“Your vision is a story. It is how you revolutionize it, how well you imagine it, how amazingly you narrate it, and how often you innovate it.”

“The strength of the vision of your business model governs who will rule the game or the investors“

Are You Bringing A Revolution Or Playing A Safe Game?

Are we giving enough to satisfy the appetite of investors? As Myles Munroe, a speaker and an author correctly highlighted a striking difference between self-employed and an entrepreneur. Self-employed are the people working for themselves whereas, entrepreneurs are people who have a long-term vision and goals to achieve that vision.

So are the startups we innovating appropriately? Or are we going overboard with existing startup business models making money. We are experiencing a world with entry of new players in the existing business models itself. Everyone is making the hay while the sun is shining. Indian economy is flourishing with entry of aggregators, and every new business model is based on aggregation of products or services.

To move a step further, there is an aggregator model and then there is a grand-aggregator model (aggregator of aggregators) such as Trivago, aggregator of hotel aggregators and Cabto, aggregator of ride sharing aggregators. Are we awarding the players having the first mover advantage. Those who carried out extensive R&D to build demand, who took the risk in an unknown economy. However, startups really need to rejuvenate themselves to think beyond what is available. Does the business model you are choosing fall within your vision or are they just doing it because the industry is well tested and they can provide a new feature and make it look different? There is a bundle of instances I would highlight here:

And there are many other case studies such as Rigo, Truecabs, Cabby in Ride sharing; Spinny in used-car selling and others.

Are You Prepared Or Are You Just Ready?

As an entrepreneur one needs to keep in mind that is there any problem one is trying to resolve or is one tweaking the loopholes in existing startup business models. We need to empathize with the business models which closed down in their early years of operation. Research shows that nearly 90% of business models fail within their first 5 years of operation.

The major set-backs experienced by business models in the past were by the following:

The reasons stated by most news agencies for failure of business models are failing to innovate, lack of funding, lack of uniqueness, among others. No indian startup ever got shortlisted for Forbes’ 25 most innovative companies or Forbes Top 25 Innovative Growth companies. Why don’t we see rise of meta-level startups such as Google, Linkedin, Facebook, Whatsapp and Twitter.

Entrepreneurs need to think that are they just trying their hands on entrepreneurship or they have a vision and a dream to accomplish.

Investors Herd Mentality And Are We Living In An Investor-Biased World?

The point to ponder here is that all the businesses which failed had atleast one series of funding, which means someone believed in their story? That means if the business models were not unique and innovative, why would an investor invest money at the first place.

As an investor, did you think if you are investing in a business lead by an entrepreneur or a self employed? Are investors fell prey to fancy stories of manipulation and articulation narrated by some of the media companies today which showcase the startups as unique, adventurous while showcasing founders as superheroes.

Fund raising in startups has become a “game of confusion” which needs clarity at the earliest. To do this, thoroughly evaluate the entrepreneur’s vision by asking key questions: Is he ready for the next 10 years? Does he have a diversification plan or is it just a cash burn strategy relying on investors? Does he believe in his story? How prepared is he? Is he putting in the effort to achieve his goal or just burning the midnight oil?

Additionally, there is a slew of new era investors including many individual investors trying to make a buck out of demand-driven startup business models. So, when choosing investors, ask yourself: Is he the right fit? Has he helped his portfolio companies grow or led them to failure? Does he stand by his portfolio companies through thick and thin?

Fundraising: Let’s Clear The Air

Lets reiterate that there are no free lunches and lets learn from the demise of VG Siddhartha. When an entrepreneur raises funding, one is making him vulnerable and accountable to unknown band of investors. It’s a game where you end up diluting to the effect that the investors (strangers to you) take up majority of the stake in your own company. To exemplify this, Jeff Bezoz has 12% stake in Amazon, Flipkart founders had 5% stake, Ola founders have nearly 12% stake in their own company and others.

The flip side of this appears in stories like Uber’s co-founder Travis Kalanick resigning from his own company and Naresh Goyal stepping down and being barred from bidding for Jet Airways, which he founded in 1993. Cofounders of Flipkart resigned / stepped down after Walmart bought controlling stake, among other reasons.There are also other cases, such as Jack Dorsey’s resignation from Twitter and Andrew Mason stepping down from Groupon (now rebranded as nearbuy). In the wake of this, Oyo’s founder declined SoftBank’s offer to infuse USD1.1bn, fearing a loss of control. Therefore, it is of utmost importance to be more learned and mature while raising funds (startups) and providing funds (investors). While concluding this, we can state:

“Nothing can fail your business if you have a vision for next 10 years and you narrate the story of your vision well to those who could believe in you. Just remember business models might fail, dreams donot.”

Also Read – Business Continuity Plan

The need of the hour in a fast-paced startup environment where innovation meets aspiration is not advice & solutions from an army of consultants and investment bankers like never before. We are counselors at the front of the battlefield, traveling with entrepreneurs as they navigate their way through funding and growth. But the question remains: are we truly providing effective startup consulting with strategic, if not operational guidance, or simply skin-deep makeover in your pitch decks and valuation spreadsheets? We need to take another look around.

The path to investment banking is typically long and challenging. Investors and founders are required to invest prudently, which is what we expect them to do in the first place. We need to be more than just a conduit for raising money and try to maintain a closer working relationship with each of the startups we support. It requires boundless reading, counterintuitive critics, and steadfast dedication to stats and unparalleled business constructs.

And if we do want this transformation to really happen, we need to push ourselves to spend time and try to get a complete sense of our clients’ businesses. In turn, if we are properly aligned with where the founders live today and aspire to be in the future, it makes for a more aggressive ecosystem built around actual frameworks of success which will come not just by securing investment but also by building companies that can eventually grow, scale, sustain. In the sections to follow, we flesh out key learnings that can restructure the way consultants interact with startups; which in turn leads to a more contributive relationship.

Are You As A Consultant Providing The Right Direction To Startups?

The investment banking exercise is tedious and has a long gestation life. The closest to the founders are their consultants and investment bankers. We have the onus to deal with startups more responsibly and not waste time and efforts of investors and ourselves. Consultants need to be strategy partners for clients than merely try getting funds for the company. Most of the consultants take up an assignment and start deliberating on fancy pitchbooks and valuation models. This needs a transformation. Do a homework and lot of research on the business model, meet the management at least 2-3 times before taking up an assignment, make them aware of their success ratio of getting funds, and make the founders realize the business model lacks uniqueness (no client would like to listen to this, however, trust me they would still be happy to get insights and push themselves to make it different). Do you challenge the founders? As consultants, try taking up this useful exercise. Below are relevant observations and justifications.

Founder’s / Management’s Full-Time Role And Involvement In The Company

In case it’s a part-time business for the founders and there are no stakes involved for them to grow and flourish the business. 

Looking from the Investor’s Eye: The owner has to be hungry; needs to eat, drink, and sleep to take the business to the next level. Put your bet on the company or idea which is striving to make the business model profitable. In case the founders merely talk about “When can we get funds?” are the ones you need to filter out.

Monetization Of Business

Cash-burn businesses used to be the focus of the investors a couple of months ago. The investors today are more learned and cautious to invest merely based on the cash burn ratio. 

Looking from Investor’s Eye: As Consultant, segregate and analyse the cash burn based on client acquisition (this is a plus), extensive marketing (this is a minus as startups do not need expensive marketing, rather word of mouth, and social media marketing will be good to start with).

Background Research About The Business Model

When management is deep inside the business models, it is assumed that they would have researched about the business in depth. 

Looking from Investor’s Eye: Investors are keen to compare businesses so to analyze the scalability and replicability. An in-depth research of business models, revenue streams, international best practices, and domestic peer groups is a must. Founders need to be aware of pin to plane about all these aspects apart from evaluating the need and necessity of the business model.

Technology Intervention

How manual is the idea? Would it bring a disruption? Does the founder belong to the same/similar line of business? 

Looking from the Investor’s Eye: In case, the founders are not related, they might need a strategy partner or board of advisors from a similar line of business. After which one might explore technology intervention which could possibly transform the process. 

Vision Of The Management

Spend 1-2 hours to understand the vision of the management. The shortcut is before meeting ask them the vision to be written in 5 sentences with maximum 6-7 words. 

Looking from Investor’s Eye: The clarity, scalability and reliability in the vision statement is must for investors.

International Best Practices And Practical Adoption Of The Business In The Country Where It Is Located

How international peer group is working, are their best practices which could be replicable in your current business?

Looking from Investor’s Eye: Investors are largely driven by precedence as they are able to compare and envision the future.

Uniqueness In The Idea

What is the problem statement, and how unique is the idea? 

Looking from Investor’s Eye: In case, investors feel there are ample such business models, they might uprightly reject the idea. There might be an instance where the business idea is unique however, the way it is positioned it does not appear TO LOOK UNIQUE. 

Collateral And Stakes

Ask your clients what assets they or their family own. Would they like to mortgage those assets and get funding? 

Looking from the Investor’s Eye: Investors want to see promoters’ skin in the game. In case they are reluctant to invest their own money, why would you expect a 3rd party equity investor to take a risk? Investors like to see the confidence of the founder in the idea.

Last is would you as a consultant invest in the business leaving your fee aside

This shall serve as a hypothetical and practical analysis – Would you as investment bankers and consultants pledge your money and advisory fee to make it successful? If the answer is yes, then strive hard to make it successful.

Most founders today start business out of lure of getting high valuations, to get name and fame, to be independent, to showcase the world and relatives that they are doing something different. However, the truth is far from reality. The valuation is merely an illusion, its just a number.

One suggestion to founders: Don’t start burning cash and make it big by thinking equity money is free money. There are no free lunches. Empathize with the money you borrow. Consultants need to provide genuine and straightforward advice to clients than providing them false hope of deal closure.

Also Read: Investment Memorandum Guide for startup

Investment banking is a core element in helping companies, governments, and institutions with raising capital or providing advisory support through financial transactions. Professionals also need to gather a variety of other banking skills such as financial modeling, market analysis and negotiation expertise in order to successfully pursue this career. They also are important for assessing investments opportunities, supporting mergers and acquisitions and advising clients about strategic directions. This article will shed light on some of the vital roles with required skills for investment bankers and expertise necessary to stand out in this dynamic environment.

You can work as an investment banker provided you have all the essential competencies to be able to negotiate, and do financial modeling and market analysis effectively. These skills help professionals assess investment possibilities, guidance during complex financial transactions, and strategic decision-making. In this essay, we look at the core responsibilities of an investment banker and discuss key skills that one has to hold to prosper in this highly competitive sector.

What is Investment Banking All About?

Practically, it is nothing but representing a company, which requires funds or which is looking out for a strategic partner in front of an investor or buyer. This needs to be aptly strategized as both have strikingly opposite requirements. Financial investor is not much concerned about the business model, he is more focused on the return or yield he would generate when he exits. While strategic investors would be able to dive better as they would focus more on synergies with the target company. 

To become an effective investment banker, you need to know everything about the business model you are trying to sell or get investment in. Every meeting with a potential investor is an opportunity which you gained, therefore research well before you land up in a meeting. Sending a quick teaser before the meeting will make investors more learned and the discussions put forth will be more effective than otherwise. The better and crisp the teaser, the higher would be the potential interest of the investors. It is usually a 5-6 pager impactful presentation covering the USP of the company. There are several online tools available in the market to curate beautiful presentations. Therefore, it is not really important for an investment banker, especially the boutique ones to put in lots of effort in designing a teaser or pitchbook. The tools range from Spark Adobe, Canva, Visme, Zoho, and others.

1. Sharing The Pitchbook: 

Post receiving a positive response, you would be required to send a detailed pitchbook running into 40-50 slides which covers the company evolution, management background, technology details, clientele, peer group positioning (focus here on the vision of the founders), and other details. It is usually been experienced that investment banks create teasers and start circulating widely to all the investors, without focusing on the target investors. Additionally, at that point, the pitchbook is under progress. This is a No-No! It is highly important that as a professional you need to be ready with your pitchbook and financial model. Teaser is a by-product of the pitchbook and not vice versa.

2. Shortlist The Investors Wisely 

So as to save the time and effort. It is critical to duly understand the sector in which an investor is keen to invest. There are several forums to get connected with angel investors such as LetsVenture, Chandigarh Angels, Mumbai Angels Network, and Venture Catalyst, among others.

3. Realistic Financial Model: 

A financial model is not merely an Excel working, it is a platform to set future expectations of investors or buyers apart from diluting a stake. You could include some fancy numbers however everything boils down to how well you negotiate and present your case. 

Requisite Skills For Investment Bankers

Based on the practical experience and survey conducted by 50+ investment bankers, it is analyzed that qualification does not hold water in the current economy vis-a-vis experience. Whether you are a CFA, an MBA, a Graduate, or an IITian. All you should focus is an entry into the first door of an investment bank where you could work on live deals. You might have an impressive personality and confidence, however, it is extremely useful to know how to sell apart from understanding different business models. Following are the skills for investment bankers:

1. Good Drafting Skills

It is effective to use powerful words and frame a story while sending a pitchbook. It is of utmost importance to feel the need of the business model by deep diving into the company and getting all the required information for you to sell effectively. At the end of the day you cannot become an industry expert, however, all you need is to connect to an industry expert, who could further facilitate you in providing the right direction.

2. Build a Good Network And Reputation: 

An added advantage of entry into investment banking is it lets you build an extensive valuable network of investors as well as sector experts globally. Therefore, a tool here is to interact and make informal connections with these people. Let them recognize you as an individual and not as a part of the company. You may do this by sending texts on specific occasions or sending some of your social media articles and the most effective way is to call than text or email (as per research, a phone call is 6 times more effective than an email or text). 

3. Work-Life Balance: 

The flip side of working with top investment banks is a majority of them globally are making their employees work 18 hours every day, which in turn takes a toll on their personal lives.  You may opt to work for a boutique investment banks Vs bigger players.

To conclude the entire article, we have tried to share some effective and implementable tools to adopt in real life in order to crack that entry in an investment bank.

Also read a blog – Guide for Investment banker

Modern startup valuations often seem like an unsolvable mystery enshrined in gossip and bubble rumors. Startups looking to raise capital need an understanding of how valuations work. Essentially, a value is the amount of money an investor is willing to spend on your total company — but only after parsing it out from a few key components that have a major impact on investor psychology.

In this guide, we will discuss the main parameters underlying startup valuations and provide some of the pitfalls you should avoid in the course of fundraising. The article provides founders the basis to think strategically in pricing: from focusing on business growth factors towards understanding its valuation- which includes EBITDA multiples, comparable deals, or even asset valuations. Whether you are a first-time founder or getting ready to scale, the future success of your startup hinges on understanding the valuation game.

Understanding The Startup Valuations Game

There is a lot of noise around startup valuations. Let us highlight the greater aspects and what to take into consideration while raising funds. The valuation is the amount an investor is willing to pay for your entire business. The valuation will all come down to three broad aspects mentioned below. The aspects are provided indicative weightage as well to make you understand the psychology of an investor:  

It is being rightly said that investor invests in founders and not business models. Along with that, what actually makes the business valuable is mitigating the risk of the business failing in the future. It is hereby surveyed that 95% of the businesses fail in their first two years of incorporation. Therefore, it is extremely important to be mindful of 7 major mistakes to avoid when growing big and getting trapped in the valuation game:

• Diverting the vision of the business merely for getting investment from big investor
• Focusing on business than valuation number
• Keep personal connections with customers; valuation should not impact the core business
• Developing and streamlining processes and systems
• Don’t shy away from selling the business even when you reach at the top
• Reliance on the team too much; remember it is your dream; for employees, it’s a job
• Diversification in the industry; there are unexplored spaces across the globe to diversify business models

How Do I Value My Startup? 

The major methodology to value the startups

• EBITDA multiple – In the case of profit-generating companies, an investor applies an EBITDA multiple, usually in the range of 7-10x (depending on the size of the business), and multiplies it by the EBITDA. Additionally, there could also be a multiple of sales / Gross Merchandise Value (GMV) for larger fast-growing businesses. 
• Comparable Transaction Multiples– An investor might decide to list down all transactions in the near past and compute the multiples in comparable transactions. It is advisable to carry this method for a large set of comparable companies by grouping a wide range of business model.
• Asset valuation – In the case of capital-intensive business models, investors would like to value the underlying assets. The assets can be a database (for WhatsApp and database collating service business models), and traffic (for knowledge-sharing websites). The scoring shall also be done for the quality of such traffic, active and dormant users, a premium domain name (majorly in the developed countries), a recognizable brand name (social media marketing plays a critical role), and other things that can be leveraged to make higher profits and achieve a faster return on investment for the buyer.

Startups should keep in mind a couple of things while self-evaluating their businesses. Do not boast much of the things which you are not sure about. Analyse and assess in detail the industry size and where would you be positioned post-money in the industry. The best could be achieved, in case you could map the peer group on the scale for competition and USP.