Ravi talk Srt Summarisation and Chapterisation -
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Just checking. Can you hear me?
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Good morning everyone.
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Our esteemed guest, Mr. Ravi Jadhav,
respected principal and president
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of Universal Human Value Cell of Rajiv
Gandhi Institute of Technology,
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Dr. Sanjay Bukade sir, our UHV RGIT
convener, Dr. Pallavi Mahale,
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Professor Shashikant Patil and Professor
Ankush Ingole.
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Our Institution Innovation Council's
president, Dr. Kishore Savarkar,
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Vice President Dr. Yograj Patil and
convener, Professor Dilip Dalgade.
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I, Aishwarya, welcome you all on behalf of
UHV RGIT and IIC RGIT, who
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has clubbed all of us for today's session
on angel investment
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and VC funding opportunities for early
stage entrepreneurship
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by our today's speaker, Mr. Ravi Jadhav.
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We appreciate you taking time off your
busy
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schedule and joining us here today, sir.
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Mr. Ravi Jadhav is a senior product
manager at Amazon and leads the commercial
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and open source Linux initiatives at
Amazon Web Services.
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He is an expert in information technology,
product management with focus
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on cloud and on premise IT infrastructure,
IoT and smart building.
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He is very passionate about cloud
computing technologies and strives
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to build secure and strong community led
open source initiatives
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that fuel the innovation engine of fourth
industrial revolution.
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In the past, Mr. Ravi has worked at Cisco,
where he
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co led the company's smart building
strategies,
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which aim to enable the building
developers to power their building
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infrastructures like lights over Ethernet
technology.
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Mr. Ravi holds an MBA from Haas School of
Business, University
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of Berkeley and an MS from San Jose State
University.
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Now, I request our Honorable Principal,
Dr. Sanjay
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Bokade sir to share a few words with us.
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Thank you, Aishwarya. Mr. Ravi Jadhav,
Senior
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Product Manager at Amazon, joining us from
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California, the universal human value cell
of RGIT,
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the Institutions Innovation Council of
RGIT,
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all the faculty members and the student
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members who have joined this session,
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a very good morning to all of you. I hope
I'm properly audible to all of you.
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Yes, sir, you're audible. Okay, thank you,
thank
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you. Yes, I was immensely happy when I
came to
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know that there is a session on funding
for the entrepreneurship opportunities.
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I believe that this concept of
entrepreneurship
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should be nicely known, well known,
thoroughly
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known to all the engineering graduates.
Why?
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Because I again feel very strongly that
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entrepreneurship is one of the best
outcomes for any
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program that an engineering college takes
up.
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And for you all, it is really an awesome
opportunity to even think in that way that
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you are going to be tomorrow's
entrepreneurs. While
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analyzing on this aspect, I think you need
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to have a clarity on these two terms that
is called
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as business and that other one called
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as entrepreneurship. Why we relate
entrepreneurship
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much with the engineering and we don't say
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business much with engineering. We are not
having a session on
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how to be a successful businessman or a
funding
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for a business. It's more of funding for
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entrepreneurship. There's a marginal
difference
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between these all things. A businessman is
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something you know who buys something at a
certain
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price and sell it at some more price
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and earns a profit and that's a business.
But
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when similar thing is being taken up by
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an engineer, it is with certain additional
dimensions.
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He create a brand of it. Tomorrow,
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next day, it goes towards branding of it.
Brand value
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creation is there. He creates a market for
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the product which he's going to bring in
the market.
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So, he defines his market, he defines
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his product, he defines his own sales
lines
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and it turns into an enterprise which has
a
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magnificent kind of business within it.
Now, to
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have all this thing happen, you definitely
need
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is the finance part of it because you just
cannot think
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always whatever you have in your pocket
and
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put it and you would go day by day and get
the things
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done. So, you need some kind of finance
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coming to you and there are plenty of
sources and
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opportunities from where you can gather
this
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finance. But there is something which
again you need
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to understand properly that what is the
right
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way, what is the right agency, from where
you can gather
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this finance. Now, when you get the
finance,
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you utilize it. What actually is needed to
build
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enterprise is capital investment. So, you
need
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capital and to make a capital, you need
finance
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and you need some source to have it
happen. So,
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having these things I think in the mind of
all of
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us and particularly for you all and Mr.
Ravi
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Jadhav would be the right person from whom
we
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would get all those inputs very well. So,
we
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would go ahead with the session now and I
close my talk here. Thank you so much.
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Thank you, Sir.
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Now, let us start with our informative
seminar,
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and I request Mr. Ravi to take over from
here.
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Thank you, Aishwarya.
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Can you just tell me the mode of
communication,
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is Hindi English okay, or should we just
stick
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to English?
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Is there any preference on it?
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Yes, Sir.
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English is fine.
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Okay.
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Okay.
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I'll try to mix it up.
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Thank you.
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Thank you, Book Artist.
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This was a very apt introduction, and
thank you for inviting me to this session.
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I really appreciate it, and I'm really
honored to be here.
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I see the turnout, the room is fully
packed, and it's really incredible to see.
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As just dovetailing on what you just said,
it's so appropriate because I've done two
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engineering degrees, one master's and one
bachelor's, and in none of those degrees,
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I was introduced to the business concepts.
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I had to take a GMAT, spend hundreds of
thousands
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of dollars, go to a business school, and
then
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learn about VCPE.
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So it was really, really refreshing to see
when Dr. Merle reached out on a session on
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VCPE, and it's just incredible what Dr.
Patil,
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Dr. Sawat, Mr. Ingole, Mr. Begode is doing
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on this.
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So really, really, really awesome
opportunity.
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So let me go ahead and share my screen.
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I hope I am audible, if I'm audible, okay,
perfect.
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I don't have the option to share my screen
enabled,
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so maybe the host will have to allow
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visible now. Perfect. Let's see. So I'll
just share the entire
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screen. And you should be able to see my
PowerPoint presentation
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come up. If you see the presentation, just
give me a
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thumbs up. Okay, I see Dr. Mallick giving
me a thumbs up. I
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will not be able to see the comments or
the screen facing
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the room. So if there are any questions,
just stop me. Feel
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free to interrupt me and ask me questions.
I'll be more than
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happy to answer and stop. So the session
today was the topic was
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angel investment and VC funding
opportunities. And I thought,
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even before you all kind of think about
this opportunities
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in funding, I'll give you a lay of the
land on on what angel
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investing and VC funding industry looks
like. And what
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are the different things that you as
entrepreneurs and
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students and aspiring business managers
going forward to think
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about. So today's session is going to be a
very high level
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overview. So I plan to take around 45 to
60 minutes to cover
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the content. But please understand that
these, these
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topics like VC, angel investing, private
equity, these are
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courses on its own in business school. So
whatever you're
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getting here, it's just an overview. And
then hopefully all
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of you will find bits and pieces that you
find interesting for
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yourself. And then you go deep dive on it.
So who's this
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session for right? Naturally, any aspiring
entrepreneur out
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there, right? So you're in your third
year, fourth year, you're
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thinking about ideas, you're working on
something, and you're
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thinking about taking it to market and you
need the money.
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So this session is definitely for you. But
it's not just
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limited for aspiring entrepreneurs. So
anybody who's
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who's willing to go into the investment
world and become an
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investor themselves at some point, or work
as an associate
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or analyst in the venture capital world,
which is very,
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very exciting, by the way, this session is
for you to as well,
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because you will understand what happens
in the industry, what
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are the roles, what are the care about how
do these industry
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function and interact with other other
entities. So it will be a
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good entry point for you as well so that
you can explore those
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opportunities. A lot of us will end up
working for other
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companies. So Amazon, Google, Cisco's of
the world, right?
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This session is for you as well. Because
when you go work as a
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product manager or a product owner in
these companies, you
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are not just expected to, to execute on
the tasks that are
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given to you, you are expected to find new
business
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opportunities, and then present it to your
general managers and
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CEOs and business unit leaders, and create
businesses out of it.
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So from zero to $100 million businesses.
So if you if you pay
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attention to these, these concepts, you
can structure your
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thinking, you can structure your ideas
around those fundamental
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blocks, which makes it appealing for your
supervisors to give you
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money and get your business going. And
finally, if there
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also is a segment of you, I'm sure who
wants to work for a
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startup, right? And when you go work for a
startup, startups
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don't usually have a lot of money. So up
to salary, pretty
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negotiated down or Jati, but then now you
once you go through
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this session, you'll know what are the
other levers that the
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startup owners or startup founders have
for their disposal
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that you can negotiate. So, equity pool,
option pool,
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preferred stock,
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So in short, the session is for everybody.
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You, all of you will
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not get all the concepts that we talked
about. But my hope is
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that you take some pieces, pay attention,
be open minded,
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absorb as much as you can, and then pick
your topic and deep
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dive as needed. And of course, if there's
interest, we can
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always do a follow up on on more detailed
aspects of the
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function.
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So a quick introduction about myself.
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I come from a town in Maharashtra called
Amravati.
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I did my K 12 there.
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Then I moved around in Pune, I worked in
Infosys.
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I did my master's in Sahaja State
University,
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worked in Cisco in various different
roles,
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Juniper Networks.
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And most recent education I have acquired
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is MBA in Business Finance and
Entrepreneurship
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from Berkeley Haas, University of
California.
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And I currently work at Amazon
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in the Cloud Computing Business Unit
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called Amazon Web Services as a product
manager.
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So my primary role is that of a business
manager
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and I manage certain business for Amazon.
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And it's my primary responsibility
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as a leader of that business to grow it
from zero
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when I joined to whatever revenue
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we have committed for Amazon.
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At Berkeley Haas, in my course for
entrepreneurship,
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we were successfully able to raise $5
million
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for our startup.
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Unfortunately, that startup didn't see the
next funding
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or the IPO stage of it,
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but we learned the valuable lessons
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that I'll share with you today.
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Hopefully you find value in it.
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So I've been talking for a while
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and this is a very good opportunity for me
to take a break
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and understand more about you.
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This is my favorite part.
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We did this exercise the last time I was
here
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talking to first year students about
engineering
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and the responses were amazing.
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So if you have a cell phone,
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you can scan the QR code
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that hopefully is visible on your screen
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and just answer the question
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so that I know which field you guys are
coming from.
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You can also go to the website menti.com
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and use the code that's listed on the
website
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so that you can go ahead and answer the
survey response.
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And I'll share the survey with you.
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It's very interesting
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because then you get to know a lot
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about your classmates as well.
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So we'll wait for 30, maybe 40 seconds
here
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and see if there are any responses that
come in.
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00:15:01,280 --> 00:15:05,320
If the QR code is not visible, please let
me know.
238
00:15:05,320 --> 00:15:06,960
Okay, I see some responses coming in.
239
00:15:50,132 --> 00:15:53,100
Okay, wonderful. A lot of computer science
and information technology, perfect.
240
00:16:16,980 --> 00:16:20,680
Some electronics, a lot of others, okay.
Okay, I'm skipping also, I'm enabling the
241
00:16:25,330 --> 00:16:30,370
second question as well, so go ahead and
answer that as well if you get a chance.
242
00:16:33,290 --> 00:16:36,076
So here are the survey results. The
responses are
243
00:16:36,076 --> 00:16:38,590
still pouring in but I think I get the
general
244
00:16:38,590 --> 00:16:41,825
lay of the land. Most of you are from
computer science,
245
00:16:41,825 --> 00:16:44,270
information technology, electronics.
246
00:16:45,370 --> 00:16:48,770
I'm curious to know what other is but
let's see
247
00:16:48,770 --> 00:16:52,170
what your dream jobs are. To become your
boss,
248
00:16:58,026 --> 00:17:04,150
okay. I'm sure you will. Cloud security,
haven't thought about it. Engineering. Oh,
249
00:17:05,450 --> 00:17:07,457
you're a boss. A lot of people want to
become my boss.
250
00:17:07,457 --> 00:17:09,370
That's pretty interesting.
Entrepreneurship,
251
00:17:15,754 --> 00:17:18,818
software developer. Okay, nice. That's
great. So
252
00:17:18,818 --> 00:17:21,810
a lot of you are interested in
entrepreneurship.
253
00:17:21,930 --> 00:17:25,731
Majority of you are interested in
entrepreneurship
254
00:17:25,731 --> 00:17:27,890
and I see a lot of not sure here.
255
00:17:27,890 --> 00:17:31,955
Artificial intelligence, full stack
developer,
256
00:17:31,955 --> 00:17:35,730
cyber security. That's great. Okay,
perfect.
257
00:17:35,882 --> 00:17:39,339
This is great. So let's move on to the
next. So the
258
00:17:39,339 --> 00:17:42,450
agenda that we are going to cover in
today's
259
00:17:42,450 --> 00:17:45,570
session is basically just to get an
overview of
260
00:17:45,570 --> 00:17:48,690
what is the difference between angel,
venture
261
00:17:48,690 --> 00:17:52,680
capital and private equity, right? And
then we'll
262
00:17:52,680 --> 00:17:56,290
go into the angel landscape to learn about
the
263
00:17:56,290 --> 00:18:00,430
angels. Then we'll deep dive into the
venture capital
264
00:18:00,430 --> 00:18:03,650
world, see what the trends are in funding.
265
00:18:03,650 --> 00:18:08,103
And then I'll finally talk about some of
the negotiation
266
00:18:08,103 --> 00:18:10,850
traps or key negotiation concepts
267
00:18:10,850 --> 00:18:14,211
that you'll require to be successful in
securing
268
00:18:14,211 --> 00:18:17,490
the funding for VCs. Again, the concepts
that we
269
00:18:17,490 --> 00:18:20,607
will talk about here are high level, but
the most
270
00:18:20,607 --> 00:18:23,490
crucial ones. And then there will be
certain
271
00:18:23,490 --> 00:18:27,453
aspects that need to be covered in a
separate topic
272
00:18:27,453 --> 00:18:30,850
or maybe as a follow up and we'll get to
that.
273
00:18:32,032 --> 00:18:37,360
So when you when you think about a startup
funding, right, it's
274
00:18:37,360 --> 00:18:42,480
it goes through a lot of stages. And at
each stage, you find
275
00:18:42,480 --> 00:18:45,600
different personas interacting with you.
So once you have an
276
00:18:45,600 --> 00:18:50,400
idea, once you have an prototype, most
more often than
277
00:18:50,400 --> 00:18:54,560
not, earlier people used to go directly to
the seed round where
278
00:18:54,560 --> 00:18:57,040
they used to talk to an angel investor,
the angel investor
279
00:18:57,040 --> 00:19:00,440
used to give them money and they used to
work on the product
280
00:19:00,440 --> 00:19:05,200
prototype. But more recently, what has
started happening is
281
00:19:05,200 --> 00:19:08,600
people have started working on the pre
seed rounds where
282
00:19:08,600 --> 00:19:14,600
friends, families, incubators crowd
fundings are heavily used
283
00:19:14,752 --> 00:19:18,560
for securing the funding. And what I mean
by that is, let's
284
00:19:18,560 --> 00:19:21,640
you have an uncle who has a bunch of money
lying around, and
285
00:19:21,640 --> 00:19:24,880
he gives you 10 lakhs and says, Okay, go
ahead and work on it.
286
00:19:24,992 --> 00:19:29,840
And seek out that. So those are called pre
seed rounds just may
287
00:19:30,144 --> 00:19:33,840
you don't have a formal commitment to
friends and
288
00:19:33,840 --> 00:19:37,800
families and they gave you a bunch of
money, most often than
289
00:19:37,800 --> 00:19:41,920
not, without any expectation of giving or
getting that money
290
00:19:41,920 --> 00:19:46,360
back or even, you know, non interest rate,
money, etc. So
291
00:19:46,360 --> 00:19:49,200
that is the idea stage where you don't
have the product, you just
292
00:19:49,200 --> 00:19:51,280
have an idea, you think it's going to be
successful, you
293
00:19:51,280 --> 00:19:55,160
secure money from these incubators from
your family and
294
00:19:56,260 --> 00:19:58,980
friends, and you start working on a
prototype. And then you
295
00:19:58,980 --> 00:20:02,540
move into the seed round where
296
00:20:02,540 --> 00:20:06,100
people seem to like it, and you
297
00:20:06,100 --> 00:20:08,660
have done a bunch of testing and now
you're ready to go launch
298
00:20:08,660 --> 00:20:12,780
that product in the world. That's where
the angel
299
00:20:12,780 --> 00:20:18,100
investors, sometimes venture capitalists
come in, and they
300
00:20:18,100 --> 00:20:22,340
provide you somewhere around 10,000 to $2
million of money
301
00:20:22,340 --> 00:20:26,700
to go make that launch happen, go
introduce your product to the
302
00:20:26,700 --> 00:20:30,980
world. After that, once you've started
generating revenue, you
303
00:20:30,980 --> 00:20:35,580
might not still be profitable. You've made
a product, people
304
00:20:35,580 --> 00:20:39,860
seem to like it. You don't have any money
coming in as revenue
305
00:20:39,860 --> 00:20:43,460
from it. But the idea seemed to be
successful. Then you move
306
00:20:43,460 --> 00:20:45,900
into the series A round of it where the
real venture
307
00:20:45,900 --> 00:20:50,980
capitalists come in, and they have much
more appetite to give
308
00:20:50,980 --> 00:20:54,780
you money. So there you tend to raise
anywhere between 2 million
309
00:20:54,780 --> 00:20:59,460
to 15 million round. Or the idea of this
round is you focus on
310
00:20:59,460 --> 00:21:05,340
growth. So venture series A, you have
100,000 users. Now the
311
00:21:05,340 --> 00:21:09,460
venture capitalist wants you to go to 100
million users or 200
312
00:21:09,460 --> 00:21:12,100
million users so that you're ready for the
next series and
313
00:21:12,100 --> 00:21:15,780
your valuation increases and so forth. And
after that happens,
314
00:21:16,512 --> 00:21:21,820
once you have a series A round, then you
go into these funding
315
00:21:21,820 --> 00:21:26,580
rounds up to your IPO, which can be series
B, series C, series C,
316
00:21:26,580 --> 00:21:32,700
series D, E, anywhere until you think
you're comfortable going
317
00:21:32,700 --> 00:21:36,020
IPO where you list your shares in the
public market, just say,
318
00:21:36,032 --> 00:21:41,660
Bombay Stock Exchange, NYSE, etc, etc. So
as you move ahead
319
00:21:41,660 --> 00:21:45,380
in the series, you get to interact with
venture
320
00:21:45,380 --> 00:21:50,180
capitalists, bigger in size, or the same
venture capitalists can
321
00:21:50,180 --> 00:21:55,620
help you raise the money. But generally,
the round tends to
322
00:21:55,620 --> 00:21:58,860
get bigger, if you're if you're doing
successful. And then the
323
00:21:58,860 --> 00:22:02,420
stages of the company also differ. So
growth, SAP
324
00:22:02,420 --> 00:22:05,060
expansion, where you're starting to make
money, and then finally
325
00:22:05,060 --> 00:22:08,860
you go to the public domain where
hopefully you are making
326
00:22:08,860 --> 00:22:12,140
1 billion and more as a unicorn.
327
00:22:14,620 --> 00:22:18,660
So, there are some peculiar functions
328
00:22:18,660 --> 00:22:22,160
between seed, venture capital, and private
equity.
329
00:22:22,160 --> 00:22:27,020
So, private equity is a whole different
beast.
330
00:22:27,020 --> 00:22:31,340
Private equity is usually funds companies
331
00:22:31,340 --> 00:22:34,020
which are very, very late stage in the
game.
332
00:22:34,020 --> 00:22:35,140
They're already profitable.
333
00:22:35,140 --> 00:22:36,180
They're a pretty big company.
334
00:22:36,180 --> 00:22:39,020
They acquire these companies, make them
profitable,
335
00:22:39,020 --> 00:22:40,920
and then resell it for a profit.
336
00:22:40,920 --> 00:22:42,820
So, we're not gonna talk about private
equities
337
00:22:42,820 --> 00:22:43,920
just there for your reference,
338
00:22:43,920 --> 00:22:47,140
but we are going to focus on seed and
venture capital.
339
00:22:47,192 --> 00:22:52,140
So, when you look at an angel, right, or a
seed investor,
340
00:22:52,140 --> 00:22:56,300
they're most probably than not a loan
investor.
341
00:22:56,312 --> 00:22:59,220
So, these are people who have made a bunch
of money
342
00:22:59,220 --> 00:23:01,220
in the company they were working with.
343
00:23:01,220 --> 00:23:04,980
Let's say Google, people who were working
at Google
344
00:23:04,980 --> 00:23:07,180
before it went IPO, after it went IPO,
345
00:23:07,180 --> 00:23:09,500
they have a lot of money from the stocks,
346
00:23:09,500 --> 00:23:12,500
and now they want to invest that money in
startups.
347
00:23:12,500 --> 00:23:14,700
Or somebody who had found a company,
348
00:23:14,700 --> 00:23:16,140
sold it to a bigger company,
349
00:23:16,140 --> 00:23:18,180
and they have a lot of cash lying around
350
00:23:18,180 --> 00:23:20,460
that they need to invest somewhere.
351
00:23:20,460 --> 00:23:23,780
So, that's the typical persona of an
angel.
352
00:23:23,780 --> 00:23:28,000
They usually work in solo,
353
00:23:28,000 --> 00:23:29,660
but there could be a group of angels
354
00:23:29,660 --> 00:23:32,920
who are looking out for opportunities to
invest.
355
00:23:32,920 --> 00:23:36,140
The investments, they tend to range
356
00:23:36,140 --> 00:23:37,820
from 10,000 to a few million,
357
00:23:37,820 --> 00:23:39,620
because there's one person,
358
00:23:39,620 --> 00:23:43,300
and they want to maximize their bets
everywhere.
359
00:23:43,300 --> 00:23:45,340
Because the risk is so high,
360
00:23:45,340 --> 00:23:47,180
(speaking in foreign language)
361
00:23:47,180 --> 00:23:49,860
they're sprinkling their money on multiple
bets.
362
00:23:49,860 --> 00:23:52,940
So, they possibly put money on 20
startups,
363
00:23:52,940 --> 00:23:55,700
one makes successful and makes them 20X
money,
364
00:23:55,704 --> 00:23:58,220
which is a huge exit for them, right?
365
00:23:58,220 --> 00:24:00,660
And then we'll talk about the type of
investment,
366
00:24:00,660 --> 00:24:01,860
et cetera, et cetera.
367
00:24:01,860 --> 00:24:05,460
So, and as opposed to the angel,
368
00:24:05,460 --> 00:24:07,060
venture capital is a fund.
369
00:24:07,060 --> 00:24:11,700
So, it's a company like Sequoia Capital,
right?
370
00:24:11,700 --> 00:24:14,740
We'll talk about venture capitals in India
as well.
371
00:24:14,740 --> 00:24:16,260
They're a bunch of companies,
372
00:24:16,260 --> 00:24:19,060
they're a company with a bunch of people,
373
00:24:19,060 --> 00:24:21,860
and they source money from other people.
374
00:24:21,860 --> 00:24:25,180
So, again, a seed investor could invest
375
00:24:25,180 --> 00:24:27,140
in the venture capital fund,
376
00:24:27,140 --> 00:24:31,220
or let's say, (speaking in foreign
language)
377
00:24:31,220 --> 00:24:33,180
the provident fund manager can decide,
378
00:24:33,180 --> 00:24:37,100
(speaking in foreign language)
379
00:24:37,240 --> 00:24:41,780
so that they could go invest in companies
and so forth.
380
00:24:41,784 --> 00:24:46,780
So, they usually have a lot of cash than
an angel investor,
381
00:24:46,968 --> 00:24:49,540
and we'll talk about how they invest over
a period of time,
382
00:24:49,540 --> 00:24:53,260
and their investments can go from a
million dollars
383
00:24:53,260 --> 00:24:55,060
to tens of millions of dollars.
384
00:24:55,060 --> 00:25:00,060
So, that's the basic difference you need
to be aware of,
385
00:25:01,700 --> 00:25:05,460
because depending on the stage of your
startup,
386
00:25:05,496 --> 00:25:08,420
you might have to choose if you go after
the angel investors
387
00:25:10,120 --> 00:25:12,760
or if you go after the venture capitals.
388
00:25:12,792 --> 00:25:15,640
Any questions before we dive into angels?
389
00:25:21,500 --> 00:25:25,942
Okay, perfect. So, angel investors, one of
the very
390
00:25:25,942 --> 00:25:29,660
interesting fact about angel investors is
391
00:25:29,660 --> 00:25:32,976
they're the largest source of early stage
capital
392
00:25:32,976 --> 00:25:35,740
on planet. Because there are so many angel
393
00:25:35,740 --> 00:25:39,352
investors fragmented all around the world,
they
394
00:25:39,352 --> 00:25:42,700
tend to find opportunities a lot more than
the
395
00:25:42,700 --> 00:25:45,091
venture capital, they have much more
leverage
396
00:25:45,091 --> 00:25:47,420
because they don't have to answer to
anybody.
397
00:25:49,524 --> 00:25:53,809
And they can invest based on their
investment methodology,
398
00:25:53,809 --> 00:25:56,380
as opposed to the venture capital's
399
00:25:56,380 --> 00:25:59,980
investment methodology, right. So, 100
billion
400
00:25:59,980 --> 00:26:03,580
annually, as per NVCA, is the current
investment
401
00:26:03,580 --> 00:26:07,113
source. The typical investments as we
talked
402
00:26:07,113 --> 00:26:10,460
about is lower than 2 million. And there
are
403
00:26:10,460 --> 00:26:14,152
geographies where angels can be
concentrated.
404
00:26:14,152 --> 00:26:17,660
So Silicon Valley, where I live in, it's
very,
405
00:26:17,660 --> 00:26:20,640
very concentrated by angel investors,
because there's
406
00:26:20,640 --> 00:26:22,860
a lot of startup activity happening here,
407
00:26:22,860 --> 00:26:25,159
a lot of founders selling their companies,
and
408
00:26:25,159 --> 00:26:27,340
they have a lot of cash lying around that
they
409
00:26:27,340 --> 00:26:30,300
want to invest in startups. So,
410
00:26:30,300 --> 00:26:31,840
So
411
00:26:31,840 --> 00:26:41,840
[BLANK_AUDIO]
412
00:26:34,178 --> 00:26:37,510
So that that's the profile of investors.
And you might
413
00:26:37,510 --> 00:26:41,270
sometimes as you talk to investors and
give them pitch
414
00:26:41,410 --> 00:26:45,070
or the or to the end with angel investor
about your company, you
415
00:26:45,070 --> 00:26:50,530
might find that these angels can sometime
be a little dramatic
416
00:26:50,530 --> 00:26:53,830
because they can they are giving you your
money and instead of
417
00:26:53,830 --> 00:26:57,150
just living at that they can be much more
involved in your
418
00:26:57,150 --> 00:27:00,550
company and dictating your terms. So you
usually want to
419
00:27:00,550 --> 00:27:02,870
stay away from these kind of investors
even if they're giving
420
00:27:02,870 --> 00:27:05,869
your money and try to find an investor
which is a better fit
421
00:27:06,274 --> 00:27:10,310
for your company. So that brings us to the
question of what are
422
00:27:10,310 --> 00:27:16,190
the types of angels right? One is
financial Joe up close surf
423
00:27:16,190 --> 00:27:19,070
basis in Madagascar but they're not going
to help you with
424
00:27:19,070 --> 00:27:24,230
anything to do with the start. So that up
may if you have a
425
00:27:24,230 --> 00:27:28,470
company on online marketplace, this
particular investor knows
426
00:27:28,470 --> 00:27:31,470
nothing about online marketplace, but they
have cash
427
00:27:31,510 --> 00:27:33,710
and they're going to give you cash and
say, okay, take this
428
00:27:33,710 --> 00:27:37,670
cash and go make something happen in the
next week. The
429
00:27:37,670 --> 00:27:42,510
second type of angel is operation just go
in this week
430
00:27:42,510 --> 00:27:45,870
about knowledge, but they don't have a lot
of cash so they can
431
00:27:45,870 --> 00:27:48,910
give you relatively lower cash but they
can help you
432
00:27:48,910 --> 00:27:52,990
tremendously with the company itself on
they've gone through
433
00:27:52,990 --> 00:27:55,670
that they know how to grow the company and
they're going to
434
00:27:55,670 --> 00:27:59,070
come in and help you with the industry.
The third is
435
00:27:59,110 --> 00:28:03,150
entrepreneur, entrepreneur angels business
may in the
436
00:28:03,150 --> 00:28:06,350
startup experience balls out of them but
industry can just have
437
00:28:06,350 --> 00:28:10,070
an online marketplace up a company. But
this particular
438
00:28:10,530 --> 00:28:15,750
angel has started and company in robotics
and sold a company in
439
00:28:15,750 --> 00:28:20,150
robotics. So they don't have experience on
online marketplaces
440
00:28:20,150 --> 00:28:26,310
but they have a lot of experience on
robotics. So the
441
00:28:26,310 --> 00:28:29,390
reason I'm giving you all these example
is, when you think about
442
00:28:29,390 --> 00:28:34,110
angels, you have to think the moochie is
time pick up to so
443
00:28:34,110 --> 00:28:37,990
other, if you have an idea, and you don't
know anything about
444
00:28:38,082 --> 00:28:41,550
the industry itself, then you're better
off going with an
445
00:28:41,550 --> 00:28:44,670
operational angel who can help you with
the company, but might
446
00:28:44,930 --> 00:28:48,670
might not give you a lot of money. Right.
And then the best
447
00:28:48,670 --> 00:28:51,670
type of angel is the guardian angel just
give us industry
448
00:28:51,670 --> 00:28:55,550
experience via and they have a very high
experience in startup
449
00:28:55,550 --> 00:28:59,310
as well. And they have a cash, a lot of
cash lying around. So he
450
00:28:59,310 --> 00:29:04,430
gives you cash, and they give you all the
knowledge that they
451
00:29:04,430 --> 00:29:07,230
have to grow your company from zero to
where it needs to be.
452
00:29:07,230 --> 00:29:14,030
And these these angel investors will
definitely negotiate a lot
453
00:29:14,030 --> 00:29:17,870
more equity from you. And we'll talk about
it on how to kind of
454
00:29:20,322 --> 00:29:25,290
balance that off. More on angels. So as I
said, angels
455
00:29:25,290 --> 00:29:31,810
are the investors that take the most risk
because you are so
456
00:29:31,810 --> 00:29:35,490
early in your entrepreneurship journey. We
don't know if you're
457
00:29:35,490 --> 00:29:38,050
going to be successful. We don't know if
this company is ever
458
00:29:38,050 --> 00:29:41,170
going to make money. But they are giving
you money at that
459
00:29:41,170 --> 00:29:44,050
state of the time. So they are taking the
maximum risk among
460
00:29:44,050 --> 00:29:47,610
any investors that you'll see in your
startup journey. So you
461
00:29:47,610 --> 00:29:51,210
have to protect them. Because as more and
more experienced
462
00:29:51,210 --> 00:29:54,450
investors like venture capitalists come in
in the
463
00:29:54,450 --> 00:29:58,770
future round, they're going to want to
dilute the angel
464
00:29:58,770 --> 00:30:01,290
investors. So you have to protect them.
You have to give
465
00:30:01,290 --> 00:30:06,090
them preferred shares, we'll talk about
it. And then you or
466
00:30:06,090 --> 00:30:09,610
you can also ask them if they have any
other records because
467
00:30:09,610 --> 00:30:13,690
these are high net individuals. They have
other friends who are
468
00:30:13,690 --> 00:30:16,090
also operating in the same way and they
can pull in other
469
00:30:16,090 --> 00:30:19,690
angels to give you money or give you
expertise. And one of the
470
00:30:19,690 --> 00:30:24,930
very important lessons I've learned is
always to be very
471
00:30:24,930 --> 00:30:30,370
spice dressed as angels. So other cool
angel hair who's
472
00:30:30,370 --> 00:30:34,090
invested in a company similar to yours. So
they might just be
473
00:30:34,090 --> 00:30:37,210
talking to you just to get more intel on
what you're doing, but
474
00:30:37,210 --> 00:30:41,530
they might have no intention to give you
money to invest in a
475
00:30:41,530 --> 00:30:44,410
company. So you have to be very, very
careful when you deal with
476
00:30:44,410 --> 00:30:47,970
angels. And if you sense any of those
going on in the
477
00:30:47,970 --> 00:30:49,970
conversations, just stay away from it.
478
00:30:52,594 --> 00:30:55,985
So that was Angels. Next, we move to
Venture Capital
479
00:30:55,985 --> 00:30:58,350
and this is a very, very interesting
480
00:30:58,350 --> 00:31:02,217
slide. If you spare 10 minutes of
attention
481
00:31:02,217 --> 00:31:05,870
on this slide, you will get so much value,
482
00:31:05,870 --> 00:31:08,841
not just entrepreneurship, but like any
other possible
483
00:31:08,841 --> 00:31:10,990
career opportunities that you can find.
484
00:31:10,990 --> 00:31:16,118
So the way Venture Capital is structured
is,
485
00:31:16,118 --> 00:31:20,830
it's usually a 10 year fund life. So if
I'm
486
00:31:20,830 --> 00:31:26,030
starting a fund today as a Venture Capital
in 2023, I'm going to tell my investors,
487
00:31:26,030 --> 00:31:29,960
give me money for the next 10 years and
I'm going
488
00:31:29,960 --> 00:31:33,790
to triple this money or 10x this money by
2033.
489
00:31:33,790 --> 00:31:39,224
So that's the front that Venture
Capitalists sell
490
00:31:39,224 --> 00:31:44,270
to their investors and the fund can go
anywhere
491
00:31:44,270 --> 00:31:48,481
from 100 million to 200 million and so
forth. So you
492
00:31:48,481 --> 00:31:52,190
as an entrepreneur should be looking out
for
493
00:31:52,190 --> 00:31:54,742
these kinds of opportunities where Venture
Capital
494
00:31:54,742 --> 00:31:56,830
with maximum money are looking to invest
in
495
00:31:56,830 --> 00:32:01,830
companies. So Venture Capitalists, they
start
496
00:32:01,830 --> 00:32:06,830
a fund and they look for investors in
their funds
497
00:32:06,830 --> 00:32:12,590
and they have to invest this money as soon
as possible. So within one or three years,
498
00:32:12,590 --> 00:32:16,012
they have to fully invest this money in
the companies
499
00:32:16,012 --> 00:32:18,190
so that they could see the maximum
500
00:32:18,190 --> 00:32:22,630
return by the end of the financial cycle
that
501
00:32:22,630 --> 00:32:27,070
is 2033 in this example. The minimum
Venture
502
00:32:27,070 --> 00:32:31,137
Capitalists aim to get the return out of
the investment
503
00:32:31,137 --> 00:32:33,790
is 3x in 10 years. That's the minimum
504
00:32:33,790 --> 00:32:37,073
and that's why they are wanting to always
take
505
00:32:37,073 --> 00:32:40,270
on very, very risky bets and take as many
bets
506
00:32:41,520 --> 00:32:46,582
as possible so that they have the maximum
leverage
507
00:32:46,582 --> 00:32:50,800
to get the money back at the end of the
term.
508
00:32:50,060 --> 00:32:54,500
In VC, usually, there are general partners
and limited
509
00:32:54,500 --> 00:32:57,420
partners, you might have heard this term
often. And what that
510
00:32:57,420 --> 00:33:01,740
really means is, your general partner,
they are making the
511
00:33:01,740 --> 00:33:03,940
investment decisions, and they're usually
one general
512
00:33:03,940 --> 00:33:09,060
partner or two general partners. So if
there's $100 million fund,
513
00:33:09,060 --> 00:33:10,980
there could be two general partners who
are making
514
00:33:11,148 --> 00:33:14,340
investment decisions in companies, but
there could be
515
00:33:14,340 --> 00:33:18,500
multiple limited partners. So $100 million
fund, if you
516
00:33:18,500 --> 00:33:23,660
invest $5 million, you become a limited
partner. And limited
517
00:33:23,660 --> 00:33:27,580
partner has some authority where they can
question the general
518
00:33:27,580 --> 00:33:31,220
partners, they can ask where the money is
going, they can hold
519
00:33:31,220 --> 00:33:36,500
them accountable. But, but they don't have
any investment
520
00:33:36,500 --> 00:33:39,460
authority. So that's the general
differentiation between the
521
00:33:39,460 --> 00:33:42,500
general partners and the limited partners.
And then there are
522
00:33:42,500 --> 00:33:45,380
other roles within the organization, like
an associate,
523
00:33:45,836 --> 00:33:49,460
venture partners and entrepreneurs and
residents. This
524
00:33:49,548 --> 00:33:54,380
is where a lot of you could find value in
because an associate
525
00:33:54,540 --> 00:33:59,700
is, is the is the person who's doing all
the calculations for
526
00:33:59,700 --> 00:34:04,140
general partner. So an example could be,
hey, okay, we have
527
00:34:04,140 --> 00:34:09,420
this new company that wants money, why
don't you go do the
528
00:34:09,420 --> 00:34:13,260
analysis on if it makes sense for our
company to go invest in
529
00:34:13,260 --> 00:34:17,500
and then it's the associate who does that
work. And the beauty
530
00:34:17,500 --> 00:34:20,940
of it is once you spend a year or two as
an associate in a
531
00:34:20,940 --> 00:34:24,300
venture capital, you become very, very
valuable to all the
532
00:34:24,300 --> 00:34:27,100
other companies, because you have gone
through this process.
533
00:34:27,100 --> 00:34:29,940
And a lot of companies look for that kind
of expertise where you
534
00:34:29,940 --> 00:34:34,660
could spot great opportunities where you
could decide to
535
00:34:34,660 --> 00:34:37,540
invest in this great opportunities. And
also, the
536
00:34:37,540 --> 00:34:43,140
second role is venture partner, wherein a
general partner, if
537
00:34:43,140 --> 00:34:46,740
there is, if there are multiple general
partners in a venture
538
00:34:46,740 --> 00:34:50,580
capital, you could be a venture partner.
So associate usually
539
00:34:50,580 --> 00:34:56,140
once they spend two, three years time in a
venture fund, they're
540
00:34:56,140 --> 00:35:00,820
promoted to venture partner and their
larger profits and so
541
00:35:00,820 --> 00:35:04,020
forth. And finally, the entrepreneur in
residence, this
542
00:35:04,020 --> 00:35:07,980
could also be very interesting role
because it's a lot of
543
00:35:07,980 --> 00:35:12,660
times, startup companies found by
engineers, they they come up
544
00:35:12,660 --> 00:35:15,220
with exciting solutions, they come up with
exciting products,
545
00:35:15,220 --> 00:35:18,860
but they don't have the expertise to scale
the scale of
546
00:35:18,860 --> 00:35:23,620
the company. In that case, a venture
capital can come in and
547
00:35:23,620 --> 00:35:26,780
say, okay, take our entrepreneur in
residence, and he will help
548
00:35:27,880 --> 00:35:32,080
you guide the company to success. And
finally,
549
00:35:32,080 --> 00:35:37,120
compensation, it's usually one to 2% of
the money that is
550
00:35:37,120 --> 00:35:42,160
invested. And this is huge, by the way. So
if, if the fund is
551
00:35:42,160 --> 00:35:49,000
10 million 25 million, imagine 1% and 2.5%
of $10 million, it's
552
00:35:49,000 --> 00:35:51,920
an incredible amount of opportunity. And
then finally,
553
00:35:51,920 --> 00:35:57,280
once the fund exits, at the 10 year mark,
20 to 30% of the
554
00:35:57,280 --> 00:36:02,920
profits go back to the general partners
after all the limited
555
00:36:02,920 --> 00:36:07,320
partners are paid. So, so a lot of
technical terms in here. Let
556
00:36:07,320 --> 00:36:10,360
me pause and see if there are any
questions.
557
00:36:17,484 --> 00:36:21,160
Okay, perfect. So if you are an
entrepreneur, and if you're
558
00:36:21,160 --> 00:36:24,440
targeting venture capital funds, you
should be talking to
559
00:36:24,524 --> 00:36:27,720
general partners, you should be talking to
associates and you
560
00:36:27,720 --> 00:36:30,440
should be talking to venture partners. So
you go on a
561
00:36:30,440 --> 00:36:33,540
website, you look at the venture capitals
website, you see a
562
00:36:33,540 --> 00:36:37,040
bunch of people listed on there about
columns. These are the
563
00:36:37,040 --> 00:36:39,320
people you should be targeting because
these are the people who
564
00:36:40,520 --> 00:36:43,440
are making the investment decisions.
Similar to venture
565
00:36:43,440 --> 00:36:46,600
capitals, a lot of companies have their
own corporate
566
00:36:47,280 --> 00:36:51,440
entities that focus on venture capital. So
Amazon has its own
567
00:36:51,468 --> 00:36:55,800
that gives out venture capitals, Qualcomm
has it Intel has it
568
00:36:55,800 --> 00:37:01,320
and so forth. And it's important to know
about this is because if
569
00:37:01,320 --> 00:37:04,480
you are developing, I'll just stick to the
online marketplace
570
00:37:04,480 --> 00:37:09,280
example, online marketplace, which is so
niche, that it's
571
00:37:09,280 --> 00:37:13,680
selling something that Amazon has no hands
on. Amazon cannot
572
00:37:13,680 --> 00:37:16,560
sell it. And as Amazon does not have the
capacity or the
573
00:37:16,560 --> 00:37:19,200
expertise to sell their product, but you
as a marketplace can
574
00:37:19,200 --> 00:37:23,400
sell that. Now you become very, very
valuable to Amazon. So if
575
00:37:23,400 --> 00:37:27,720
you look for Amazon ventures, and find
somebody there and
576
00:37:27,720 --> 00:37:31,440
pitch your idea to Amazon, more likely
than not, Amazon would be
577
00:37:31,440 --> 00:37:37,400
willing to fund in your startup. So those
are the things that you
578
00:37:37,400 --> 00:37:40,840
also have to look out for. So there is any
company that your
579
00:37:40,840 --> 00:37:45,960
product is adjacent to or could be
valuable to you go look out
580
00:37:45,960 --> 00:37:48,800
for those ventures and try to reach out to
those people
581
00:37:50,400 --> 00:37:52,400
to see if you can secure funds from them.
582
00:37:53,896 --> 00:37:57,983
Okay, so we talked about angels, we talked
about
583
00:37:57,983 --> 00:38:01,560
venture capital, and as an entrepreneur,
584
00:38:01,560 --> 00:38:04,002
it's very important for you to also
understand
585
00:38:04,002 --> 00:38:05,880
what is going on in the world, how the
586
00:38:05,880 --> 00:38:09,466
macroeconomic world, macroeconomic
situation
587
00:38:09,466 --> 00:38:12,440
in the world is shaping. So on the screen,
588
00:38:12,488 --> 00:38:17,544
you see the venture capital investments
589
00:38:17,544 --> 00:38:22,600
from Q1 2021 to Q1 2023. And as you can
see,
590
00:38:22,792 --> 00:38:27,588
the venture capital in the world have
started
591
00:38:27,588 --> 00:38:31,880
to dry up. And as you can imagine, in
2021,
592
00:38:34,216 --> 00:38:39,719
we were recovering from coronavirus. A lot
of governments
593
00:38:39,719 --> 00:38:43,200
decrease the interest rate to almost
594
00:38:43,200 --> 00:38:47,513
zero. So a lot of capital or a lot of
money started
595
00:38:47,513 --> 00:38:50,640
flowing in to the startups. People
596
00:38:50,640 --> 00:38:54,273
were exuberant, a lot of startups were
getting funded.
597
00:38:54,273 --> 00:38:56,880
But as soon as inflation hit everywhere
598
00:38:56,880 --> 00:38:59,862
across the world, banks started to
increase their
599
00:38:59,862 --> 00:39:02,560
rates, the investors all suddenly started
to
600
00:39:02,560 --> 00:39:04,385
become very, very cautious with their
money
601
00:39:04,385 --> 00:39:06,160
and started to pull back the money they
were
602
00:39:06,160 --> 00:39:09,897
investing in startups. So the situation
seems to
603
00:39:09,897 --> 00:39:13,360
be stabilized. But there is a lot less
money in
604
00:39:13,360 --> 00:39:19,080
the market than than there was in 2021. So
it's
605
00:39:19,080 --> 00:39:24,800
almost half. And this is not to discourage
you
606
00:39:24,800 --> 00:39:27,922
as an entrepreneur. But this is just to
let you
607
00:39:27,922 --> 00:39:30,880
know that it's, it might be a little tough
to
608
00:39:30,880 --> 00:39:34,445
raise money, at least for the next two or
three quarters.
609
00:39:34,445 --> 00:39:36,720
But you have to hedge your bets. Like
610
00:39:36,720 --> 00:39:39,922
if you're if you're thinking about, you
know,
611
00:39:39,922 --> 00:39:43,040
leaving the job versus pursuing my
startup,
612
00:39:43,304 --> 00:39:45,794
you have to hedge your bets. Is it the
right move?
613
00:39:45,794 --> 00:39:48,160
Or shall I do it simultaneously? And so
just to
614
00:39:50,952 --> 00:39:53,049
just to give you an overview. And finally,
the
615
00:39:53,049 --> 00:39:54,980
the deal structure, though, it shows very
616
00:39:54,980 --> 00:39:58,900
interesting data. So if you look at the
number of
617
00:39:58,900 --> 00:40:02,820
angel and early stage startups that got
funded,
618
00:40:02,887 --> 00:40:06,014
it's it's very high. So most of the money
went in
619
00:40:06,014 --> 00:40:08,980
angels and early stage companies, meaning,
620
00:40:08,980 --> 00:40:13,300
even though the money out there has dried
up a little bit,
621
00:40:13,300 --> 00:40:18,780
was just coming up with ideas and new
products
622
00:40:18,780 --> 00:40:24,260
as as opposed to companies who are late
stage,
623
00:40:24,260 --> 00:40:28,189
who are already profitable, etc, etc. So
that is
624
00:40:28,189 --> 00:40:32,020
something to be, you know, happy about as
you as
625
00:40:32,020 --> 00:40:37,215
you go into entrepreneurship. So nearly
$6.9 billion
626
00:40:37,215 --> 00:40:41,140
across the globe, got invested in nearly
627
00:40:41,140 --> 00:40:44,500
5000 companies. So on average, everybody
has been
628
00:40:44,500 --> 00:40:47,780
getting around a million dollars or so. So
that's
629
00:40:47,780 --> 00:40:50,875
a very positive outlook that you should be
looking
630
00:40:50,875 --> 00:40:53,380
at for the next few quarters and so forth.
631
00:40:56,308 --> 00:40:59,800
All right, so a lot of you are from
computer science,
632
00:40:59,800 --> 00:41:03,680
information technology, and I'm sure you
are all aware of
633
00:41:03,680 --> 00:41:08,520
ChargedGPT and the craze that artificial
intelligence has, has
634
00:41:09,940 --> 00:41:12,940
has going on in the world. Everybody is
doing something or
635
00:41:12,940 --> 00:41:17,100
the other related to artificial
intelligence. So VCs also get
636
00:41:17,100 --> 00:41:20,340
affected by it. And when they when they
think of the areas
637
00:41:20,340 --> 00:41:23,380
they want to invest in, it's usually
driven driven by the
638
00:41:23,380 --> 00:41:29,100
trend. And it's usually in the most latest
cutting edge
639
00:41:29,100 --> 00:41:32,380
technologies that they want to invest in.
So I've listed out
640
00:41:32,380 --> 00:41:38,260
the five technologies that VCs are heavily
funding. And so
641
00:41:38,260 --> 00:41:43,380
artificial intelligence is is topmost a
lot of dollar is going
642
00:41:43,380 --> 00:41:45,340
to artificial intelligence companies right
now,
643
00:41:46,644 --> 00:41:50,140
sustainability and clean tech. So anything
to do with solar,
644
00:41:50,180 --> 00:41:54,740
renewable energy, battery falls into this
bucket. So a lot of
645
00:41:54,740 --> 00:41:57,860
money is going there as well. Health tech
and digital health
646
00:41:57,860 --> 00:42:02,780
solutions. So after Coronavirus, that has
become the new norm
647
00:42:02,780 --> 00:42:05,260
where you just see your doctor through an
app, you don't have
648
00:42:05,260 --> 00:42:08,820
to go to the hospital. A lot of your
medical records have now
649
00:42:08,820 --> 00:42:13,820
become digital. So a lot of solutions
around that are still
650
00:42:13,820 --> 00:42:17,940
picking up steam. And it's going to stay
there for a while. Fin
651
00:42:17,940 --> 00:42:22,140
Tech innovation is still very dominant. So
if you have heard
652
00:42:22,140 --> 00:42:29,100
about companies like Bharatpay, or, or
Google Pay or any other
653
00:42:29,100 --> 00:42:34,260
FinTech companies that came in India,
very, very recently.
654
00:42:34,292 --> 00:42:39,500
Those are still picking up steam. So
Zeroda companies like
655
00:42:39,500 --> 00:42:42,780
Zeroda, etc. Right. So anything to do with
FinTech that is
656
00:42:42,780 --> 00:42:46,540
revolutionizing the finance industry is
still picking up
657
00:42:46,540 --> 00:42:49,980
steam. And finally, e commerce and direct
to consumer brands.
658
00:42:49,980 --> 00:42:53,020
So anything that you can sell digitally
direct to the
659
00:42:53,020 --> 00:42:56,100
consumers where the cost of selling to the
consumer is low
660
00:42:56,340 --> 00:43:01,980
is also a lot of is a great investment
areas for the venture
661
00:43:01,980 --> 00:43:07,340
capitalist. And you would imagine that the
or you could
662
00:43:07,340 --> 00:43:11,180
think the the terms that we used to talk
about only a couple
663
00:43:11,180 --> 00:43:16,100
years back, like subscription as a
service, cloud, digital
664
00:43:16,100 --> 00:43:19,780
economy, etc. It's just a given now, all
the companies that are
665
00:43:19,780 --> 00:43:22,740
coming up has to have a subscription, they
have to be
666
00:43:22,740 --> 00:43:25,260
cloud native, and they have to be digital
in all their
667
00:43:25,260 --> 00:43:30,420
transactions. So, so think about this,
when you think about your
668
00:43:30,420 --> 00:43:33,580
company, think about how you can bring in
those angles so that
669
00:43:33,580 --> 00:43:36,380
you make it exciting for the VCs to invest
in.
670
00:43:36,380 --> 00:43:46,380
[BLANK_AUDIO]
671
00:43:38,442 --> 00:43:42,390
All right, so we talked about VCs, we
talked about angels,
672
00:43:42,390 --> 00:43:44,130
we talked about the structures.
673
00:43:44,170 --> 00:43:47,690
Now it's time to kind of identify
674
00:43:47,786 --> 00:43:50,570
the right venture capital for you
675
00:43:50,634 --> 00:43:53,210
and we'll dive into the negotiations.
676
00:43:53,210 --> 00:43:57,490
So some of the best ways to find venture
capital
677
00:43:57,490 --> 00:44:01,690
is through via PitchBook, CB Insights,
investor websites,
678
00:44:01,738 --> 00:44:03,410
just asking around and talking to people
679
00:44:03,410 --> 00:44:04,610
and networking, right?
680
00:44:04,682 --> 00:44:07,330
So these are some of the websites that you
can go through.
681
00:44:07,330 --> 00:44:11,570
So if you are coming up with an online
marketplace product
682
00:44:11,570 --> 00:44:14,970
[SPEAKING HINDI]
683
00:44:14,970 --> 00:44:18,410
You can easily go to PitchBook, go look at
that company,
684
00:44:18,474 --> 00:44:21,890
or see [SPEAKING HINDI]
685
00:44:21,962 --> 00:44:24,690
And then you get an idea of which
investors
686
00:44:24,690 --> 00:44:26,330
you should be targeting because those
687
00:44:26,330 --> 00:44:28,890
are the investors interested in similar
products.
688
00:44:28,890 --> 00:44:31,690
And most likely than not, investors
689
00:44:31,690 --> 00:44:35,410
don't just invest in one company in a
segment.
690
00:44:35,498 --> 00:44:38,050
They invest in 10 companies in a segment
691
00:44:38,050 --> 00:44:41,190
because they know at least one or two will
become successful
692
00:44:42,920 --> 00:44:43,670
and the rest will fail.
693
00:44:43,786 --> 00:44:47,310
You also have to look at who has the money
to invest in.
694
00:44:47,310 --> 00:44:50,710
So we talked about the 10 year fund cycle
695
00:44:50,710 --> 00:44:54,630
and the VCs have to invest in one to three
years.
696
00:44:54,634 --> 00:44:57,310
So if you come across a venture capital
fund who's
697
00:44:57,310 --> 00:45:00,110
five years old, you already know they
don't have
698
00:45:00,110 --> 00:45:01,870
money to invest for you.
699
00:45:01,870 --> 00:45:04,910
So you have to look for funds that are
very, very early,
700
00:45:05,034 --> 00:45:07,830
hopefully within the first year of their
founding
701
00:45:07,914 --> 00:45:10,230
because those are the capital funds that
are
702
00:45:10,230 --> 00:45:12,670
going to have money to give you.
703
00:45:12,670 --> 00:45:14,590
And they are in a hurry to give out the
money
704
00:45:15,690 --> 00:45:18,370
to exciting companies.
705
00:45:18,370 --> 00:45:21,610
Conduct due diligence before you meet the
VCs.
706
00:45:21,610 --> 00:45:24,130
We'll talk about it in the upcoming
slides.
707
00:45:24,266 --> 00:45:26,170
And then it's also very important
708
00:45:26,170 --> 00:45:29,010
to identify the general partners.
709
00:45:29,010 --> 00:45:32,490
And I say that because when you go to a
venture capital fund,
710
00:45:32,586 --> 00:45:35,970
you'll see a lot of people on the
websites.
711
00:45:36,074 --> 00:45:39,330
And more often than not, if you are
setting up
712
00:45:39,330 --> 00:45:41,130
a meeting with somebody, they'll ask you
713
00:45:41,130 --> 00:45:45,570
which venture capital partner do you want
to work with.
714
00:45:45,706 --> 00:45:47,370
And you should have a definite answer
715
00:45:47,370 --> 00:45:50,570
because these venture capitals are looking
for a purpose.
716
00:45:50,570 --> 00:45:51,770
They're looking for a vision.
717
00:45:51,770 --> 00:45:54,610
And then it tells them that you've done
your homework,
718
00:45:54,666 --> 00:45:56,990
you have looked through their websites,
719
00:45:56,990 --> 00:45:58,570
and you exactly know who you want
720
00:45:58,570 --> 00:46:01,410
to work with because of A, B, C, D.
721
00:46:01,514 --> 00:46:05,770
And that increases your chance of securing
the investments
722
00:46:05,770 --> 00:46:08,170
with these investors.
723
00:46:08,266 --> 00:46:13,010
Finally, don't just chase single
opportunities.
724
00:46:13,010 --> 00:46:18,010
It's very, very hard to get a VC in
venture capital
725
00:46:18,010 --> 00:46:19,250
to invest in your startup.
726
00:46:19,250 --> 00:46:24,330
So you always have to choose multiple
opportunities
727
00:46:24,394 --> 00:46:26,970
until you see the money in your bank.
728
00:46:27,018 --> 00:46:28,570
So always be closing.
729
00:46:28,570 --> 00:46:29,290
Stuff happens.
730
00:46:31,420 --> 00:46:32,170
You have to remember that.
731
00:46:32,170 --> 00:46:38,210
Actually, we all talk about investors
investing in VCs,
732
00:46:38,210 --> 00:46:41,370
investing in entrepreneurs and startups
are very risky.
733
00:46:41,370 --> 00:46:44,570
But in reality, when you go into the VC
world,
734
00:46:44,570 --> 00:46:47,610
you realize that these investors are very
risk averse.
735
00:46:48,910 --> 00:46:52,590
What I mean by that is when they come talk
to you,
736
00:46:52,590 --> 00:46:55,270
they are looking at a lot of different
things
737
00:46:55,270 --> 00:46:57,830
just to minimize their risk.
738
00:46:57,866 --> 00:47:00,550
And they want to be absolutely sure
739
00:47:00,550 --> 00:47:05,030
that they are investing in the right
company, the right team,
740
00:47:05,030 --> 00:47:09,230
so that they get a 10x return in the next
three years, five
741
00:47:09,230 --> 00:47:10,510
years, whenever they exit.
742
00:47:10,510 --> 00:47:13,630
So when you go talk to the VCs, you just
743
00:47:13,674 --> 00:47:16,830
can't go with an idea and say, OK, I have
this amazing idea.
744
00:47:16,830 --> 00:47:20,070
I think I can conquer the world.
745
00:47:20,106 --> 00:47:24,630
You have to go with a certain strategy.
746
00:47:24,714 --> 00:47:28,070
And I'm sure you'll discuss this in your
entrepreneurship
747
00:47:28,074 --> 00:47:29,110
sessions and classes.
748
00:47:29,110 --> 00:47:30,630
But you need to have a vision.
749
00:47:30,630 --> 00:47:32,230
You need to have a strategy.
750
00:47:32,298 --> 00:47:33,910
You need to have a value proposition
751
00:47:33,910 --> 00:47:37,750
as to why your product is baptizal or an
angel investor
752
00:47:37,750 --> 00:47:39,150
that give you money.
753
00:47:39,210 --> 00:47:42,550
But if you have a team where you are the
CEO,
754
00:47:42,550 --> 00:47:44,790
you have this amazing idea, but you also
755
00:47:44,790 --> 00:47:47,590
have a CTO who is very, very technical,
756
00:47:47,590 --> 00:47:49,990
can talk very, very technical to the
investors.
757
00:47:49,990 --> 00:47:54,510
You also have a CMO who can take care of
the marketing,
758
00:47:54,510 --> 00:47:56,830
customer acquisition, and so forth.
759
00:47:56,830 --> 00:47:59,750
Then the value proposition becomes very,
very interesting
760
00:47:59,750 --> 00:48:00,470
to the VCs.
761
00:48:00,470 --> 00:48:04,310
They want to invest in a team who has
broad expertise, who
762
00:48:04,310 --> 00:48:07,830
has done this before, rather than a single
person working
763
00:48:07,830 --> 00:48:11,350
on an entrepreneurship idea part time.
764
00:48:11,350 --> 00:48:14,150
Finally, projections and timelines are
very important.
765
00:48:14,150 --> 00:48:18,350
You should be able to tell the investors
how much money
766
00:48:18,350 --> 00:48:21,230
or users you are planning to acquire and
what timeline,
767
00:48:21,230 --> 00:48:23,950
so that they get a sense of when they
768
00:48:23,950 --> 00:48:26,150
you will be able to recuperate the money
that they're giving you.
769
00:48:28,744 --> 00:48:34,520
Okay, so before you go start looking for
VCs, you have to have your financials,
770
00:48:34,520 --> 00:48:38,200
you have to have your legal paperwork
ready, the investment documents, etc.
771
00:48:38,200 --> 00:48:40,749
Oh, by the way, on the legal front, I
highly
772
00:48:40,749 --> 00:48:43,080
recommend that first time investors,
773
00:48:43,080 --> 00:48:46,643
if entrepreneurs, if they're talking to
investors,
774
00:48:46,643 --> 00:48:49,720
you hire a lawyer, because there could be
a lot
775
00:48:49,720 --> 00:48:52,174
of terms that you might not understand
when the
776
00:48:52,174 --> 00:48:54,440
investment documents come through. So you
777
00:48:55,320 --> 00:48:58,284
absolutely should have a lawyer by your
side looking
778
00:48:58,284 --> 00:49:00,440
through it and giving you the guidance
779
00:49:00,440 --> 00:49:03,314
on if it's the right thing to do or not.
The fee might
780
00:49:03,314 --> 00:49:05,640
seem a little daunting, but it's totally
781
00:49:05,640 --> 00:49:09,177
worth it in the long term. We talked about
the due
782
00:49:09,177 --> 00:49:12,360
diligence, and then the data room should
be
783
00:49:12,360 --> 00:49:14,810
opened as well. We are going to talk about
the data
784
00:49:14,810 --> 00:49:17,080
room, it's outside the scope of this
session.
785
00:49:17,080 --> 00:49:20,600
But what it means is, any projections, any
financial
786
00:49:20,600 --> 00:49:23,400
documents that you're putting together,
787
00:49:23,560 --> 00:49:26,513
it should be in some place where investors
can go access
788
00:49:26,513 --> 00:49:28,760
that data and kind of determine if you
have
789
00:49:28,760 --> 00:49:32,191
everything in place. And don't forget to
have questions
790
00:49:32,191 --> 00:49:34,600
for potential investors on how they're
791
00:49:34,600 --> 00:49:37,357
going to help you succeed apart from just
the money
792
00:49:37,357 --> 00:49:39,720
if you're going after that particular kind
793
00:49:46,550 --> 00:49:51,430
Perfect. Now we get into the negotiations
piece of it. There
794
00:49:51,430 --> 00:49:55,870
are a lot of a lot of a lot of a lot of
terms when it comes to
795
00:49:55,870 --> 00:50:00,230
negotiations. But I thought I'll give
everybody here an
796
00:50:00,230 --> 00:50:05,810
overview of the most important terms that
would that you should
797
00:50:05,810 --> 00:50:08,510
care about as an entrepreneur that you
should care as an
798
00:50:08,510 --> 00:50:13,150
employee joining a startup that you should
care as a associate
799
00:50:13,150 --> 00:50:15,270
working in a venture capital fund and so
forth, right. So
800
00:50:15,270 --> 00:50:19,390
these are the terms that are most
frequently than not that
801
00:50:19,390 --> 00:50:22,110
are discussed and negotiated on and it's
good to have an
802
00:50:22,110 --> 00:50:25,150
overview of this. And then anything else
apart from that,
803
00:50:25,150 --> 00:50:29,030
you could hire a lawyer and they can help
you with it. So, so
804
00:50:29,030 --> 00:50:33,270
first is the pre money valuation. And what
that really
805
00:50:33,270 --> 00:50:39,350
means is, agar aapki koi idea hai, what is
it worth? Agar aap
806
00:50:39,350 --> 00:50:44,550
mujhe aaj koi idea batate hain and say, I
have this amazing AI
807
00:50:44,550 --> 00:50:49,710
company which can predict the future a
week from now. And I
808
00:50:49,710 --> 00:50:53,510
decided to invest and I would ask you,
what is the company
809
00:50:53,510 --> 00:50:56,230
worth? Kitne ki hai wo company? 10 million
ki, 10 million ki,
810
00:50:56,230 --> 00:50:59,350
50 million ki? And you would give me a
number and say 100
811
00:50:59,350 --> 00:51:03,270
million but I as an investor can say no,
it's too expensive. I
812
00:51:03,270 --> 00:51:07,670
think it's it's 50 million or 40 million
or way lower than what
813
00:51:07,670 --> 00:51:12,070
you've told me. So, so that is the concept
of valuation. It's
814
00:51:12,174 --> 00:51:17,390
very hard to come up with a with a number
that the investor and
815
00:51:17,518 --> 00:51:21,950
the entrepreneur agrees on. But at the end
of the day, it's it's
816
00:51:21,950 --> 00:51:25,590
the if you're seeking money, it's it's
whatever the seller is
817
00:51:25,590 --> 00:51:29,670
willing to or the buyer is willing to pay
you. So, what pre
818
00:51:29,670 --> 00:51:34,870
money really means is, what is your
company worth before an
819
00:51:34,870 --> 00:51:39,830
investor puts their money in? And once the
money from the
820
00:51:39,830 --> 00:51:45,190
investor comes in, you get the post
valuation of the company.
821
00:51:45,190 --> 00:51:49,032
And here is an example. In a very
822
00:51:49,032 --> 00:51:52,430
simple example, again, you
823
00:51:52,621 --> 00:51:55,710
as an entrepreneur, at the very beginning,
own 100% of the
824
00:51:55,710 --> 00:52:00,070
company, you have not taken a single rupee
from any investor,
825
00:52:00,070 --> 00:52:02,590
you have not taken single money from your
family, this is all
826
00:52:02,590 --> 00:52:08,110
bootstrapped. And you own 100% of the
company, pre valuation of
827
00:52:08,110 --> 00:52:11,510
the company comes out to be 20 million.
Now you find an
828
00:52:11,510 --> 00:52:15,750
investor, and then they say, I will give
you 5 million dollars,
829
00:52:15,750 --> 00:52:18,830
but I need 20% ownership. And you might
have seen these terms
830
00:52:18,830 --> 00:52:23,030
throw around very often than not in on
Shark Tank and all these
831
00:52:23,030 --> 00:52:28,150
different shows that have investments in
it. So, if they
832
00:52:28,150 --> 00:52:32,510
if they're giving you 5 million for 20%,
the post money valuation
833
00:52:32,510 --> 00:52:35,670
of the company becomes 25 million. So 20
plus five becomes
834
00:52:35,670 --> 00:52:41,430
25 million. And 20% now belongs to the
investor. So the total
835
00:52:41,430 --> 00:52:46,190
valuation is 25 million, you own 80% of
the company now, which
836
00:52:46,190 --> 00:52:48,910
is which comes out to be 20 million. And
then the investor
837
00:52:50,210 --> 00:52:55,330
owns 20%, which comes out to be 5 million.
Now, this example,
838
00:52:55,330 --> 00:52:58,050
even though it's simple, it's, it's very
important to
839
00:52:58,050 --> 00:53:02,810
understand that you as an entrepreneur,
are going to
840
00:53:02,850 --> 00:53:08,410
invest, are going to raise at least seven
to eight round of
841
00:53:08,410 --> 00:53:14,410
investments. And you have to be very,
very, very careful on how
842
00:53:14,410 --> 00:53:18,810
much equity you're going to give to each
investor. So if you're,
843
00:53:18,810 --> 00:53:23,050
if you're going to give 20% of your equity
right away in the
844
00:53:23,050 --> 00:53:28,410
first investor round, you're only left
with 80%. And it's
845
00:53:28,410 --> 00:53:31,810
very unlikely that there will be just one
solo entrepreneur going
846
00:53:31,810 --> 00:53:35,010
after the company. So if you have four
people on the team who
847
00:53:36,010 --> 00:53:39,490
owns the company equally, the entrepreneur
now becomes a fifth
848
00:53:39,490 --> 00:53:42,210
partner. And as soon as you start bringing
in more
849
00:53:42,210 --> 00:53:47,050
investors, all the entrepreneurs start
getting diluted. And then
850
00:53:47,050 --> 00:53:50,810
soon enough, a lot of other investors will
own more company
851
00:53:50,810 --> 00:53:53,490
than the entrepreneurs. That's why you
have to be very, very
852
00:53:53,490 --> 00:53:58,090
stingy with how much equity you give to
the investors. And you
853
00:53:58,222 --> 00:54:01,410
have to be very careful on how you divide
equity among
854
00:54:01,410 --> 00:54:05,490
entrepreneurs, because when you create a
team, not everybody's
855
00:54:05,490 --> 00:54:12,090
putting in the 100%. Some people can work
part time, some might
856
00:54:12,090 --> 00:54:14,570
work only four hours on the startup. So
not everybody's
857
00:54:14,570 --> 00:54:18,050
putting in the same amount. So even the
equity should not be
858
00:54:18,050 --> 00:54:21,970
distributed just equally, unless people
are putting in equal
859
00:54:21,970 --> 00:54:25,930
efforts into the company. So if you're
taking away one key
860
00:54:25,998 --> 00:54:30,210
point, as an entrepreneur from this
session, I would want to
861
00:54:30,210 --> 00:54:34,130
stress on this particular like, be very,
very stingy with your
862
00:54:34,130 --> 00:54:36,090
equity stake in the company.
863
00:54:38,506 --> 00:54:45,050
So, as I said, valuation is a very tricky
game. And it's very
864
00:54:45,066 --> 00:54:48,290
difficult for two people to agree on what
the value of a
865
00:54:48,290 --> 00:54:54,410
company is. So there's a debt instrument
called convertible
866
00:54:54,410 --> 00:55:01,090
note, which a lot of investors use. And to
simplify what this
867
00:55:01,090 --> 00:55:05,290
really means is the investor is telling
the entrepreneur keep
868
00:55:05,290 --> 00:55:09,730
your mujhe pata nahi aapki company kitne
ki hai. But I'm
869
00:55:09,730 --> 00:55:15,570
giving you this $5 million. And the next
round, you raise money
870
00:55:15,570 --> 00:55:20,490
in, you just give me a discount on the
stocks that will be
871
00:55:22,250 --> 00:55:26,290
eligible for me. So a little complicated
concept, but let me
872
00:55:26,290 --> 00:55:30,450
try and simplify it once again. So if you
go to an investor, you
873
00:55:30,450 --> 00:55:32,610
both don't know what the valuation of the
company is, the
874
00:55:32,746 --> 00:55:36,730
investor can say, here's my $5 million.
You promised me to pay
875
00:55:36,730 --> 00:55:40,130
this $5 million in one or two years. But I
don't want the
876
00:55:40,130 --> 00:55:44,170
money. And I don't want the interest. I
want equity in the
877
00:55:44,170 --> 00:55:49,010
company at the next valuation round. So,
valuation close ho
878
00:55:49,010 --> 00:55:53,290
gaya, aap next time kis ke paas jaate ho,
you go to Sequoia
879
00:55:53,290 --> 00:55:57,450
Capital, you raise a next round of
funding, Sequoia Capital
880
00:55:57,450 --> 00:56:02,090
gives you $25 million. Usme se
881
00:56:02,090 --> 00:56:06,730
jo bhi valuation banta hai, $5
882
00:56:06,730 --> 00:56:11,130
million ka leche, 20%, this investor gets
20% of the company
883
00:56:11,130 --> 00:56:15,370
because he invested $5 million in the
starting and now the
884
00:56:15,370 --> 00:56:20,450
company is worth $25 million. So that's
convertible note, it
885
00:56:20,450 --> 00:56:25,050
protects the entrepreneur from giving away
a lot of money to
886
00:56:25,050 --> 00:56:30,610
the investors. And it also gives assurance
to the investor that
887
00:56:30,610 --> 00:56:33,850
they are not putting in money with the
wrong valuation. So
888
00:56:33,850 --> 00:56:37,930
it's kind of a win win for both investors
and entrepreneurs.
889
00:56:37,930 --> 00:56:41,490
There are other components in the
convertible note as well,
890
00:56:41,514 --> 00:56:46,090
which might take some time and some
exercise to kind of work
891
00:56:46,185 --> 00:56:49,170
through it. But again, for all you have to
know for this
892
00:56:49,170 --> 00:56:52,250
session is that there is an instrument
called convertible
893
00:56:52,250 --> 00:56:56,970
note, which investors will come in, give
entrepreneurs and set
894
00:56:56,970 --> 00:57:00,530
a certain valuation and the cap on
valuation when they invest
895
00:57:02,442 --> 00:57:05,930
in the company. After convertible note,
there's a new
896
00:57:05,930 --> 00:57:09,490
instrument coming in SAFE as well. So you
will also hear
897
00:57:09,490 --> 00:57:13,050
terms like SAFE, investor selling ki mujhe
convertible
898
00:57:13,050 --> 00:57:15,970
note nahi karna hai, mujhe SAFE karna hai.
This is a very
899
00:57:15,970 --> 00:57:19,690
similar instrument, they're just giving
you money in return of
900
00:57:25,130 --> 00:57:27,750
equity. Is there a question? I think
somebody came up mute.
901
00:57:34,150 --> 00:57:37,830
Okay, I'll continue. Please feel free to
stop me if there is anything.
902
00:57:37,914 --> 00:57:40,792
Alright, so we talked about valuation, we
talked
903
00:57:40,792 --> 00:57:43,670
about the money you are getting from the
investor
904
00:57:43,670 --> 00:57:49,830
and the money the investor is giving you
usually comes at a cost. Naturally,
905
00:57:50,830 --> 00:57:53,614
they are taking away a piece of your
company, but
906
00:57:53,614 --> 00:57:56,190
since it's their money that is at stake
here,
907
00:57:56,826 --> 00:58:01,969
they want some control over the company's
future.
908
00:58:01,969 --> 00:58:06,990
And most often, angels and venture
capitals will
909
00:58:07,098 --> 00:58:09,842
ask for a board seat in the company. So
when
910
00:58:09,842 --> 00:58:12,430
you go to somebody's LinkedIn profile,
911
00:58:12,430 --> 00:58:15,754
when you look for an investor, you'll see
a lot
912
00:58:15,754 --> 00:58:18,990
of positions like on the board for x
company,
913
00:58:18,990 --> 00:58:21,820
on the board for y company, this is what
it means that
914
00:58:21,820 --> 00:58:24,190
invested in a company. And that company
has
915
00:58:24,190 --> 00:58:26,942
now offered them a board position so that
they
916
00:58:26,942 --> 00:58:29,550
could, you know, be aware of what is going
on
917
00:58:29,550 --> 00:58:33,960
in the company, be the guidance if the
founders
918
00:58:33,960 --> 00:58:38,030
need it from time to time. But they also
have
919
00:58:38,030 --> 00:58:41,307
amazing powers. They can issue additional
stocks
920
00:58:41,307 --> 00:58:44,350
to whoever they want. They can even
replace the
921
00:58:44,350 --> 00:58:48,325
CEO. So if you have a board that is of
three members,
922
00:58:48,325 --> 00:58:51,070
and they see Ravi is not doing a good
923
00:58:51,070 --> 00:58:54,063
job in the company, we should replace him
with a better
924
00:58:54,063 --> 00:58:56,590
person who understands this company
better,
925
00:58:56,590 --> 00:59:01,037
they can put a vote and replace you as a
CEO if they
926
00:59:01,037 --> 00:59:05,150
are the majority stakeholders. So they
have
927
00:59:05,150 --> 00:59:08,348
these amazing powers. So you have to be
very, very
928
00:59:08,348 --> 00:59:11,390
careful on who you nominate to the board
and how
929
00:59:11,450 --> 00:59:13,740
the board consists. So you should always
have
930
00:59:13,740 --> 00:59:16,030
yourself on the board, you should always
have
931
00:59:16,030 --> 00:59:19,003
your trusted team members on the board
like your CTO
932
00:59:19,003 --> 00:59:21,630
or CMO. And then you can bring in an
additional
933
00:59:21,630 --> 00:59:24,955
seat from the investor who's investing in
your
934
00:59:24,955 --> 00:59:28,110
startup so that if push comes to shove,
and if
935
00:59:28,110 --> 00:59:31,858
there are contention issues, which needs
voting,
936
00:59:31,858 --> 00:59:35,070
you and your friend are on the board who
are,
937
00:59:35,070 --> 00:59:38,807
you know, voting for the result that you
want, instead
938
00:59:38,807 --> 00:59:41,630
of the investor coming in and bulldozing
939
00:59:41,630 --> 00:59:45,282
everything that they want in the company.
940
00:59:45,282 --> 00:59:48,830
So, so board positions, it may sound very
941
00:59:48,830 --> 00:59:51,200
harmless, but are very, very important and
you should
942
00:59:51,200 --> 00:59:52,990
be very careful of who you offer the board
943
00:59:56,670 --> 00:59:58,990
Now, let's talk about the equity as well.
944
00:59:58,990 --> 01:00:03,670
Once you talk to investors,
945
01:00:03,686 --> 01:00:06,910
the money that we talked about, the pre
money, post money,
946
01:00:06,910 --> 01:00:10,390
most of that time, it's valued in stocks.
947
01:00:10,390 --> 01:00:13,190
So you'll issue a certain number of
stocks,
948
01:00:13,190 --> 01:00:16,510
10,000, 25,000, and based on the
investment,
949
01:00:16,510 --> 01:00:18,590
the stock price of that company,
950
01:00:18,590 --> 01:00:21,630
stock price of your company gets
determined.
951
01:00:21,630 --> 01:00:23,850
Now, that stock is not traded anywhere,
952
01:00:23,850 --> 01:00:25,190
but it's just for bookkeeping.
953
01:00:25,190 --> 01:00:26,610
(speaks in foreign language)
954
01:00:26,610 --> 01:00:27,690
It's called the cap table.
955
01:00:27,690 --> 01:00:28,530
(speaks in foreign language)
956
01:00:28,530 --> 01:00:31,610
10,000 stock is worth $25 million,
957
01:00:31,610 --> 01:00:33,010
and hence, this is the value.
958
01:00:33,010 --> 01:00:35,570
And then, based on your ownership,
959
01:00:35,590 --> 01:00:39,370
certain stocks go to each and every
founder
960
01:00:39,370 --> 01:00:41,530
and board member, et cetera.
961
01:00:41,542 --> 01:00:44,510
So there are two type of stocks.
962
01:00:44,518 --> 01:00:47,450
One is a common stock, and the other is a
preferred stock.
963
01:00:47,450 --> 01:00:51,770
So common stock is just, it has no voting
powers.
964
01:00:51,770 --> 01:00:52,770
It's not a special stock.
965
01:00:52,770 --> 01:00:55,110
It's just a common stock that the founders
can have,
966
01:00:55,110 --> 01:00:59,490
that the employees can have, that the
board can have.
967
01:00:59,490 --> 01:01:02,250
But there's something called as a
preferred stock,
968
01:01:02,250 --> 01:01:04,710
which has very, very special rights.
969
01:01:04,710 --> 01:01:08,330
And those rights are, in case a company
goes public,
970
01:01:09,286 --> 01:01:13,450
preferred stocks are the first one to get
paid.
971
01:01:13,478 --> 01:01:17,930
So these people with the preferred stock
gets paid first,
972
01:01:17,930 --> 01:01:20,510
and only after they are paid in full,
973
01:01:20,518 --> 01:01:23,530
then the common stock holders get paid.
974
01:01:23,558 --> 01:01:27,270
So again, this is one of the negotiation
points in VCs,
975
01:01:27,270 --> 01:01:28,730
where VCs will come in and say,
976
01:01:28,730 --> 01:01:30,770
Okay, we'll give you $5 million,
977
01:01:30,886 --> 01:01:32,810
but we need the preferred stock.
978
01:01:32,810 --> 01:01:35,610
And what they're trying to do is,
979
01:01:35,622 --> 01:01:39,310
instead of being the last in the line to
get paid,
980
01:01:39,334 --> 01:01:42,090
they are trying to be the first in the
line to get paid
981
01:01:42,090 --> 01:01:44,870
whenever a liquidation event happens.
982
01:01:44,902 --> 01:01:47,050
So that's the meaning of it.
983
01:01:47,078 --> 01:01:51,050
Most VCs and angels prefer preferred
stock.
984
01:01:51,050 --> 01:01:54,370
It's very hard to negotiate and give them
common stock.
985
01:01:54,370 --> 01:01:56,530
But then there is something called
986
01:01:56,530 --> 01:01:59,130
as a liquidation preference that we'll
talk about
987
01:01:59,142 --> 01:02:01,490
in the upcoming slides.
988
01:02:01,542 --> 01:02:05,210
So you as an entrepreneur have to pay
attention to is,
989
01:02:05,221 --> 01:02:09,930
if you're joining a startup as an
employee,
990
01:02:09,930 --> 01:02:14,930
you have to pay attention and ask the
startup,
991
01:02:14,982 --> 01:02:17,850
If I'm getting a lower salary,
992
01:02:17,990 --> 01:02:21,010
how much common stock out there is for the
company?
993
01:02:21,010 --> 01:02:22,890
(speaking in foreign language)
994
01:02:22,890 --> 01:02:24,930
So sometimes companies will just
negotiate,
995
01:02:24,966 --> 01:02:28,230
I will give you 25,000 stocks.
996
01:02:28,230 --> 01:02:30,410
But you don't really know what the value
997
01:02:30,410 --> 01:02:34,090
of those 25,000 stocks is.
998
01:02:35,390 --> 01:02:39,790
So that's why from all these options,
999
01:02:39,790 --> 01:02:40,630
then you can figure out
1000
01:02:42,030 --> 01:02:44,350
what the best negotiation package would
be.
1001
01:02:44,358 --> 01:02:47,910
Finally, the preferred and the
participating preferred.
1002
01:02:47,910 --> 01:02:50,430
The participating preferred is something
1003
01:02:50,430 --> 01:02:55,430
that the investors will try to negotiate
is,
1004
01:02:56,730 --> 01:03:00,130
it's called a double dipping,
1005
01:03:00,130 --> 01:03:02,850
wherein preferred may, you just get paid
once.
1006
01:03:02,854 --> 01:03:05,670
Participating preferred may, you get once
1007
01:03:05,670 --> 01:03:08,490
and then you become part of the common
stock.
1008
01:03:08,490 --> 01:03:09,890
So I've got double payment time.
1009
01:03:09,890 --> 01:03:12,030
So as an investor, you should always stay
away
1010
01:03:12,030 --> 01:03:13,370
from participating preferred
1011
01:03:13,370 --> 01:03:16,750
and always negotiate for the preferred
stocks.
1012
01:03:18,952 --> 01:03:22,320
Liquidation preference is also one of the
key points where
1013
01:03:22,408 --> 01:03:26,480
the investor can say that I need a
multiple
1014
01:03:26,536 --> 01:03:32,800
of 1x, 2x, 3x meaning if I have 10 stocks
but it becomes liquid, I want to
1015
01:03:32,904 --> 01:03:37,840
get paid twice. So instead of 10 stocks
I'm going to get paid for 20 stocks.
1016
01:03:37,840 --> 01:03:43,280
So these are the terms which get hidden
into the contract
1017
01:03:43,280 --> 01:03:46,400
negotiations and you have to be very
careful on what the liquidation
1018
01:03:46,400 --> 01:03:52,880
preference of the companies. So always try
to give
1019
01:03:52,936 --> 01:03:57,120
1x liquidation preference to the investors
1020
01:03:57,120 --> 01:04:01,040
and very rarely 2x and 3x because that
will just wipe out your
1021
01:04:04,680 --> 01:04:09,320
equity in the company. Option pool is
always reserved for employees
1022
01:04:09,384 --> 01:04:14,200
so whenever you are investing, whenever
you are negotiating with an investor
1023
01:04:14,312 --> 01:04:19,400
they will ask you to reserve certain
options from the pool typically 10%,
1024
01:04:19,400 --> 01:04:24,520
20% for employees and this comes out of
1025
01:04:24,520 --> 01:04:29,160
your equity. So you as an entrepreneur
need to be very very careful on
1026
01:04:29,320 --> 01:04:33,000
how much employee stocks you are
allocating
1027
01:04:33,096 --> 01:04:38,440
and this has to be in line with the amount
of stocks you plan to give to
1028
01:04:38,440 --> 01:04:40,920
people that you are willing to onboard
because that is
1029
01:04:40,920 --> 01:04:43,320
going to be a very very strong negotiation
point.
1030
01:04:43,320 --> 01:04:47,640
Pay special attention to what the stock
pool option for that company is
1031
01:04:47,752 --> 01:04:51,080
and how much you are getting so that you
can value
1032
01:04:51,080 --> 01:04:57,880
the salary that you're going to make from
the options pool.
1033
01:04:57,034 --> 01:05:00,410
All right, so a quick review of what we
just talked, right?
1034
01:05:00,410 --> 01:05:06,210
Putting in the set equity or efficient
capital, meaning not
1035
01:05:06,210 --> 01:05:09,890
raising money until you absolutely need it
is very, very
1036
01:05:09,890 --> 01:05:13,810
smart as an entrepreneur. So you should
always try to delay
1037
01:05:14,026 --> 01:05:17,730
funding as much as possible and giving
away your company as less
1038
01:05:17,730 --> 01:05:18,370
as possible.
1039
01:05:20,490 --> 01:05:26,970
Always try and maintain a certain level of
negotiation
1040
01:05:26,970 --> 01:05:30,530
levers at your hands. So a lot of
investors will try to grab a
1041
01:05:30,530 --> 01:05:33,290
company by all of the factors that we
talked about for
1042
01:05:33,290 --> 01:05:36,090
liquidation, preference, preferred stocks,
participating,
1043
01:05:36,090 --> 01:05:39,210
preferred and so forth. So always try to
preserve as much
1044
01:05:39,210 --> 01:05:43,170
control as possible, and seek legal help
if needed. And
1045
01:05:43,170 --> 01:05:47,050
finally, the cost and cost of customer
acquisition and
1046
01:05:47,050 --> 01:05:52,030
profitably. So when you go to an investor,
they want to know how
1047
01:05:52,030 --> 01:05:57,070
much it costs for you to acquire a
customer, and how much
1048
01:05:57,070 --> 01:06:00,490
profitability are you grabbing because
that's the indicator
1049
01:06:01,990 --> 01:06:05,910
they're looking at when you try and raise
the money. And if I
1050
01:06:05,910 --> 01:06:09,910
were to leave you with one last thought,
as an entrepreneur,
1051
01:06:09,910 --> 01:06:13,510
you're going to need twice the money and
twice the time that
1052
01:06:13,510 --> 01:06:15,750
you think you need today. So if you think
you're going to only
1053
01:06:15,750 --> 01:06:19,950
need a million dollars, and you only need
two months to raise
1054
01:06:19,950 --> 01:06:22,150
that money, you're probably wrong, you're
going to need
1055
01:06:22,150 --> 01:06:25,110
twice that money, most likely, and you're
going to need twice
1056
01:06:25,110 --> 01:06:29,470
the time. So start now, think about all
the factors that
1057
01:06:29,470 --> 01:06:32,190
you're going to be needing that money for
and get it in front of
1058
01:06:34,154 --> 01:06:37,930
the investors. So there are a lot of VCs
that are up and
1059
01:06:37,930 --> 01:06:42,010
coming in India, Sequoia Capital, Bloom
Ventures, Matrix
1060
01:06:42,010 --> 01:06:47,170
Partners, Kalari, etc, right. So here is
the list of VCs that are
1061
01:06:47,170 --> 01:06:53,090
very popular in India. And the reason I
put it here for you
1062
01:06:53,090 --> 01:06:58,930
all is, if you try and network with
venture capitals and
1063
01:06:58,930 --> 01:07:03,370
investors at the time when you need the
money, it's probably
1064
01:07:03,370 --> 01:07:08,930
with your ideas and products. So with
that, I think that was my
1065
01:07:08,930 --> 01:07:13,450
last slide. Let me just stop here and see
if there are any
1066
01:07:13,450 --> 01:07:16,250
questions from anybody that I could
answer.
1067
01:07:21,214 --> 01:07:25,826
Thank you sir for sharing your valuable
wisdom
1068
01:07:25,826 --> 01:07:29,610
with us, so it's time for a Q&A session.
1069
01:07:29,610 --> 01:07:32,732
Anyone who has any queries or wants to ask
anything
1070
01:07:32,732 --> 01:07:35,110
regarding today's topic, please take
1071
01:07:42,540 --> 01:07:43,290
this opportunity and get your questions
answered by Mr. Ravi.
1072
01:07:47,614 --> 01:07:51,447
Okay sir, there is a question from a
student,
1073
01:07:51,447 --> 01:07:54,970
he wants to start a trading company, so he
1074
01:08:02,100 --> 01:08:02,850
wants to know the process to acquire
funding for it.
1075
01:08:04,650 --> 01:08:07,660
Yeah, so as we talked, so trading company,
before
1076
01:08:07,660 --> 01:08:10,010
you even think about funding, you have
1077
01:08:10,010 --> 01:08:12,010
to think about the business itself.
1078
01:08:12,010 --> 01:08:14,734
So all of the due diligence that we talked
about,
1079
01:08:14,734 --> 01:08:17,050
like what is the vision for this company,
1080
01:08:17,050 --> 01:08:19,969
what is the strategy, how are you going to
acquire
1081
01:08:19,969 --> 01:08:22,390
customers, what is your business model,
1082
01:08:22,390 --> 01:08:25,097
how are you going to make money, who are
you going
1083
01:08:25,097 --> 01:08:27,330
to hire, what is the timeline, all these
1084
01:08:27,358 --> 01:08:32,010
things need to be in a deck, at least an
idea.
1085
01:08:32,010 --> 01:08:35,168
And then you have to go on LinkedIn and
find angel
1086
01:08:35,168 --> 01:08:38,090
investors, just search for angel investors
1087
01:08:38,110 --> 01:08:41,490
India or just search for angel on
LinkedIn.
1088
01:08:41,490 --> 01:08:45,446
And start sending requests to people
saying,
1089
01:08:45,446 --> 01:08:49,090
hey, I am so and so, I have this idea, I
would
1090
01:08:49,090 --> 01:08:52,304
love to get 15 minutes of your time and
pitch
1091
01:08:52,304 --> 01:08:55,250
this idea and get your advice on what you
1092
01:08:55,250 --> 01:08:57,964
think about it, and most likely than not,
this
1093
01:08:57,964 --> 01:09:00,250
investor or this angel is going to give
1094
01:09:00,250 --> 01:09:03,850
you time if they think this idea is
interesting.
1095
01:09:03,850 --> 01:09:06,570
And then you go about pitching the
process.
1096
01:09:06,570 --> 01:09:12,210
And at the end of the slide deck, you make
the ask on how much money you are wanting
1097
01:09:12,210 --> 01:09:17,250
to raise, and what is in return that
you're willing to give them.
1098
01:09:17,250 --> 01:09:19,050
So that's the typical process.
1099
01:09:19,166 --> 01:09:21,398
Again, just when you go on LinkedIn, and
when
1100
01:09:21,398 --> 01:09:23,570
you find these angel investors, you have
to
1101
01:09:23,570 --> 01:09:27,685
find investors that are particularly
interested
1102
01:09:27,685 --> 01:09:31,310
in the trading business, the online
trading
1103
01:09:31,310 --> 01:09:33,050
stock trading business.
1104
01:09:33,050 --> 01:09:36,093
So that would be the process I would
follow
1105
01:09:36,093 --> 01:09:39,050
and I think would be one of the ways you
can
1106
01:09:39,050 --> 01:09:42,570
go look out these investors for
investment.
1107
01:09:46,976 --> 01:09:50,940
Okay, thank you, sir. And now there is
another question. Are
1108
01:09:50,940 --> 01:09:54,240
there any common mistakes that early stage
entrepreneurs should
1109
01:09:54,240 --> 01:09:55,360
be cautious about?
1110
01:09:57,376 --> 01:10:02,980
Yeah, yeah. A lot of a lot of them. But
let's say in just the
1111
01:10:04,080 --> 01:10:08,880
terms of financing, right? There are a lot
of mistakes that you
1112
01:10:08,880 --> 01:10:11,680
can do on the entrepreneurship side as
well. But let's leave
1113
01:10:11,680 --> 01:10:14,120
that out of the scope for now. But just
from the financing
1114
01:10:16,959 --> 01:10:19,320
perspective, I think the most common
mistake is giving away
1115
01:10:19,360 --> 01:10:22,640
too much of your company too soon and for
too little. So a
1116
01:10:22,640 --> 01:10:26,560
lot of times, as I said, like valuation is
very, very tough.
1117
01:10:27,960 --> 01:10:31,760
And and a lot of times entrepreneurs
overestimate their
1118
01:10:31,760 --> 01:10:35,040
company, but a lot of them, they also
underestimate on what the
1119
01:10:35,040 --> 01:10:38,840
value is, and they give away a lot of
equity. So that is one of
1120
01:10:38,840 --> 01:10:43,640
the mistakes. The other mistake is
bringing in the wrong team.
1121
01:10:43,872 --> 01:10:49,080
So you might be my friend, I think it
would be interesting to
1122
01:10:49,080 --> 01:10:51,360
work with you when I bring you in and give
you 50% of the
1123
01:10:51,360 --> 01:10:56,480
company. Now that that person one month
from now just leave
1124
01:10:56,800 --> 01:11:02,520
and own the 50% of my company. So which
might not be very
1125
01:11:02,520 --> 01:11:05,000
interesting for me, right? So those are
the things that you
1126
01:11:05,000 --> 01:11:08,160
should have to look out for. And then all
of the pitfalls that we
1127
01:11:08,160 --> 01:11:12,080
talked about in contract negotiations,
like liquidation
1128
01:11:12,080 --> 01:11:15,720
preference, how much equity are going to
the investors, what is
1129
01:11:15,720 --> 01:11:19,440
their type of stock, etc, etc. Those are
the things that you
1130
01:11:25,130 --> 01:11:25,880
should pay very, very careful attention
to. Great questions.
1131
01:11:27,552 --> 01:11:31,260
Okay, so now it's the last question. And
one of our
1132
01:11:31,260 --> 01:11:34,460
students wants to know about the examples
of successful companies
1133
01:11:34,460 --> 01:11:36,020
that received VC funding.
1134
01:11:39,776 --> 01:11:45,900
Oh, I don't know about I'm sure you've
heard about ring, right?
1135
01:11:45,900 --> 01:11:48,620
That was one of the companies that might
be very, very
1136
01:11:48,620 --> 01:11:50,900
familiar to you that company went on Shark
Tank did not
1137
01:11:50,900 --> 01:11:55,780
receive funding and then it went to
Sequoia Capital and and
1138
01:11:55,780 --> 01:12:00,700
raised a bunch of money which was
eventually acquired by
1139
01:12:00,700 --> 01:12:06,380
Amazon. One of the other companies that
recently acquired
1140
01:12:06,380 --> 01:12:12,380
funding, and you can look it up is KYTE
kite. And they have a
1141
01:12:12,380 --> 01:12:16,820
very interesting business model where you
don't have to go to
1142
01:12:16,820 --> 01:12:20,820
the company to rent a car, you just rent a
car on a website
1143
01:12:20,928 --> 01:12:25,860
and the company KYTE will get the car to
your doorstep that
1144
01:12:25,860 --> 01:12:28,060
you've rented. So you don't have to go
anywhere and they'll pick
1145
01:12:28,060 --> 01:12:32,100
up the car after your rental is done. So
that was the company
1146
01:12:32,100 --> 01:12:36,620
that I could think of that recently raised
funds from
1147
01:12:36,620 --> 01:12:40,660
Sequoia Capital and is still going on a
very, very strong in
1148
01:12:40,660 --> 01:12:41,340
their series B.
1149
01:12:47,440 --> 01:12:52,760
That's all. Thank you, sir, for clearing
all our doubts. Now as
1150
01:12:52,760 --> 01:12:56,560
we get to the end of the session. First, I
would like to
1151
01:12:56,560 --> 01:13:00,400
thank our speaker, Mr. Ravi Jadhav, for
clearing all our
1152
01:13:00,400 --> 01:13:05,040
doubts and regarding investing and
entrepreneurship. I would
1153
01:13:05,040 --> 01:13:08,440
like to thank Universal Human Values and
Institution
1154
01:13:08,440 --> 01:13:11,640
Innovation Council of Rajiv Gandhi
Institute of Technology
1155
01:13:11,640 --> 01:13:16,160
for conducting such a beneficial seminar.
And last but not the
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01:13:16,160 --> 01:13:20,280
least, I would like to thank our lovely
audience for such active
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participation in today's seminar. Hope you
all have a
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01:13:23,720 --> 01:13:25,080
great day. Thank you.
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01:13:27,232 --> 01:13:32,020
Thank you. Thank you. Thanks a lot for
inviting me, team. Hope
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01:13:32,020 --> 01:13:35,380
you enjoy and feel free to connect and if
you have any
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01:13:35,380 --> 01:13:36,460
follow up, I'm happy to answer.
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