Startup Funds Raising-Shahid Ep2
C-Suite, venture capital, private equity, strategic, financial and investment banking advisory professional as well as investor and business owner / entrepreneur with over 30 years of experience in fundraising, strategic planning, business development, business management, M&A, corporate development, corporate finance, capital markets, financial markets and treasury.
Network: Senior level contacts including with investors (angel investors / networks, (U)HNWI, family offices, venture capital, private equity as well as fund of funds and sovereign wealth funds / DFIs), incubators / accelerators, corporations, management teams and governmental organisations throughout the world.
Current focus: Startup / early round ventures (including AI/ML, IoT, AR/VR, FinTech, Blockchain, CleanTech, MedTech, HealthTech, BioTech, EdTech, AgTech), ICOs as well as global impact / sustainability / agricultural projects.
Director Tom Clark
Technical Director Tom Clark
Sound Technician Bill Lindemann
Character Generator Michelle Yuan
Floor Director Jim Seawright
Camera 1 Christine Cray-Rubin
Camera 2 John Farley
Camera 3 Jim Twu
Creative Designer Sergio Smirnoff
Show Announcer 0:00
Welcome to Silicon Valley successes, we interview experts and entrepreneurs to give the world access to the knowledge and experience that is here in Silicon Valley. Our mission is to create opportunities for those who seek them and help you to become the next Silicon Valley success.
Shawn Flynn 0:18
Welcome to the second episode of Silicon Valley successes, where we interview industry experts, entrepreneurs, and people that work and live in the Silicon Valley ecosystem to bring you the knowledge that they've gotten through a lifetime experience here. And we try to package it in a reference library that anyone the world can access. So no matter where you are, you can help fulfill your dreams of being the next Silicon Valley success. Now with me today, you shall eat Christie, who has a background in investment banking, and has helped startups from around the world in their strategic planet. But I'll let shade introduce himself a little bit more shy. Thank you for coming today on Silicon Valley successes. And could you please give an intro of who you are and a little bit of background? Yes,
Shahid Chishty 1:09
that's me. Thanks for inviting me, Jordan. It's a pleasure to be here.
I actually was born in Africa, lived there till I was 11 years old. Wow. Then move to London and finish off my education over there. I then started working London with the investment banks worked in London in Frankfurt. I've worked actually with the management teams and investors around the world.
And I've been over here in Silicon Valley for the past three years. And I've very much enjoyed actually working with startups. I've been working with some of the accelerators around here as well as a mentor. And in particular, actually, I enjoy mentoring some of the impacts and sustainability startups around here and connecting them with international investors, depending on where they are. And I've also enjoyed working actually, over the years with investor groups, which are looking at various investments, including startups. Okay,
Shawn Flynn 2:06
so I guess the first question, let's go to the very, very basics, what is the fundable company? And what I mean by that is not everyone and it's company is what investors look for. So could you kind of give a brief introduction to what you believe, is a fundable company and one that is not,
Shahid Chishty 2:27
I think it It varies, actually, some companies really surprised people when they get funded. And I think generally, those founders that come up with a novel idea, and especially, perhaps also those that have had a successful track record previously, not necessarily in the same area, though those founders tend to succeed, they tend to convince investors that they've got an interesting idea. And then it's a matter of building the team and undertaking the follow through from that. So I
Shawn Flynn 3:04
guess even even a step back from that if I had a bakery, would that be considered a fundable company for a minute an angel or VC point of view? Or does it have to have, you know, algorithms in it? What What, what is the investor look for?
Shahid Chishty 3:24
Well, I particularly focus on technology startups. But in essence, any business which, which you can prove as a founder, you know, should be viable, could potentially attract investors, you could, you could come up with a completely new idea as to something that no one has ever done before. And, and it could be successful, it could be a reasonably simple idea. On the other hand, I would say, especially where I'm focusing on technology startups is that there is a trend that the more sophisticated technologically the startup is, there's, there's a good good likelihood that it will be successful if the ideas is is a good idea as well, the novel idea, and I come back to the point that if the founder has gone very good experience as well, that will certainly help in terms of discussions with investors. So talking about investors, how many different types of investors are there? And where can startups
Shawn Flynn 4:35
or entrepreneurs get their funding from VCs angels? But if you could talk a little bit about each of those, I guess, and banks and any other source? Yeah. And remember, think of me as someone that has never heard of any of this stuff? Yeah,
Shahid Chishty 4:48
that's very good question. Actually, there are numerous routes to getting financing. In fact, I think founders and startups nowadays have a hugely greater opportunity than existed many years ago,
the especially the ecosystem in Silicon Valley is extremely broad. So you have angel investors at the smaller end of the scale, who will typically invest 25, maybe $50,000, some obviously can invest more than that you've got family offices, you've got venture capitalists, and then the scale goes all the way up to, you know, private equity firms and so on.
Shawn Flynn 5:36
And tell me about an angel investor, what is an angel investor, an angel
Shahid Chishty 5:40
investor, again, there are different sorts, sometimes you have angel investors who worked at larger corporations, and they perhaps have excess time or they have excess cash available, and they think, okay, you know, I can invest in something that sounds interesting, or you know, that through their work, they think they know a little bit a little bit about, and then you've got, perhaps successful entrepreneurs who've actually got, you know, previous successful startups that they have maybe sold, and they bring with them certain areas of expertise, whether it's a certain vertical as the artificial intelligence or machine learning in robotics, in FinTech, all sorts of other areas like that. Or it could be a specialization in terms of what they're doing, for example, to marketing in terms of maybe certain engineering skills they have, and so on. And they will typically try and invest in those areas where, where they can apply, and they can help the founders and startups with their expertise,
Shawn Flynn 6:52
okay? So. So an angel investor Menton checks between 25,000, possibly 50,000, maybe be a little bit more they might have been successful entrepreneurs or industry experts. What about the other groups? you'd mentioned, you mentioned family funds, what's the family fund, a family
Shahid Chishty 7:10
fund is essentially a fund which has been put together by a successful either founder or families. So sometimes you even have two or three generations of families that that have been operating a particular business. And if they've perhaps sold that business or generated significant amounts of cash from that business, they'll put it into a fund and then certain allocations will be decided upon, you know, they could decide to put some in a very secure investments, they could decide to put a portion of the fund into more risky investment, which includes early stage startups and so on.
And so those are generally refer to them as family friends, and you've got single family funds, you've got multi family funds, multifamily funds being, for example, several families getting together and saying, you know, okay, this is going to be one funds, and that they, they then again, decided upon where their joint interests are, and an invest accordingly, okay. And then you also mentioned VC, VC, what does that stand for VCs and venture capitalists. And again, there's a wide range of venture capitalists, some have
interests in particular vertical, again, like verticals I mentioned. So it could be ad tech, FinTech, med, tech, health tech, they're all sorts of texts, or it could be in a geographic area that they tend to focus, or it could be a particular stage of investments that they focus on. So stage of investments could be pre seed, very early stage where it's just an idea to seed and then you've got a rounds, B rounds, rounds, D rounds, and so on all the way until maybe a company is very large, and could potentially do an IPO
Shawn Flynn 9:06
keep talk about a little bit more of each of those stages from the seed proceed a all
Shahid Chishty 9:13
the those stages vary by by sector industry, and so on. But typically, a seed round would be usually up to around a million dollars.
In certain circumstances, it could be more than that. But that's perhaps more typical an A round could be maybe one to $5 million dollars be around five to 10, and so on, it goes up in increments, and,
and those are the typical ranges, they could vary, vary significantly, there was well, Okay,
Shawn Flynn 9:48
then let's go back a little bit. If I'm a founder of a company, when should I start thinking about raising funds? Is it when I just have an idea, or after I've already made some sales and some some customer traction, when is the best time that's a
Shahid Chishty 10:06
very good question as well. And it's something that I think founders should spend more time on considering. So I found, let's take the case of a founder who, who has a good idea, we thinks it's a good idea, he will probably have to develop that idea, he will have to bring other people on board to bring particular expertise in, and so on. And the various ways in which he could do that. So he could partner with them, or he could hire them. And event depends also on the expectations and the and the ability of the person to undertake that work. So it could be paid work, which would be actually more unusual. So usually, actually,
people who are founding businesses and the early participants in the business would would normally provide was cold sweat equity,
Okay, tell me about that
Shahid Chishty 11:03
sweat equity is essentially working together, share in the company, okay. And
so I found, again, has the opportunity either to try and find these people who will co found the business so with him, and usually, that will then save save funds, which are normally extremely limited at the start. Okay,
Shawn Flynn 11:26
so there's up like 5% of the company, 10%, 1%,
Shahid Chishty 11:30
what's kind of normal, it could be any of those actually, it really depends on how how much the founder needs those additional areas of expertise.
Again, I think if, if the founder can bootstrap, there's 10 bootstrap or so try and get funds as the businesses developing. Okay, that's usually a very good way of proceeding, usually found will have to provide some funds him or herself. And those funds could either be personal funds, they usually are. And then actually, the second step of funding would usually be what they call friends and family around, okay, so you approached your family, you approach close friends and other other acquaintances, talk to them about the idea, see if they're interested, if they're willing to invest with you.
And I think the main thing that founders need to bear in mind is that the earlier they seek financing, the more they're probably going to have to give away for their business. And that's why there's a recommendation that founders trying you the term I use bootstrap as far as possible. So for example, if you if you have a good idea, and and you want to get it financed, you could, for example, ask or seek for just as an example, say, $5 million, or $10 million, okay, if you do so however, the likelihood is, and this depends also very much on what type of business it is, and how much it can be expected to generate in revenues, and profits going forward. But generally, if you're looking for sign file sizes of 510 million dollars, you would probably have to give away a significant portion of your company. So the idea is to bootstrap, which would be maybe, you know, you get your first $100,000, okay, and give away a small percentage and get the product further developed, you then go and look for further equity as to what your product is even more developed. And at each step, you're giving away some equity.
Hopefully, you also try and develop some revenues as soon as possible. And revenues would obviously help to pay certainly costs and expenses that a founder will be incurring along the way.
So the the time timing of when to go to investors, which investors to go to how to approach the investors
to ensure that you've got the right resources on board. All of those are vital considerations for founders and for startups. So
Shawn Flynn 14:19
approach in all these different groups has to take time and money. That's right, what should be allocated for it? What should a founder be thinking in his head when I want to raise funds to allocate a month to do it a week to do it a lot longer should allocate so much of my budget for what what advice would you give a startup in their fundraising process? and planned?
Shahid Chishty 14:44
I I think those are questions actually, or the answers to the to that that question of those questions vary significantly. Generally, though, I would say that startup is probably going to have to do develop the product or service whatever he or she is working on for at least probably six months before they're likely to have what's called a an MVP, what's an MVP? an MVP is a market viable product, it could be a service as well.
And generally with it would probably take about six months also to get to get some initial external funding in place.
One thing that I would recommend, though, is that founders and startups do try to get some funding reasonably early in the process. Why is that? And the reason I would recommend that, actually, is that if you're talking to third parties about your idea, and your product or service, it's very good to see what reactions you're getting. And you can test your idea against the people. And if you can convince people to invest in your product, you're doing a pretty good job.
And so if you like going out to talk to third party persons, and investors in particular, give some sort of validation to what you're doing as well. And there are even founders or serial entrepreneurs who who have significant funds available. However, if they set up a new startup or company, they nevertheless go out to test it and check about its viability with other investors as well. So it's a very good way of trying to get multiple eyes to look at what you're doing, and to see whether what you're doing will take off or not. Okay, so if I wanted to talk to investors
Shawn Flynn 16:58
having a product has in some sales, great, but do I just go up to them? And tell them this? Is my company this right do? or How should I communicate with them? Do I give them any marketing material? Tell me about that. Yes, that's
Shahid Chishty 17:13
me, the founders and startups will will usually prepare a pitch deck,
what's a pitch deck?
Shahid Chishty 17:20
Yeah, I'll go to pitch sake, I was gonna say, they also will usually prepare for a short summary. So that's usually called an executive summary. But the pitch deck actually is is a perhaps a ideally, I tend to maybe 15
most mostly usually maximum 20 page set of slides, which really show what your idea is
what motivated you perhaps, to undertake that startup, it provides background to the founder, and perhaps other team members, which would usually be on board by then as well,
provides maybe some financial information on what the prospects for the business are. And usually, it also will include what's called a go to market strategy, also, how the, how the founder wants to maybe develop his product or service, and then how he or she also wants to get it into, for example, if it's a retail product out to retailers, what the strategy is maybe locally, regionally, nationally, internationally, even so, those sort of things will also be the kind of questions that investors would want to know about. So with that, what are some of the biggest mistakes you see founders making, when they approach investors,
Shawn Flynn 18:49
or just anyone in general,
Shahid Chishty 18:52
they a number of startups actually just are not prepared fully. They, you know, the, the, they don't consider certain information which the investors would want, perhaps also they they should
decide beforehand, when they're approaching the investors, what exactly they're looking for, from the investors in why they are approaching the investors at that stage as well. So some founders don't don't think all of that through and then they stumble when talking to investors, what tips or tricks would you give a founder wanting to raise funds, I would say that they have to have a strong idea, a strong team and, and also be driven because it's a hard road. It's also a complicated check.
When once you arrive in Silicon Valley, Silicon Valley
Shahid Chishty 19:51
is is getting more and more difficult to, to find funds. And even
I understand myself that maybe a few years ago, they were perhaps a few hundred startups nowadays, they talk about there being perhaps 10s of thousands of startups in Silicon Valley.
As I mentioned, I also work with accelerators. And the statistics among the accelerators show that perhaps 98% even of startups will fail. So it's actually a very significant percentage.
Shawn Flynn 20:26
Okay, so we've talked a lot we've talked about what a fundable company is, we've talked about the different types of investors, angels, family funds, VCs, we've talked about raising funds, and out plan and some of the biggest mistakes founders make what other information on fund and do you think is very valuable for startup for a founder to know,
Shahid Chishty 20:49
I think fundraising itself also takes a lot of efforts and a lot of time. So if a founder, for example, is a pro grammar, and he himself is preparing developing the software, he will have to think that he's probably going to be spending at least 50% of his time undertaking fundraising. And therefore, as I mentioned before, it's a it's well worth already developing a once team to include people that he can then rely upon to carry on perhaps the developmental stages of the product or service while he's also working with advisors to approach investors. So I would say, founders and startups should have a solid team, and they should be well prepared to talk to the investors, they should also actually make sure that they spend time looking at which investors they should be approaching the accelerators, for example, will also typically have programs where they will end invest in startups as well, the usual structure is that they will invest around 120, $5,000, $25,000
of that might be called back by the accelerators for services provided and the accelerators could take typically around 7% of the equity. So again, it's a matter of the founders and startups judging when is the time to approach investors, what's helped to get for example, also in terms of board advisors, other team members, mentors, as well, which accelerators perhaps, to work with because the accelerators have their own specialization. And so all of those detailed considerations which founders and startups should spend a good a good deal of time considering. So
Shawn Flynn 22:51
quick question. If there's two or two people that want to invest in startups company,
what questions should that founder ask those investors if you can only take money from one of them? Very good
Shahid Chishty 23:04
question. There are what's called also strategic investors. So those will be investors that that have detailed knowledge of that particular area, I think the the founders really should consider what they need, as I mentioned before, from the investors, usually it's not only just money, and usually it would be very helpful to find investors, let's say you're an ag tech startup, it would be very helpful. For example, if you could get an investor on board that could also open doors for you for the product that you're developing, or the service that you're developing. And maybe they will even have expertise in certain
technology that you might be developing as well. So the best thing is to find investors who are closely aligned with what the startup is doing, have funds available and a willing maybe even to roll up their sleeves a little bit and act as a as an advisor and mentor as well, when you're saying roll up their sleeves,
Shawn Flynn 24:11
How valuable is their network to that to that startup that founder rolling up and making introductions? How important is that it's extremely important, I think,
Shahid Chishty 24:23
let's let's stay with the example of Ag tech if if an investor for example. And let's say you're doing a hydroponics, automated hydroponics business, if you find an investor who, for example,
either has himself multiple contacts with, with, with retailers, grocery retailers, for example, that could be an ideal way for you then also to get get your product out to market as well. So, and, and, and the same thing applies to any other vertical, if it's Ed Tech, or, you know, then if sorry, if an investor has contacts with either say schooling systems, or, for example, with companies that already sell to schools, you know, those would be ideal sorts of investors typically also say FinTech investors if if the if they have contacts with financial institutions, insurance companies, banks and so on. Those sort of connections are extremely helpful for startups quickly What's your opinion of crowdfunding and Ico for alternative raise to raise funded Ico initial coin offering crowdfunding
one of those platforms just quick 32nd and certainly
Shahid Chishty 25:42
our crowdfunding is extremely useful for products especially which was sold to consumers Icos initial coin offerings are a new development in factor they they have proven extremely successful for some startups that have raised double digit millions even into the billions of dollars. It's a very different market though. And generally those startups would need to have some sort of blockchain and perhaps ai, ai machine learning types of applications to be successful. But it's a an area actually which is which is threatening the current securities industry as a whole and even the VC industry model.
Shawn Flynn 26:34
Okay, last question. most valuable advice you could give a founder on fundraising
Shahid Chishty 26:42
be determined and don't give up
Shawn Flynn 26:47
and shy Could you give everyone just a recap of who you are what you do, certainly, I,
Shahid Chishty 26:55
I work with startups, mainly in the tech sector. And I work with investor groups around the world as well with the startups actually generally I help them with business development, strategic, provide strategic advice, international growth and scaling I help them with and also fundraising exits m&a activity,
so there's, there's the areas that I'd like to work together with startups on when's it
Shawn Flynn 27:24
too early for a company to approach you and asked to work with you.
Shahid Chishty 27:29
And I think it really depends on the on the idea and how novel it is. But I I tend to work with companies at the earliest stage. So seed and a rounds B round rather than more developed companies.
Shawn Flynn 27:43
Interesting now with that, Shahid, thank you for your thank you for your time today. And I want to thank everyone that is tuned in to the second episode of Silicon Valley successes. We're very happy here to bring this information to you. Hopefully, you'll utilize this in your daily life. And hopefully, it'll help you get to the next stage as you want. If you have any questions, or you want certain information in our shows, there's ways to contact us through our website, Silicon Valley successes.com. And I want to thank everyone once again, for taking your time and trust in us to give you valuable information that could help you no matter where you are in the world. So with that, Shahid, thank you again, for all your time. I look forward to the next time you're on our show. We have to get you back. There's so much more we didn't talk about such as we did talk about Angel groups, but the construction of them and there's just so much more so please come back.
I'd be glad to do sir. Thank you.
Show Announcer 28:46
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