Marketplace for Nutritious Foods Investment Readiness training for Businesses within the CoP

1. Marketplace for Nutritious FoodsInvestment Readiness training for Businesses within the CoP 9. Fundraising 101 • November 2018 Author : Intellecap

2. When to raise capital…. • Indicators that your business needs Capital: Your idea serves a true, identified need customers are willing to buy 1 • The market you intend to serve is large and profitable 2 • Your business is growing and you don’t have enough capital to support it 3 You have a business model and plan 4 And you have a financial plan 5

3. When to raise capital…. Why do you need capital? • Capital Expenditure (long term and immediate book value) • Operating expenses (long term) • Working Capital • Value Unlocking How much capital & for how long? • Carry out both a bottom-up as well as a top-down estimation of capital expenditure • Attach the timeline for which you need funding for each expense head

4. Tips when raising capital…. Don’t raise too little – fundraising is time consuming and when done in multiple rounds you end up being further diluted. Focus on minimizing asset expenditure – majority of investors don’t like their money going into land, capex, patents. Exception is in asset heavy form of businesses. Raise the capital needed for 12-18 months, that will allow the business sufficient time for growth before raising more money at a higher valuation if needed

5. Who to raise capital from…. Marriage and equity investing have many things in common – Courting/due diligence before and adjustment afterwards Debt: Soft(er) money: Equity: First!: • Angel investors • Venture Capitalists • PE funds The first step in ensuring that you have a happy relationship with the investor is choosing the “right” one • Awards / incubators / accelerators • Government bodies • Self • Friends, family, fools • Venture debt funds • Banks Make a list of investors: Not only ones that would be interested in you, but also ones that you are interested in (an Investor database) It is possible that you already know a few investors and are comfortable dealing with them but it is always useful to be systematic

6. Different types investors Vs the stage of the business

7. The Village capital viral pathway

8. Identify the relevant investors (1) Some basic background work should be done before approaching an investor Identify the first list of investors on the basis of various parameters like: Data sources which can help you: • GUST • Angel List • Websites • Events • Size of investment • Sector Focus • Stage of business • Geographical Focus • Portfolio of the investor

9. Identify the relevant investors (2) The list identified so far should be sifted and brought down to make the investor database approach more targeted in consideration of: • Past investments - For e.g.. If already invested in competition, better to avoid • Is your business also part of the same value chain? Right target to approach 01 Portfolio companies 02 • What mode did they choose to exit? • Tells you a lot about their approach to investment Recent exits • Ex-Investment Bankers or Entrepreneurs? • Does his past experience have synergies with your business? • Do you want SILENT money or VALUE money? Background or experience of the investor team 03 04 Stage of fund • No. of years and amount left • DFIs • HNIs • Sovereign Funds • Endowments 05 Funds’ sources of money

10. Reaching out to potential Investors Communication: Writing an official email • Include a one or two word topic in the subject line. It helps the reader know what the email is all about • Do not ever use ALL CAPS. ALL CAPS MEANS YOU ARE SCREAMING AT THE OTHER PERSON • Always include a salutation and a closing • Keep the communication short and concise • 01 • 04 • 08 • 07 • 06 • 05 • 03 • 02 • Use formatting just as you would a business letter • The use of emoticons should only be used between really great friends • Jokes, witty remarks and sarcasm do not translate in email • Use business language, always spell check and re-read before hitting send • Attitude: Make follow ups with the investor but avoid being a pushover • Show up on time for meetings scheduled (prior preparation is important)

11. What to raise …. • Many instruments at your disposal: • Equity • Quasi-equity / convertibles • Debt • Grants Raising equity is glamorous, so most entrepreneurs think of equity first. Ok to raise grants, but don’t develop the habit of soft money Equity is NOT cheaper than debt Examples of what to raise debt for: capex, working capital, etc. Examples of what to raise equity for: hiring, marketing, sales, building product

12. What to raise: Based on Source Examples Capital Type Description Market based • Private Equity funds that mainly focus on non impact investments however, at times back social enterprises. • Catalyst • Phatisa • ECP Commercial Private Equity • Investor funds to improve social outcomes in exchange of bond; • In case social performance targets are met, Bond Issuer repays the investor. Investor loses investment if targets remain unachieved • Social Finance Social Impact Bond • Equity or Debt Investment • For profit or nonprofit • Patient Capital • responsAbility • Acumen Fund • Aavishkaar Equity / Social VC • For profit – on commercial terms however with social focus (i.e., lower collateral requirement) • Nonprofit / Subsidized – Below market rate lending or favorable repayment schedule • AlphaMundi • Grofin Loan/ Debt • Stipends to enable social entrepreneurs to focus on their business full time • In-kind contribution – i.e.: materials, office space, travel, expenses, etc. Non Monetary Seed Funding • Ashoka • Echoing Green Grant/ Donations • Omidyar Network • Skoll Foundation • No repayment • Usually project based and competitively won • Usually a form of public recognition for donor Not Market based

13. What to raise: Multiple instruments • Involved purchase of shares in a business by Investors The capital might be used to develop new products & technologies, strengthen a company's balance sheet, enhance working capital or make acquisitions. • Based on valuation (an estimation of a company’s worth during the fundraise) and the capital an investor infuses, investor will own a percentage of stock in the subject company, for which the investor will receive proportional compensation once the company sells or goes public. Straight Equity Convertible Equity/Debt • Convertible Preference Shares - are corporate fixed-income securities that the investor can convert into shares of the company's common stock based on predetermined conversion ratio & time span or on a specific date. • Convertible Debentures - is a type of loan issued by a company that can be converted into stock. The ratio of conversion is predetermined by the issuer when issued.

14. What to raise: Multiple instruments Debt • Debt may be secured or unsecured. Secured debt has collateral (a valuable asset which the borrower can attach to satisfy the loan in case of default by the borrower). Whereas unsecured debt does not have collateral and places the lender in a less secure position relative to repayment in case of default.

15. Got Questions?

16. What do Investors Want Of Course, Money RETURN on INVESTMENT Less Risk Peace of Mind OPERATIONAL HANDHOLDING SMOOTH EXIT

17. What do they expect you to know Do you have a working business model? What is the market opportunity? Why do you need capital? What are your growth plans? Which instruments do you wish to raise the capital with? How much capital & for how long? Which instruments do you wish to raise the capital with?

18. Evaluation Factors Promoter Evaluation Organizational Evaluation Business Model Evaluation Impact Evaluation

19. Evaluation Factors Promoter Evaluation Organizational Evaluation Business Model Evaluation Impact Evaluation

20. Promoter and team Evaluation Passion & Focus Vision & Long-term Thinking The promoter Team size and division of responsibilities Team experience and competence Industry Knowledge & Operational Experience Entrepreneurial & Educational Qualifications Team motivation Advisors & governance

21. Evaluation Factors Promoter Evaluation Organizational Evaluation Business Model Evaluation Impact Evaluation

22. Business model evaluation Market Analysis Business Model Evaluation Financial Analysis Possible Exit Routes Scalability

23. Market analysis Conducting a market study is critical in understanding the financial attractiveness of the product • Identification of Market Gaps or Inefficiencies • Value Proposition that ties into the identified Gaps • Product or services developed to offer defined value • Is there a definite need and ready customer base for the product/service or does the demand need to be created Market Fit • What is the estimated demand and what is the current supply? • How much is the market willing to pay for the product/ service? • What are the current sales vs demand numbers? Demand vs Supply Scalability in terms of ease in replicability , infrastructural requirements, distribution network and supply chain etc. • Who are the competitors in the market? • How strong are these players? • How well funded are they? • Do they have any clear advantages (networks, patented technology ) Competition Available possibilities for an investor to make a remunerative exit at the end of their investment horizon Regulatory Overhang • What is the regulatory overhang in the sector? • (For Example: all models in the primary education sector are mandated to function as “not for profit” structures)

24. Scalability • Resources Required • Value chains to be developed • Relationships to be created • New Hires to be made • Barriers to Scale • External • Legal • Cultural • Internal • Model • Team • Experience • Cost of Scaling • Capex Intensive • OPEX Intensive • Or Both Ease of Replication • Differentiated Products? • New Markets? Type of Scale • Broad • Depth

25. Possible exit routes • Most Common and exit is to another Investor Secondary Sale • Time Frame: dependent on Investor • Return Expectation: ranges from capital back to 10X returns Strategic Sale • Fairly common usually involves sale to an aligned investor/ competitor/ supplier or client Exit Event Promoter Buy Back • Management Team or Promoter gives the Investor an exit by buying him/ her out IPO • Is the rarest of exits

26. Evaluation Factors Promoter Evaluation Organizational Evaluation Business Model Evaluation Impact Evaluation

27. Organizational Evaluation

28. Evaluation Factors Promoter Evaluation Organizational Evaluation Business Model Evaluation Impact Evaluation

29. Impact Evaluation Environmental Impact • Carbon emission prevented • Reduction in pollution Livelihoods Impact • Number of Jobs • Income increase • Number of students GenderInclusiveness • Number of Men, Women and Youth engaged Social Impact Impact Focus Varies from Investor to investor depending on the mandate they apply Different tools are available to entrepreneurs for measuring Impact

30. Got Questions?

31. Standard Steps In An Investment Process 05 04 03 02 01 Closing & Investment Further Due Diligence Initial Due Diligence Term Sheet Initial Meetings

32. Standard Steps In An Investment Process 05 04 03 02 Closing & Investment 01 Further Due Diligence Initial Due Diligence Not legally binding – only outlines the key terms and conditions that form the basis of negotiation Term Sheet Initial Meetings Followed by legally binding documents such as share purchase agreement Term Sheet can come at different stages of the evaluation process depending upon the investor’s specific process Typically includes two types of rights/ terms – Commercial Terms & Control Terms

33. Summary – Go Get ‘em! • Fundraising takes time – start early • But not too early – make sure you get the story right • Don’t feel shy to ask people you know for introductions • 05 • 08 • 06 • 07 • 04 • 03 • 02 • 01 • Stress on revenue generation early on so that you can demonstrate traction on the ground • Seek advice from mentors, advisors, intermediaries before hitting the market • Don’t get disappointed with difficult conversations and lack of conversions – take the feedback in your stride, try to implement it, and keep investors updated on your progress • Go with your gut feel – chose investors that you get along with, that understand your vision, and that can provide more than just money • Valuation – Don’t worry too much about dilution. The important part is getting the right partner on board that wants you to succeed and can help you get there