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14. Fundraising for social enterprise.pptx

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14. Fundraising for social enterprise.pptx

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14. Fundraising for social enterprise.pptx

  1. 1. Fund-raising Priyanshu
  2. 2. Key Questions on fund-raising 2 • When to hit the market (and raise money)? • How much to raise? • What type of investor? • Negotiating the offer • When things go wrong?
  3. 3. When to hit the market (and raise money)? 3 • Is there a good time? a. As soon as I can b. Whenever my business needs cash c. I would avoid till it is absolutely essential d. I will wait till my business model gets proven e. Others • Stages of Business evolution / Proof of concept – Ideation – Team-in-place – Customer adoption – Revenue generation – Unit economics – Scale  Investors may tend to assess (and potentially value) your business in terms of these risks of business evolution  These stages can even overlap with differentrounds of funding,although multiple stages can be combined  Most investors have a unique‘apetite’for taking these risks,even if they usually bet across these stages
  4. 4. How much to raise? • What is the optimal amount? a. As much as I can get from this funder(s) b. Depends on how much my competitor has just raised! c. I have a target dilution in mind d. Whatever my business needs ? e. Others • Some key considerations – Early rounds are usually at lower valuations – Fund-raising is costly (management bandwidth,uncertainty ,etc) – Aggressive business plans can lead to impatient investor(s)  Raise enough to take you tonext stage ofbusiness evolution plus some buffer  Useful tohave an honest alignment with investors on core business assumptions /key risks  Having an investor keen to support across subsequentrounds is helpful 4
  5. 5. What type of investor? y? • How to identify the ‘right’ investor? a. Does it matter… Whoever gives me my mone b. Not my competitor’ s investor please.. c. The best‘brand’ d. Who asks me the least questions… e. The one who‘understands’ me f. Others? • Some key considerations – Alignment on key expectations (risk/return/impact) -‘Buying’ into the story – Sectoral expertise & networks that can be leveraged – potential customers, key hires, repository of domain expertise – How long are they willing to stay invested? – Investment size & Support across multiple rounds – a crowded board pulling in multiple directions is a nightmare – Active vs.a passive investor 8  V enture investment is like a marriage – itcan be a supportive partnership to help you through ups & downs,but is pretty difficult to divorce if things don’t work out  There may be a temptation to go along with the investor philosophy i.e.follow the funding;but relying on investor instead of own beliefs & competence is too big a risk
  6. 6. Negotiating the offer • What to look for in an offer? – Valuation – Shareholdings – Nothing else matters? • Read your ‘termsheet’ carefully • Valuation is only half the story – Exit timelines and options – Right of first refusal &Anti-dilution clauses – Board seat & step-in clauses – T reatment of ESOP plans – Liquidation preferences – T erms that are binding even if the deal falls apart – Deal expenses – Exclusivity /no shopping 9
  7. 7. When things go wrong? • Like every marriage,conflict is inevitable; multiple reasons a relationship gets sour – Frustration with business performance – Unexpected market situation(s) – Differences in strategic matters – mergers, new product lines,key hires,etc. – Inability to raise subsequent rounds – Delays in exit – And a whole lot of other issues • Requires careful‘empathetic’ handling – Respect each other – Know your ‘non-negotiables’ but try to be flexible otherwise – Search proactively for solutions;including radical ones – Remember ,reputations last! 10
  8. 8. 13 Centrally SponsoredW elfare Schemes (Budget FY23)1 – ~Rs 4.43 lakh cr ($58 bn) NREGA(Budget FY23)1 – Rs 73k cr ($9.6 bn) CSR Spends (FY21)2 – ~Rs 24k cr ($3.16 bn) Philanthropy / Giving (FY21)2 – ~Rs 79k cr ($10.4 bn) FDI inflows (FY21)3 – ~Rs 4.42 lakh cr ($58 bn) (1)Union Budget-2022-23;(2) Bain India Philanthropyreport 2022;(3)DPIIT ,GOI 2021;(4) IIC 2021 PE/VC Fund Flows (FY21)3 – ~Rs 5.85 lakh cr ($77.1 bn) Social sector funding is significant compared to both public sector as well as the mainstream financial sector;both for-profit & non-profit are critical Impact Investment flows (FY21)4 – ~Rs 51k cr ($6.8 bn) Social Sector Funding in Perspective
  9. 9. Social Sector Funding – Non-Profit space Source:India Philanthropy Report 2022 – Bain & Dasra (2022) 9
  10. 10. UHNI Funding – sectoral allocations Source:India Philanthropy Report 2022 – Bain & Dasra (2022) 10
  11. 11. CSR Funding – sectoral allocations Source:India Philanthropy Report 2022 – Bain & Dasra (2022) 11
  12. 12. Individual Giving • Relies mostly on in-person outreach • Religious beliefs most important driver for giving; desire to help those in need came a distant second • 56% donations in cash,7% in kind 17 Source:CSIP ,“How India Gives 2020-21”
  13. 13. Demand-Supply gap in Social Sector Funding Source:India Philanthropy Report 2022 – Bain & Dasra (2022) 18
  14. 14. Social Sector Funding – For-Profit space 0.3 0.5 0.7 1.1 2.3 3.5 2.6 6.8 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2010 2012 2014 2016 2018 2019 2020 2021 Investment Amount (USD Bn) Annual investments in social enterprises 19 Source: IIC Reports, Asha Impact # Deals 62 73 120 166 177 284 243 345 Avg.Ticket Size (USD Mn) 5 7 6 7 13 12.3 10.7 19.7
  15. 15. Everyday life in a funder-fundee relationship Source:IDR; https:// idronline.org/nonprofit-venn-diagrams-every-meeting-youve-ever-attended/ 20
  16. 16. A Good Funder? Understands and supports the ‘need’ • Required project /activity • Long-term • Admin & salaries also in addition to projectcosts • Untied funding? Proposal development? Ifhistoric leaders worked in todays development sector 16 Source:IDR Online
  17. 17. A Good Funder? Treat with dignity,respect and seriousness Asking the right questions Process information fast Power Dynamics? T alking-to-your-funders- through-indian-ads The CSR Khichdi 17 Source:IDR Online
  18. 18. A Good Funder? A long-term relationship • Alignmentwithorg/ projectgoals • Empathy • Flexibility • Supports in execution – networks,capacity building,bridging gaps • Willingness to experimentalong? • Rationale reporting • Understands and appreciates your impact (not just numbers) Relationship approach? 18 Source:IDR Online Ddlj-funder-nonprofit-love-story/
  19. 19. Funder Perspectives – Key Imperatives 19 • What are the most desired areas/activities for funding?Why? • What do you think of the relationship between activism/advocacy and charity/service delivery? How does one decide what to do? • How much of the thinking on ‘theory of change’ should come from funder vis-à-vis fundee? • Is there a good way to manage /monitor and hold the fundee accountable for the impact? • Who bears the burden for initiating systems change /institutional development? • What should be the relationship with Govt?
  20. 20. Non-Profit terminologies 20 • Grant • Corpus grant • T ax exemptions • Monitoring & Evaluation • Outcome-linked funding • Pass-through funding • FCRA
  21. 21. Fund-raising for for-profits • T ermsheet,ShareholdersAgreement • Funding rounds – Angel,SeriesA,B,C…. – Primary vs secondary sale • Funding structures and instruments – Equity – Convertible Notes – Venture Debt – Mezannine • Valuation – pre-money,post-money,dilution • T ermsheet Contracts – Anti-dilution;full-ratchet anti-dilution,Right of First Refusal – Exit terms,TagAlong Rights & DragAlong Rights,Liquidation – Voting rights,Board rights,Information rights – No-shopping,Deal costs 29
  22. 22. • DCF • Comparables • Venture Capital Method • T arget dilutions approach Some V aluation Methods 22

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