HOW TO RAISE A SERIES A IN INDIA | METASTARTUP #10

welcome back boys and girls before we go into what happens when this startup goes into its series a I first want to talk to you about what rounds are in the first place so whenever startup raises one round of funding they typically go on to raise further rounds of funding the first stage of funding for a startup is

usually called the seed round which is some startups obviously have something called a three seed round which basically is a smaller amount of money this is typically raised from angels or you know friends and family and some people also call this an angel rod in my opinion that's not too much of a difference between these three types of rounds so whether you're raising a seed or an angel at it kind of is the same thing then you follow up with these startups first formal round of funding which is a Series A now this is followed up by a series B and so on and so forth what typically happens is during these seed rounds or the angel rounds of a startup the startup is looking for

something called product market fit which is will the market pay for my product whereas with Series B and you know onward still whatever letter of the alphabet you know this startup is able to raise fund Intel this is more about expansion and scale which is I already know the market will pay for this I've kind of proved this in my early stage rounds now I'm just trying to reach out to more people hire some more people you know amp up the marketing and so on and so forth this is expansion in scale so today we're going to be visiting what happens when these startup gets to its first formal round of funding which is the series a now lost olives don't know what the metrics are that they need to kind of show a seed or Series A or an angel investor and you know there's a lot of hearsay about this also people just don't know where to find these investors although you can just do a quick search of you know what are the top active angel investors there are a lot of angel investors who are still active despite you know not being on any of these articles so what I've done for you guys is the matrix which is you know the amounted revenue the kind of employee size the kind of product market fit matrix that you need I've put a document on it it's in the meta startup Facebook group so go join the meta sort of Facebook group if you haven't already I will be showing you exactly what are the metrics it takes to raise any of these rounds up to a Serie C after Series C it's really case-by-case so up till a series with a fairly standard so I put those numbers up put in United States as well as in India and I've also put a list of 100 top series a series B series CVC's and the list of the top active angel investors in India so I put all of this on the mat a sort of Facebook group core Joyner it's completely free the only tax to kind of join this group is you need to add at least one friend who is interested in startups and interest in learning more this friend might be considering doing an MBA or whatever stop him or her and tell them you know maybe should give this series a shot and tried it on a startup on your own before considering going to business school now let's go back to our startup right so you know now we have the assets which could be a bunch of things let's say the idea we used to have that million dollars in capital so sorry not a million a crore in capital let's call this one CR now maybe we're running out of this money right maybe we spent on you know hiring a few people we you know made the website a little better we got a few early customers so the idea and the skills are now joined by some more tangible things which are customers which are early revenues you know maybe some key partnerships or whatever so a bunch of different things now add to your valuation so you go the newt and I'm just going to draw the cap table right now so we have whatever you know co-founder one so we have you know Angel one we have co-founder one and we have co-founder to write all this is kind of I mean we know that these people have a certain amount of equity this person has nine point zero nine these people have the rest which is you know one hundred minus nine point zero nine and now these people go to a institutional VC to raise capital now I want to mention at this point that this one crore of capital will not last you very long a lot of people think Aykroyd is a lot of money but when it comes to running a company this will run out very very quickly so the first time startup founders who are running a digital business always raise as much as you can because you don't want to keep going back to VCS again and again the process of fundraising in itself takes anywhere between three to six months right so try to go or raise enough money for yourself instead of going back to the till again and again so you reach out to the VCS you can use that list that I've kind of put on the Ameristar Facebook group and make sure you reach out to them only when you have those particular matrix so if you're reaching out to a series a investor make sure you have the metrics to reach out to a series a investor right there would be all the more thankful because you reached out because you have the right metrics instead of you know you just spamming these lists the difference between a VC

and an angel is that a VC manages are the people's money with an angel it's you know usually just the Angels money but a VC manages other people's money these people are called limited partners LPS now this we see you know has a 2% management fee of the entire fund so you know these guys they want to make really good bets right and whenever a start-up succeeds the VC obviously makes money apart from his portfolio making the money so whenever I start upsells or goes IPO the VC as well as his lp's end up making money so the VC is responsible to his LPS to kind of do the due diligence it's not as easy to convince a VC as it is an angel investor now we reach out to this VC and we say VC we need a Series A round and the VC says okay you know what are you looking at what is your pre-money valuation so we're going to bring those terms back just as we did in the last kind of video pre-money valuation funding amount post-money valuation we're going to come up with price per share and we're going to talk about percentage stake of the VC now I've already told you all the formulas refer to my previous video if you want to know the formula of the price per share and the stake of the VC but we're going to do the math right now so because the VC we used to have a 11 crore valuation at the last round now we tell the VC look we've got some customers we've got some early revenues here are our metrics we want n crores of funding we want tens of funding right we go here let me say you see give me ten crores of funding so the VC says okay what is your company worth now back in the day our company is worth 11 CR now we have some more metrics so we say we go to the VC confidently and we say to any crores right now let's assume this VC doesn't negotiate usually VCS will negotiate hard but let's say you know he agrees to kind of put the pre-money valuation of PEG the pre-money valuation at 20 crores and he says okay I'm gonna invest 10 crores into this company right so we're gonna do what we did the last time we are gonna say we're gonna add a new field on our assets we're gonna put in 10 crores here we want 10 crores of capital and what did he give the VC in exchange we give him some shares in the company right now again we've gotta do the same math we say we had a pre-money valuation of 20 crores right back into the last round it used to be 11 crores you've made 9 crores worth of progress so it's 20 crores now the post-money valuation is 30 crores right now again I want to touch back on this valuation of

the company there is no way you can accurately value a company and say this is exactly how much it's worth it's very difficult to do that so valuation is more of an art than a science and what I mean by that is when you have a science you kind of discover things right you run an experiment you run maybe four or five experiments and then one of those experiments is the right answer whereas with an art or with arts in general you already have a predetermined number in your mind and all your working goes towards proving that kind of number so you're making a proof of something you already believe in right you're going with a set mindset and I've seen the same company get valued five times as much or three times lesser depending on who is valuing it there are many methods to do valuations and a lot of them are very questionable in my opinion right so we'll talk a little more about this in the in a future video titled acquisitions and valuations where I'll talk about my own experience looking at how valuations change depending on who is looking at it now we're gonna head back to the math we know that the pre-money valuation is 20 crores the funding amount is 10 crores which makes the post-money valuation 30 crores so we'll change this now we will change this all of this will make it 20 CR will say that the VC has put in 10 CR which makes the total valuation 30 CR right now the price per share as I spoke about before becomes the pre-money valuation divided by the total number of shares before the round right which in this case is the pre-money valuation which is 20 crores divided by the total number of shares before the round which in this case was about 11,000 if I remember correctly which makes it 20 C CR divided by 11 thousand which is this is roughly 18,000 181 rupees point 8 once something but will go with this for now so this becomes the price of each share after the round the percentage stake of the VC which is the investment amount divided by the post-money valuation which is basically 10 CR divided by the post money which is 30 CR which is 10 CR divided by roughly 33. 33% right so the new VC has 33. 3% of the company and everybody stake is now recalculated and reduced by 33 percent which means that this angel now goes to six point zero 6 percent and the co-founders value 260 0. 61% right so this is what your final cap table or the equity structure will look like after the investment round after your series a and remember I mean we haven't touched on this in the past in the last video but when you whenever you do a Series A or a seed round or whatever you sign

something called the term sheet this is like a formal document that kind of indicates an intent to invest and there are many terms in the term sheet which kind of talk about a lot of the things that we've gone through right now including the pre-money valuation the post-money valuation the funding in all that so in a future video titled term sheets I'm going to show you what job spires term sheet look like and all the important terms in the term sheet so which of the important terms you should look out for and which of those you can kind of ignore so we're gonna do a review of that in a future episode now remember that the angel is obviously very happy with this round you had a board so the angel decides the angel along with you guys decides that you know you wanna draw this person's moustache it looks like a sad face forever so the board decides to kind of go ahead with the round which adds a new person on the board which is the VC now the board starts looking a little bit cramped here sometimes the angel might decide to concede his board seat to the VC the angel might say you know what you know you're a professional we see it's your job to make sure the company does as best as it can so the angel can decide to just leave the board and have just three people on the board which is the VC and the two founders remember your valuation went up from 11 CR to 20 CR only because you added value all of this that you've generated for your company is you adding value into the ecosystem around you there's one more edge case here which is what happens

when you have a downed round now remember your previous rounds valuation was 11 crores what happens if the new VC you comes in says hey I'm only you're gonna invest a couple of crores and I think that your company is valued at 5 crores and not 11 crores in this case what happens is that the startup gets devalued so the value of all of this was actually overvalued at a previous round and it all comes crashing down so while the equities don't change too much the price per share drops heavily in this particular case a lot of angel investors and VC's themselves have clauses in the term

sheet called anti-dilution which kind of prevents them from obtaining a share price lower than their the share price at which they came in at right and this kind of changes their value so if the investor had say six point zero six percent that would go up to adjust for the downrod for whatever down round happen now anti-dilution is one important edge case which you will have to look out for in your term sheet and I'm going to look through that in our acquisitions and valuations video