Dr Vijay Kumar’s Post

Understanding Investor Preference for Early-Stage Ventures In the realm of venture capital and investment, the preference for backing ideas over established companies often stems from the potential for disruptive innovation and market transformation. However, the transition from concept to execution poses unique challenges for startups, particularly regarding metrics like Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR). Investors recognize that startups entering the market may not boast substantial ARR or MRR initially. Instead, they prioritize indicators of early traction and customer validation. While established companies may offer predictable revenue streams, early-stage ventures present opportunities for exponential growth and market disruption. For startups with viable products but limited revenue, investors focus on other key metrics such as customer acquisition cost (CAC), customer lifetime value (CLV), and product-market fit. These metrics provide insights into the venture's ability to attract and retain customers, essential elements for long-term sustainability and scalability. Moreover, investors assess the startup's growth trajectory and market potential. A compelling vision, coupled with a clear go-to-market strategy, can outweigh the absence of substantial ARR or MRR in the early stages. Investors look for indications that the startup is poised to capture market share and capitalize on emerging trends. Additionally, investors may offer strategic support and resources to help startups accelerate growth and achieve meaningful revenue milestones. This collaborative approach fosters a symbiotic relationship between investors and founders, aligning incentives for long-term success. While startups may lack substantial ARR or MRR in the early stages, investors prioritize indicators of market traction, customer validation, and growth potential. Startups with viable products but limited revenue can still attract investment by demonstrating a clear path to scalability, a compelling market opportunity, and alignment with investor objectives. As the startup evolves and gains momentum, ARR and MRR become increasingly relevant metrics, signaling the venture's ability to generate sustainable revenue streams and deliver returns to investors.

Startup Growth and Venture Returns by AngelList: In the realm of venture capital, understanding the growth trajectory and the rate of return on early-stage investments is crucial. Abraham Othman, Ph.D., from AngelList provides a fascinating deep dive into how the age of a startup affects its potential for returns. Key Insights: 1) Rapid Early Growth: Startups typically experience their most significant growth spurts in the initial years, underscoring the high potential for early-stage investments. 2) Power of Indexing at Seed Stage: Data suggests that broadly indexing into every credible seed deal can significantly increase expected returns due to the 'unbounded wealth' potential. 3) Distinction Between Investment Stages: The study highlights that early and late-stage investments should be considered distinct asset classes due to differing growth and return profiles. Investment Implications: -Investors might achieve better outcomes by adopting a broad indexing strategy during a startup's seed stage rather than trying to pick 'winners.' -As startups mature, the rate of return generally diminishes, reinforcing the need for strategic investment choices in later stages. Venture capital is not just about picking the right startups; it's about understanding when to invest and how to manage the investment lifecycle. For entrepreneurs and investors alike, grasping these dynamics can pave the way to making informed decisions that align with growth trajectories and return potentials. PS. check out 🔔 for a winning pitch deck the template created by Silicon Valley legend, Peter Thiel https://lnkd.in/eiyUC3p6

How to design an impact due diligence framework for startups?   🎣 🛶 Before we head into this week’s weekend, we would like to share an exciting paper with you in our next DS:E Paper Dive. In the recently published paper by Eckerle & Terzidis (DS:E Fellow) in the Journal of Business Venturing Design, they address the question of how to evaluate impact-driven startups. As traditional tools for venture capital assessment cannot fully capture social and environmental impact, Christin Eckerle & Orestis Terzidis offer a framework for measuring and monitoring a startup’s potential impact. Based on a brief literature review, Eckerle & Terzidis developed five design principles (DPs) with the following aims: ➡ Promote understanding ➡ Achieve an easy-to-use artifact ➡ Promote a comprehensive and holistic artifact ➡ Achieve affordable impact due diligence ➡ Ensure impact alignment Based on the 5 DPs, they developed a framework with four stages, which are two-dimensional shells of separated activity groups (see attached figure). To alpha test the artifact, they conducted three interviews (one with an impact-driven founder, one with an impact investing researcher, and one with an impact investor specializing in impact startup due diligence). The framework starts at the top left and goes down left, up right, down right, step by step: 1️⃣ Framing Stage: The investor sets the scope, ensures product awareness with an overall market perspective, and conducts research to compare the startup with potential competitors or alternative solutions. 2️⃣ Identification Stage: The startup takes the lead and identifies input-specific outputs and outcomes. Based on this, KPIs and KIIs that are closely linked to impact can be jointly formulated. The startup then plans data collection to track the KPIs and impact-related indicators (KIIs). 3️⃣ Evaluation phase: Investors predict possible impact, determine stakeholder response, and assess monetization of the investment. 4️⃣ Management stage: Startup ensures overall management of all activities necessary to provide relevant data to the investor and other stakeholders. In addition, it should be noted that the lemniscate design ensures forward and backward movement along the process at all times. Furthermore, the critical factors within the risk categories may change. 🗞 For more details, especially for each step and the details about the DPs, here is the link to the paper: https://lnkd.in/ekUj59KH As always, we hope you enjoy reading and look forward to hearing your thoughts on the paper in the comments section. 💭

𝗗𝗼 𝘆𝗼𝘂 𝗲𝘃𝗲𝗿 𝘁𝗵𝗶𝗻𝗸 𝗼𝗳 𝗵𝗼𝘄 𝗶𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀 𝗲𝘃𝗮𝗹𝘂𝗮𝘁𝗲 𝗲𝗮𝗿𝗹𝘆-𝘀𝘁𝗮𝗴𝗲 𝗰𝗼𝗺𝗽𝗮𝗻𝗶𝗲𝘀? If you have wondered how founders, investors, venture capitalists, and seed fund managers come up with a valuation of early-stage companies, you are not alone. Early-stage company valuation is primarily built from assumptions and evaluation. Investors always look to the potential of a private company to sustain itself in the market and generate substantial revenue for investors. The investment criteria may differ from investor to investor, but the points below will help you understand. 1. Investors seek a product that solves an important problem for target users and fits the market at the right time. 2. The Leader is the most important factor, whether they are green or experienced he/she must have knowledge in the related industry and also have deep networks, skills, and determination. 3. In early-stage companies, success and failure are dependent on the team aside from the leader. A team is the most important factor in achieving its goals in any business or startup. 4. The market size of the product is essential for every investor. Product potential to sustain the market in the long run and capture a large market size is necessary. 5. Companies must have a strong robust Business plan to attract investors. They must seem realistic in their business plan with facts. Furthermore, the investor looks at sector growth before computing the company's valuation. Investors use many different methods for calculating the valuation of early-stage Startups, but most investors use these two methods, which are listed below: 1. Venture Capital Method: The Venture Capital Method (VC Method) is borrowed by the venture capital industry. It aims to value the startup based on its exit or continuing value. The VC method considers the turnover and other key metrics from the P&L and then applies a multiple to these parameters. 2. Discounted Cash Flow Method: The Discounted Cash Flow Method (DCF) is the most common method used to evaluate a startup in the pre-revenue stage. Using the DCF method, an investor values the startup based on the forecasted cash flows the business will likely generate in the future. Investors can reach a fair market value by appreciating the startup based on future cash flow. The concept measures the startup value by money, risk, and time. Conclusion: While the world-changing ability of startups is sometimes overhyped, successful startups can create a significant positive impact on the world. And even when startups fail, they still have an influence, especially through the learnings of the founder, investors, employees, and other stakeholders. Investment decisions are never easy. The Investment Decision Maker's main role represents senior management's commitment to the project and the requirements for regularity, propriety, and value for money. #Investing #IMTHOBSERVES #Capital

May Stride' review of the Egyptian startup ecosystem. Note: All references in comments. 1- Story worth sharing: The story of a national dream of the Egyptian ecosystem tapping $1 bn yearly VC investment. It was almost happening at the end of 2022, with $810 M investments. The global economic slowdown and the turbulence in the national economy over 2023 made it a little bit harder with only $503 Mn, a step back to the middle of the race. But with a resilient, relatively immature startup ecosystem compared to global ones, the opportunity is unprecedented to grow 4 to 8 times the next period. 2- Awareness and support: VC training, For a rich VC landscape, VC Lab is conducting free VC training. The Venture Institute is a free training program designed to train and educate the rising tide of new venture capital leaders. I myself joined Cohort 3 of the program, and the experience is wealthy. 3- New Block Venture Builder Model:  Backing a smaller number of startups, and focusing on better success rates, the model supports startups executively and financially. There are many names domestically, and regionally born focusing on Egypt and the region like, Modus Capital, VMS Saudi Startup Studio, Sukna Ventures, Kemtix Ventures . The door is open for executive leaders, software houses, and big companies to join the race and add a value in that domain to accelerate the Egyptian Venture Capital Ecosystem 4- Investment Fund Alert, totaling around $ 25 M of investments, VentureX HQ, Glint Ventures, DisrupTech Ventures have announced their readiness to invest in Egyptian startups over the next 6-12 months. The fund announced by these players targets investing in more than 200 startups at different earlier stages. 5- Data and insights The McKinsey & Company report highlights the significant opportunity for development driven by the region's young, tech-savvy population and increasing digital adoption, showing the unprecedented opportunity to grow 4-8 times within the coming period. Highlighting that for the region to become a source of true innovation (and not a fast follower or copycat), a more consistent pipeline of new start-ups and investors willing to support them is likely needed. 6- Hands-on: Falak Startups and the Egypt VC Summit are helping the VC sector to flourish. Egypt VC Summit offers venture capitalists insights into Egypt's startup triumphs and its most accomplished VC investors. Meanwhile, Falak Startups helped 50+ to learn how to get better returns to LPs through Fund Manager simulation program. 7- Opportunity Egypt is a major player in the (MENAP) region, which has a relatively small, immature start-up ecosystem. Sovereign wealth funds, manage some $3.3 trillion in assets, yet founders in the region have difficulty attracting funding. VC investments in the whole region are at 0.1 percent of GDP versus 0.8 percent globally, so there is an implied potential of 4 to 8 times growth over the coming years.

Valuation Methods Of Startups Startup valuations provide insight into a company’s ability to use new capital to grow, meet customer and investor expectations, and hit the next milestone. Today, unicorn valuations — businesses valued at $1 billion or more — number in the hundreds. There are now “decacorns,” startups valued at $10 billion, and even “hectocorns,” valued at over $100 billion. While impressive, these calculations aren’t as objective as you might think. A startup valuation may account for factors like your team’s expertise, product, assets, business model, total addressable market, competitor performance, market opportunity, goodwill, and more. If you have actual revenues, you’re able to use concrete economic numbers as a starting point. But in the context of startup fundraising, your company is ultimately worth what you and your investors agree it's worth. And most angel investors and venture capital firms use multiple formulas to find the pre-money value of a business, or how much it’s worth before they invest. It’s fair to say that valuing a startup is both an art and a science. Whether you’re in the pre-seed stage or just issuing stock options to your employees, it will help you to understand the different startup valuation methods. ◼️ Startup Valuation Methods 1️⃣ Berkus Method 2️⃣ Comparable Transactions Method 3️⃣ Scorecard Valuation Method 4️⃣ Cost-To-Duplicate Approach 5️⃣ Risk Factor Summation Method 6️⃣ Discounted Cash Flow Method 7️⃣ Venture Capital Method 8️⃣ Book Value Method ◼️ Venture Capital Method For Startup Valuation There are two formulas you’ll use to worked toward your valuation: * Anticipated Return on Investment (ROI) = Terminal Value ÷ Post-Money Valuation * Post-Money Valuation = Terminal Value ÷ Anticipated ROI First, calculate your startup’s terminal value, or the expected selling price after the VC firm has invested. You can find this using estimated revenue multiples for your industry or the price-to-earnings ratio. Determine the anticipated ROI, such as 10x, and plug everything in to find your post-money valuation. From there, subtract the investment amount you’re asking for to get your pre-money valuation. https://lnkd.in/g5w7H2uw Thanks for reading…

In 2024, angel investing continues to see stable growth compared to late-stage startup investments. According to Crunchbase, early-stage startup investments amounted to around $29.5 billion, which is a 6% increase from the previous year. This is encouraging, as it shows that angel investors continue to support new companies despite the overall decline in late-stage funding and other sectors. Interesting facts about attracting angel investments: ✔ More Patient Capital: Unlike venture capitalists, angel investors are often more patient when waiting for returns on their investments. This allows startups more time to focus on product development and growth without the pressure to quickly turn a profit. ✔ Average Investment Size: The average amount angel investors put into a startup is around $450,000. However, depending on the industry and stage of the startup, this amount can vary significantly. ✔ Number of Active Angel Investors: In the U.S., there are approximately 250,000 active angel investors, many of whom participate in investment groups or networks for collaborative capital investment. ✔ Return on Investment: On average, angel investors receive a return of 2.7 times their initial investment over time. However, the risk remains high, with only about 11% of their portfolio typically yielding a positive profit. If you are a Pre-seed/Seed stage startup, you have a higher likelihood of securing investments from angels. For example, in 2022, startups at these stages in the U.S. received 67% of their funding from angel investors. Statistics are statistics. If you want to receive an up-to-date list of angel investors, comment with a ➕ .

The New Map of Entrepreneurship and Venture Capital: The landscape of entrepreneurship and venture capital is undergoing transformative changes, reshaping economic and technological frontiers across the globe. "The New Map of Entrepreneurship and Venture Capital" report provides a comprehensive look at how these shifts are creating new opportunities and challenges. Key Takeaways: 1) Global Surge in Startup Activity: The past decade has witnessed a dramatic increase in global startup and venture capital activities, with investment growing from $52 billion in 2010 to $171 billion in 2017. 2) Rise of Global Startup Cities: Beyond Silicon Valley and other US hotspots, cities like London, Berlin, Beijing, and Bangalore are emerging as major hubs, diversifying the geographic landscape of innovation. 3) Changing US Dominance: While the US continues to lead in venture capital, its global share is declining. This reflects a broader trend of rising entrepreneurship hubs across Europe, Asia, and other regions. 4) Concentration of Venture Capital: Despite the broadening landscape, venture capital remains highly concentrated. A small number of cities command the majority of global investments, underscoring the spiky nature of global venture capital distribution. This global spread signifies robust opportunities for entrepreneurs outside traditional centers. Investors also need to look beyond established markets to tap into emerging startup ecosystems showing rapid growth and innovation. PS. check out 🔔 for a winning pitch deck the template created by Silicon Valley legend, Peter Thiel https://lnkd.in/gEHjhUDH

🚀 Invitation to Venture Capitalists and Angel Investors: Fueling Innovation with StartUp Kuppam! 🌐 Dear Esteemed Venture Capitalists and Angel Investors, Greetings from StartUp Kuppam! We are thrilled to extend an invitation to visionary investors who share our passion for fostering innovation, empowering startups, and driving economic growth. StartUp Kuppam, a vibrant hub of entrepreneurial spirit, invites you to become a key Investment Partner in our mission to support and uplift startups, businesses, MSMEs, and more. Why Invest with StartUp Kuppam? Diverse Investment Opportunities: Explore a diverse range of investment opportunities in startups, businesses, and MSMEs with high growth potential. Impactful Support for Startups: Be a catalyst for positive change by providing financial support and mentorship to budding entrepreneurs, helping them scale and succeed. Strategic Collaboration for Growth: Collaborate strategically with innovative startups, forming mutually beneficial partnerships that drive innovation and market expansion. Economic Development and Job Creation: Contribute to the economic development of the Kuppam region by supporting businesses and startups that create jobs and drive local prosperity. How Your Investment Makes a Difference: In partnering with StartUp Kuppam, your investment becomes a powerful force for change. By supporting the entrepreneurial ecosystem, you play a pivotal role in shaping the future of businesses, fostering innovation, and contributing to the growth of the community. Next Steps: We invite you to explore the exciting investment opportunities available with StartUp Kuppam. Let's engage in a conversation about how your investment can make a lasting impact on the success of startups in our dynamic ecosystem. Contact us at +91 9392216834 or mail us startupkuppam@gmail.com to schedule a discussion. Together, let's innovate, collaborate, and create a legacy of growth! Note: If you are Startup Founder, Entrepreneur, Business Professional, Aspiring Individual, Educational Institutions - looking to join our community as a member, then checkout this google form link. https://lnkd.in/dNkfVYKH Note: If you are student, working professional, job seeker, individual - looking to join our team as a volunteer/intern/freelancer then checkout this google form link https://lnkd.in/d7vskKAC 🚀 Innovate, Collaborate, Grow - Invest with StartUp Kuppam! Warm regards, StartUp Kuppam Team

How To Arrive At Valuation Of Startups? Startup valuations provide insight into a company’s ability to use new capital to grow, meet customer and investor expectations, and hit the next milestone. Today, unicorn valuations — businesses valued at $1 billion or more — number in the hundreds. There are now “decacorns,” startups valued at $10 billion, and even “hectocorns,” valued at over $100 billion. While impressive, these calculations aren’t as objective as we might think. A startup valuation may account for factors like the team’s expertise, product, assets, business model, total addressable market, competitor performance, market opportunity, goodwill, and more. If we have actual revenues, we are able to use concrete economic numbers as a starting point. But in the context of startup fundraising, your company is ultimately worth what you and your investors agree it's worth. And most angel investors and venture capital firms use multiple formulas to find the pre-money value of a business, or how much it’s worth before they invest. It’s fair to say that valuing a startup is both an art and a science. Whether you’re in the pre-seed stage or just issuing stock options to your employees, it will help you to understand the different startup valuation methods. ◼️ Startup Valuation Methods 1️⃣ Berkus Method 2️⃣ Comparable Transactions Method 3️⃣ Scorecard Valuation Method 4️⃣ Cost-To-Duplicate Approach 5️⃣ Risk Factor Summation Method 6️⃣ Discounted Cash Flow Method 7️⃣ Venture Capital Method 8️⃣ Book Value Method ◼️ Venture Capital Method For Startup Valuation There are two formulas you’ll use to worked toward your valuation: Anticipated Return on Investment (ROI) = Terminal Value ÷ Post-Money Valuation Post-Money Valuation = Terminal Value ÷ Anticipated ROI First, calculate your startup’s terminal value, or the expected selling price after the VC firm has invested. You can find this using estimated revenue multiples for your industry or the price-to-earnings ratio. Determine the anticipated ROI, such as 10x, and plug everything in to find your post-money valuation. From there, subtract the investment amount you’re asking for to get your pre-money valuation. Thanks for reading…