosophy i.e.follow the
funding;but relying on investor
instead of own beliefs &
competence is too big a risk

Negotiating the offer
• What to look for in an offer?
– Valuation
– Shareholdings
– Nothing else matters?
• Read your ‘termsheet’ carefully
• Valuation is only half the story
– Exit timelines and options
– Right of first refusal &Anti-dilution
clauses
– Board seat & step-in clauses
– T
reatment of ESOP plans
– Liquidation preferences
– T
erms that are binding even if the deal
falls apart
– Deal expenses
– Exclusivity /no shopping
9

When things go wrong?
• Like every marriage,conflict is inevitable;
multiple reasons a relationship gets sour
– Frustration with business performance
– Unexpected market situation(s)
– Differences in strategic matters – mergers,
new product lines,key hires,etc.
– Inability to raise subsequent rounds
– Delays in exit
– And a whole lot of other issues
• Requires careful‘empathetic’ handling
– Respect each other
– Know your ‘non-negotiables’ but try to be
flexible otherwise
– Search proactively for solutions;including
radical ones
– Remember
,reputations last!
10

13
Centrally SponsoredW elfare Schemes
(Budget FY23)1 – ~Rs 4.43 lakh cr ($58
bn)
NREGA(Budget FY23)1 – Rs 73k cr ($9.6 bn)
CSR Spends (FY21)2 –
~Rs 24k cr ($3.16 bn)
Philanthropy / Giving
(FY21)2 – ~Rs 79k cr
($10.4 bn)
FDI inflows (FY21)3 –
~Rs 4.42 lakh cr
($58 bn)
(1)Union Budget-2022-23;(2) Bain India Philanthropyreport 2022;(3)DPIIT
,GOI 2021;(4) IIC 2021
PE/VC Fund Flows
(FY21)3 – ~Rs 5.85 lakh
cr ($77.1 bn)
Social sector funding is significant
compared to both public sector as well
as the mainstream financial sector;both
for-profit & non-profit are critical
Impact Investment flows (FY21)4 –
~Rs 51k cr ($6.8 bn)
Social Sector Funding in Perspective

Social Sector Funding – Non-Profit space
Source:India Philanthropy Report 2022 – Bain & Dasra (2022) 9

UHNI Funding – sectoral allocations
Source:India Philanthropy Report 2022 – Bain & Dasra (2022) 10

CSR Funding – sectoral allocations
Source:India Philanthropy Report 2022 – Bain & Dasra (2022) 11

Individual Giving
• Relies mostly on in-person
outreach
• Religious beliefs most
important driver for giving;
desire to help those in need
came a distant second
• 56% donations in cash,7% in
kind
17
Source:CSIP
,“How India Gives 2020-21”

Demand-Supply gap in Social Sector Funding
Source:India Philanthropy Report 2022 – Bain & Dasra (2022) 18

Social Sector Funding – For-Profit space
0.3 0.5 0.7
1.1
2.3
3.5
2.6
6.8
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2010 2012 2014 2016 2018 2019 2020 2021
Investment
Amount
(USD
Bn)
Annual investments in social enterprises
19
Source: IIC Reports, Asha Impact
# Deals 62 73 120 166 177 284 243 345
Avg.Ticket Size
(USD Mn)
5 7 6 7 13 12.3 10.7 19.7

Everyday life in a funder-fundee relationship
Source:IDR; https://
idronline.org/nonprofit-venn-diagrams-every-meeting-youve-ever-attended/ 20

A Good Funder?
Understands and
supports the
‘need’
• Required project
/activity
• Long-term
• Admin &
salaries also in
addition to
projectcosts
• Untied funding?
Proposal development?
Ifhistoric leaders worked in todays development sector
16
Source:IDR Online

A Good Funder?
Treat with dignity,respect and
seriousness
Asking the right questions
Process information fast
Power Dynamics?
T
alking-to-your-funders-
through-indian-ads
The CSR Khichdi
17
Source:IDR Online

A Good Funder?
A long-term relationship
• Alignmentwithorg/
projectgoals
• Empathy
• Flexibility
• Supports in execution –
networks,capacity
building,bridging gaps
• Willingness to
experimentalong?
• Rationale reporting
• Understands and
appreciates your impact
(not just numbers)
Relationship approach?
18
Source:IDR Online
Ddlj-funder-nonprofit-love-story/

Funder Perspectives – Key Imperatives
19
• What are the most desired areas/activities for funding?Why?
• What do you think of the relationship between
activism/advocacy and charity/service delivery? How does one
decide what to do?
• How much of the thinking on ‘theory of change’ should come
from funder vis-à-vis fundee?
• Is there a good way to manage /monitor and hold the fundee
accountable for the impact?
• Who bears the burden for initiating systems change
/institutional development?
• What should be the relationship with Govt?

Non-Profit terminologies
20
• Grant
• Corpus grant
• T
ax exemptions
• Monitoring & Evaluation
• Outcome-linked funding
• Pass-through funding
• FCRA

Fund-raising for for-profits
• T
ermsheet,ShareholdersAgreement
• Funding rounds
– Angel,SeriesA,B,C….
– Primary vs secondary sale
• Funding structures and instruments
– Equity
– Convertible Notes
– Venture Debt
– Mezannine
• Valuation – pre-money,post-money,dilution
• T
ermsheet Contracts
– Anti-dilution;full-ratchet anti-dilution,Right of First Refusal
– Exit terms,TagAlong Rights & DragAlong Rights,Liquidation
– Voting rights,Board rights,Information rights
– No-shopping,Deal costs
29

• DCF
• Comparables
• Venture Capital Method
• T
arget dilutions approach
Some V
aluation Methods
22