Equity Funding | Basics of Fundraising

Basics of Fundraising and Pitch Deck.

Okay so the first type of financing that we’ll be discussing is equity financing ninety percent of first-time founders know only about equity finance and they think that it is the only kind of fundraise which takes place into the investment ecosystem it is not so it is just one of the financing types so let’s discuss more about equity financing pursuing an

Equity fund raising means that in exchange of the money they invest now investors will receive as taking to your company and its performance moving forward so in equity financing you are selling a part of your company to the investors in return of the money that they will be giving you as investment for the operations expansion and scaling up of your startup

It is one of the most sought after forms of capital for entrepreneurs in part because it is an attractive option no repayment schedule high powered investor partners and in part because it’s the form of capital that requires the most seeking now let’s see how it works an estimation of what your company is worth at that point of time based on the evaluation and

The amount of money that the investors gives you they will own a percentage of stocks in your company for which they will receive proportional compensation once your company sells or goes public to take an example the founder of the company abc have decided to expand their business nationally and they are looking for 5 cr in equity investment at a valuation

Of 20 cr say a venture capital is formed xyz inverse 2.5 cr earning 12.5 equity in company abc the second question one should ask when to do it there are several situations in which an equity fund raise makes the most sense or is the only real viable option for this startup if you talk about such situations it will be when you need a long runway if you are

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Unable to get the word runway check into the bonus section we have startup digitally you will find the meaning out there into the startup dictionary not every business starts generating income as soon as it launches doesn’t mean your startup isn’t a viable business proposition internet companies for example are notorious for going years in operation without

Even attempting to charge their customers if you are going to need a sizeable to sustain your business before it start earning a profit equity investments are the only form of capital which makes sense the second situation will be when you have zero collateral in order to take loans or depth financing you need to have something to offer collateral in case

Things don’t work out the way you have planned if you don’t have anything of value to give loan providers that security your only real option for funding is to find equity investors who are willing to take chance on your idea with nothing to sell if the business goes south the third situation will be when you can’t possibly bootstrap while home growing your

Company from your kitchen or spare bedroom bit by bit may not sound as glamorous as sitting the ground with investors already in your lineup most investors will expect you to start there before they invest but some businesses to take an example and a private jet rental services requires a massive amount of capital just to get off the ground in those cases

You are not left with any choices and you have to go to the equity investor the fourth situation will be when you are positioned for astronomical growth equity capital tends to follow businesses and industries that have potential of massive growth and exponential paydays your local coffee shop concept may do really well but it doesn’t have the potential to

Become a google so you are not likely to attract many equity investors on the other hand if you are looking to build the next starbucks chain and you have a vision and plan that supports that kind of growth chances are investors will be very much interested in jumping onto the bandwagon on the road to ipo there are some things which you need to keep into

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Your mind when you are going to equity financing the first is equity narrows your options choosing the equity route significantly narrows the options when it comes to the future of your company equity investors are only interested in one thing that is liquidity that means they won’t be satisfied with a dividend a cut of profit each year once you have accepted

Their money their interest lies in the end game that is either m a that is modular acquisition or the ipo before they invest in the first place they are going to look for experiences that your idea can sell and self-pick so before you pursue the equity fundraising route you should be sure that that is your vision as well the second is equity investors accept

Big rewards for big risks if every entrepreneur could walk into a bank and get a loan to finance their idea many probably would but it is not so unfortunate banks are incredibly risk-averse and only want to provide loans that their fear will be paid back that’s where equity investors come in they are willingly to take risks where lenders aren’t but there are

Always two sides to that an equity investor isn’t looking for a simple interest payment on the money they have given you they are exchanging more risk for more reward a lot more and they are going to want to see the results competitive landscape for equity financing is really high there are far more people looking for equity investors then there are checks

Being created most equity investors will see hundreds if not thousands of deals in a given year before they fund even one getting an equity investor is almost like getting a pop-up score on your cat or iitc you had to be into the top percentile of the top percentile of the most prepared and motivated entrepreneurs in order to be one of the few who walks

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Away with the check in their hand raising equity capital takes time no matter how prepared you are minimum of minimum it will take anything between three months to six months time to find the right equity investor for your startup so if you are in a business and the runway is really small so if you and your business are in time french is under a clock equity

Fundraising may not be the best way to go and the last giving up equity is always a one-way street once you give up equity you are not likely to ever get it back it is very rare for an entrepreneur to buy back the equity they are given away early in the creation of their company and once you have sold a certain purchase let’s say 45 that 45 of your business

That you can’t sell again to raise money at a later stage once you have sold the equity to the investor that investor is going to be part of your world whether you like it or not so as tempting as it may be to say hand with anyone ready to write you a check it is important to look for investors you are comfortable with comfortable having as a part of your

Business for years to come so that is from my side for the equity financing now in the next video we will be taking this jeff finance and further we will go to convertible notes where we will also discuss a bit about safe notes okay then thank you and see you into the next video you

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Equity Funding | Basics of Fundraising By Sivesh Kumar