SGS
Webinar named “How to prepare for Fundraising - Common Issues and
Recommendations” was held on 16th Mar 2021. Mr. Vincent Pang (Founder
and Managing Director of AVISTA Group) was the guest speaker to introduce
Fundraising of startup.
Firstly,
Mr. Vincent Pang briefed the Buy Side Deal Cycle. There are 8 steps from
Acquisition Strategy/Setting up a Fund to last step – Exit. Then he explained
each step one by one.
The
1st step is “Acquisition Strategy – Setting up a Fund”. That included VC funds and limited
partnership for investing in early-startups and usually lifecycle is 7 to 10
years.
The
2nd step is “Searching for Suitable Targets”. Some deal-killer criteria are discussed such
as small market size, untrustworthy founders, no potential customer interviews
or surveys, insufficient experience or knowledge, etc.
The 3rd step is “Preliminary
Valuation Analysis”. Potential investors will typically ask for financial
information or projection. However, startup may not have this information. Then
you need to understand characteristics of the technology and how the technology
incorporated into a commercial model. During this step, the following items
should be considered:
-
Characteristic of Early Stage
Company
-
Understanding of the Technology
-
Characteristic of the
Technology
-
New Technology or Improvement
-
Development Stage (Market
research → Concept Develoopment → Protoyping → Design
& Development →
Testing & Analysis → Deploy)
-
Market Analysis
-
Product Life Cycle
-
Business Model
-
Valuation Methodology
-
Discounted Cash Flow Method
-
Review of Business Assumption
-
Market Comparable Method
In
this step, Mr. Vincent Pang explained one by one. I selected the Business Model for sharing
that included Licensing, Subcontracting and Self-manufacturing.
Review
of Business Assumption is also selected for sharing. The first table described
the revenue drive by sales volume, unit price and growth rate.
The
second table described the cost, R&D cost, OPEX, CAPEX and working capital.
The
4th step is “Due Diligence”. There
are several common issues for startup including “Intellectual Property”, “Third-party
contracts”, “Litigation”, “Products/Services” and “License”.
The
5th step is “Negotiation of Valuation”. VC would ask for a higher discount for a higher
expected return because startup usually lack of proof for the financial
projections assumption. So that term
sheet is very important.
The
6th step is “Execution & Completion”. It should be aware for the following specific
clauses included “Liquidation preference”, “Redemption right”, “Automatic
conversion in connection with an IPO”, and “Pre-emption right”. The following showed example of term for
liquidation preference and redemption right.
The
7th step is “Continuous Monitoring”.
One of the key success factors for a successful exit is to monitor the
progress of portfolio companies effectively (e.g. check-up monthly or quarterly,
interim financial report). There are two
KPIs proposed such as Gross Merchandise Value (GMV) and Take rate (Rake).
The
last step is “Exit Strategies”. There
are three type of strategies and they are “Direct share sale”, “Acquistion” and
“Initial Public Offering (IPO)”.
Q&A
session
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