“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-You 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 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 are 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 business models. We need to empathize with the business models which closed down in their early years of operation. It is researched that nearly 90% of business models fail during their first 5 years of operations.

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. For this, a strong evaluation needs to be done on the vision of the entrepreneur which has to be bombarded with questions such as is he ready for the next 10 years, does he have a diversification plan or its merely a cash burn plan to be sourced from investors, does he believe in his story, level of his preparedness, is he trying hard enough to achieve his goal or just burning mid-night oil?.

Additionally, there is a slew of new era investors including many individual investors trying to make a buck out of demand driven business models. So, while choosing the investors, ask yourself, is he a right fit, has he helped his portfolio companies to grow or perish, does he stand with his portfolio companies in thick and thin?

Fundraising: Lets 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 comes out in stories like Uber’s co-founder Travis Kalanick is made to resign from his OWN COMPANY. Naresh Goyal is asked to step down and not bid for Jet Airways which he founded in 1993. Cofounders of Flipkart resigned / stepped down after Walmart bought controlling stake, among other reasons. There are other cases of Jack Dorsey resignation from Twitter, 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 envisaging 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.”

Valuations and Investment Banking is one of the most fancy careers specially in developing economies such as India. There is a sense of glory and satisfaction as a professional when you are able to work on the entire live deal. The giant investment banks usually provide a good exposure, however the processes and procedures make them more streamlined thereby restricting an investment bankers’ thought process. On the contrary, some of the specialized boutique investment banks provide an immense exposure of working on live deals. However, both of them differ in size and scale. 

Here we tried to capture in this post what is investment banking all about, what are the requisite skills one can work on to get an entry into an investment bank and which are the effective tools you need to be aware as an investment banker? 

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 investor would be able to dive better as he 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 specially the boutique ones to put in lots of efforts in designing a teaser or pitchbook. The tools range from Spark Adobe, Canva, Visme, Zoho and others.

#Sharing the Pitchbook: Post receiving a positive reponse, you would be required to send a detailed pitchbook running into 40-50 slide 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 pitchbook and not vice versa.

#Shortlist the investors wisely so as to save the time and efforts. 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, Venture Catalyst, among others.

#Realistic Financial Model: Financial model is not merely an excel working, it is a platform to set a 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 to become an investment banker

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

#Good Drafting skills: It is effective to use powerful words and frame a story while sending a pitchbook. It is utmost important to feel the need of the business model by deep diving into the company and getting all 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 right direction.

#Build a good network and reputation: An added advantage with entry in investment banking is it lets you build an extensive valuable network of investors as well as sector experts globally. Therefore, a tool here is 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, sending some of your social media articles and most effective way is to call than texts or email (as per a research, a phone call is 6 times more effective than an email or text). 

#Work-life balance: The flip side of working with top investment banks is majority of them globally are making their employees work 18 hours every day, which in turn take toll on their personal life.  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.

  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 its first two years of incorporation. Therefore, it is extremely important to be mindful about 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 connect 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 employee it’s a job
• Diversification in the industry; there are unexplored spaces across the globe to diversify business models

How to value of my startup? 

The major methodology to value the startups

• EBITDA multiple – In 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 near past and compute the multiples in comparable transaction. It is advisable to carry this method for a large set of comparable companies by grouping the wide range of business model.
• Asset valuation – In case of capital intensive business models, investors would like to value the underlying assets. The assets can be database (for whatsapp and database collating service business models), traffic (for knowledge sharing websites). The scoring shall also be done for 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 critical role) and other things which can be leveraged to make higher profits and achieve a faster return on investment for the buyer.

Startups should keep in mind 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.