SGS Webinar - How to prepare for Fundraising

SGS Webinar named “How to prepare for Fundraising - Common Issues and Recommendations” was held on 16^th 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 1^st 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 2^nd 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 3^rd 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 4^th step is “Due Diligence”.  There are several common issues for startup including “Intellectual Property”, “Third-party contracts”, “Litigation”, “Products/Services” and “License”.

The 5^th 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 6^th 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 7^th 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

Reference:

SGS Event - https://www.sgs.com/en/events