Uday Damodaran

XLRI Jamshedpur

Session 2:
Financing Your Start-Up: Magic or Logic?

BM 15-17: FM II
Session 2

Uday Damodaran
XLRI Jamshedpur

The Dot Com Boom and Bust

Did something actually go wrong? Justify!

Why would it have happened? Who was responsible? If the
system has to be re-designed what should be done?
Who are the various intermediaries? And what are their roles?
Could some of them gave failed in their roles?

BM 15-17: FM II
Session 2

Uday Damodaran
XLRI Jamshedpur

The Dot Com Boom and Bust

Who are the various intermediaries? And what are their roles?
Venture Capitalists
Investment Banks
Sell Side Analysts
Buy Side Analysts
Portfolio Managers
Auditors
Did they fail in
discharging their
responsibilities?
Why?

BM 15-17: FM II
Session 2

Uday Damodaran
XLRI Jamshedpur

India

MSME Listing
Earlier OTCEI, Indias Nasdaq

BM 15-17: FM II
Session 2

Uday Damodaran
XLRI Jamshedpur

New Venture Financing

Text, Chapter 15

BM 15-17: FM II
Session 2

Uday Damodaran
XLRI Jamshedpur

Order of raising funds

What would the first source of funds for a start-up be?

Own Funds: Why? And in what form?
And then?

BM 15-17: FM II
Session 2

Uday Damodaran
XLRI Jamshedpur

Order of raising funds

What would the first source of funds for a start-up be?

Own Funds
Friends, Relatives and Associates: Why? And in what
form?
And then?

Why?
Information Asymmetry!

BM 15-17: FM II
Session 2

Uday Damodaran
XLRI Jamshedpur

Order of raising funds

What would the first source of funds for a start-up be?

Own Funds
Friends, Relatives and Associates
Angels: Why? And what skills should they possess? In
what form will they invest?
And then?

What do they look

for? What should
you give them?
What should you
hide?
BM 15-17: FM II
Session 2

Uday Damodaran
XLRI Jamshedpur

A Question From My Behavioral Finance Course

What was your answer to question 4?

XLRI 09-11: BehFin (BM)

Session 3

Uday Damodaran
XLRI Jamshedpur

Even more intriguing,,,

What was your answer to question 4?
PMIR: 09 batch/ 10 batch/ 11 IR
A&C 4/ 2/ 12
A&D 14/ 9/ 33
B&C 2/ 0/ 3
B&D 1/ 2/ 8
Focus on these!
? & D 0/2/ 0
BM:
A&C 7/ 2/ 3
A&D 20/ 4/ 19
B&C 3/ 0/ 0
B&D 4/ 0/ 2
Exchange
A&D 5
XLRI 09-11: BehFin (BM)
Session 3

10

Uday Damodaran
XLRI Jamshedpur

Order of raising funds

What would the first source of funds for a start-up be?

Own Funds
Friends, Relatives and Associates
Angels: Why? And what skills should they possess? In
what form will they invest?
And then?

Information
Asymmetry and
Ambiguity Aversion!

BM 15-17: FM II
Session 2

What do they look

for? What should
you give them?
What should you
hide?

11

Uday Damodaran
XLRI Jamshedpur

Therefore.

Better to blurt than hide?

Todays Telegraph

BM 15-17: FM II
Session 2

12

Uday Damodaran
XLRI Jamshedpur

Order of raising funds

What would the first source of funds for a start-up be?

Own Funds
Friends, Relatives and Associates
Angels
VC First Stage: What skills should they possess? In what
form will they invest?
And then?

BM 15-17: FM II
Session 2

13

Uday Damodaran
XLRI Jamshedpur

Order of raising funds

What would the first source of funds for a start-up be?

Own Funds
Friends, Relatives and Associates
Angels
VC First Stage
VC Second, And Later Stages: What skills should they
possess? In what form will they invest?
And then?

BM 15-17: FM II
Session 2

14

Uday Damodaran
XLRI Jamshedpur

Order of raising funds

What would the first source of funds for a start-up be?

Own Funds
Friends, Relatives and Associates
Angels
VC First Stage
VC Second, And Later Stages
Mezzanine
And then?

BM 15-17: FM II
Session 2

15

Uday Damodaran
XLRI Jamshedpur

Order of raising funds

What would the first source of funds for a start-up be?

Own Funds
Friends, Relatives and Associates
Angels
VC First Stage
VC Second, And Later Stages
Mezzanine
IPO: Paper gains turn into fungible wealth

BM 15-17: FM II
Session 2

16

Uday Damodaran
XLRI Jamshedpur

IPO

Primary Offering
Secondary Offering

BM 15-17: FM II
Session 2

17

Uday Damodaran
XLRI Jamshedpur

New Venture Financing

Read Bladelogic?
Quiz?

BM 15-17: FM II
Session 2

18

Uday Damodaran
XLRI Jamshedpur

By the way

What is a unicorn?
cbinsights.com/research-unicorn-companies
144/ $525 bn
Flipkart $15 bn
Olacabs $5 bn
Snapdeal $2.5 bn
Contrast with the
One97 Communications $2 bn
Dot Com Era..
These guys want
to remain private!

BM 15-17: FM II
Session 2

19