Introduction to Venture Capital

and Investment Diligence

Parth Chhaparwal
Investment Professional
Venture Highway
About me
• B.Tech. (Chemical Engineering) -
IIT Kanpur (2016 – 2020)
• Activities: Overall Coordinator,
Entrepreneurship Cell (2018-2019)
• Associate Consultant – Bain &
Company (2020 – 2021)
• Venture Knight / Investment
Professional – Venture Highway
(2021 – Present)
 What is Venture Capital?
Limited Partner
(High Net Worth Individuals, Fund of
Funds, Govts, etc.)
Rich peeps who wants to double,
triple, quadruple, 100x their money,
but don’t have the time to invest.
Venture Capital Fund
$ $
General Partner Entrepreneur
(Investors, ex-Entrepreneurs, anyone (Literally anyone – but with the
who understand investing) courage to take risk and start up)
Smart VC who knows the A,B,Cs of Legendary founders who require
investing and has the right network to money to build and scale their
$$$ identify world-changing startups. businesses.
$$
$$$$$
Key Terms in Venture Capital
Assets Under Management $$$$$ $$$$$ $$$$$ $$$$$
(AUM) Startup 1 Startup 2 Startup 3 Startup 4

$$$$$$$$$$ $
Valuation $$$$$$

Returns
Private Equity vs Venture Capital

Focus on early Focus on late stage

stage startups companies

Tech focused Any business (incl

investment themes hotels, water filtration,
IT companies, schools)

Focus on founder
and market Focus on metrics

Venture Capital More fun Less fun Private Equity

GP Hats on: What do you look for in a startup?
• Is the founder capable of taking risk and starting
up?
• Does the founder have the relevant experience,
expertise, and skillsets to build in this particular
space?
• Does the founder have the ability to attract talent
and build a large team?
• Does the founder have some unique insight to
Founder Traits build in this particular space?
• Is the founder aware of his/her shortcomings?
Founder Traits: Case 1
Team A and B are building a gene therapy product for the American market.
• Team A consists of 2 cofounders – 1 is an IIT Kanpur 2022 Computer
Science graduate who has killer AI/ML skills; 2 is a pharma specialist who
has 10 years of experience selling medicine
• Team B consists of 2 cofounders – 1 is an IIT Kanpur 2005 Biotech
Engineering graduate who has experience working at Research labs; 2 is a
software sales specialist who has 10 years of experience selling medicine
According to you, who do you think is better fit to build the business?
Founder Traits: Case 1 - Answer
There is no right answer. You have to dive deeper and find out what is
important for the business:
• How important is domain expertise here?
• How important is sales ability in this domain?
• Does the data at hand not present the right picture?
• Can team gaps be easily filled by hiring?
Founder Traits: Case 2
As a VC you have created a detailed thesis on cybersecurity in the USA
and you want to invest in some startup in this space. What kind of founder
traits would you look for?
GP Hats on: What do you look for in a startup?
• Can this startup become a big deal? Does
this startup have the ability to earn 100s of
millions of dollars in the future?
• Total Addressable Market (TAM) =
Maximum possible annual revenue a startup
can earn at 100% market share
• Is the market large enough for multiple
Market Size startups to exist and earn billions of dollars
of annual revenue?
Calculating the market size
• Step 1: Identify the ideal customer profile (ICP)
• Step 2: List down the constraints around the ICP
• Step 3: Start from top and calculate down to the bottom
E.g. Find the total addressable market (TAM)
for air conditioners in India
• ICP: Every Indian who has access to electricity, can afford an AC, and
lives in an area where AC is required.
• TAM Definition: Maximum total spend on air conditioners in one year
 E.g. Find the total addressable market (TAM)
for air conditioners in India
Urban
Households
Urban
Urban with electricity Price of A.C.
Urban Households
Households and income >
Households with electricity
with electricity XX & Lifetime (5 yrs)
and income > XX
surrounding
Number of temp > AA
Households in TAM
Rural
India
Households
Rural with electricity
Rural Price of A.C.
Rural Households and income >
Households
Households with electricity XX &
with electricity Lifetime (5 yrs)
and income > XX surrounding
temp > AA
Electricity penetration Affordability penetration Requirement of
AC
TAM Estimation: TAM for social media
commerce in India
• ICP: Every Indian who has access to internet, is on social media and
shops online.
• TAM Definition: Total retail spending of the ICP
TAM Estimation: TAM for social media
commerce in India

Indian Population x Social Media Penetration

(1.4B)

Number of Indians
on Social Media x E-Commerce penetration
(400M)

Number of Indian Social

Average Total Retail
Media Users who shop TAM
Spend per Person
online (250M)

Ideal Customer Profile (ICP)

GP Hats on: What do you look for in a startup?
• Does the product effectively solve the
problem?
• Is there a strong delta created from existing
solutions in the market?
• Can the startup effectively capture market
share?
• Is there a clearly observable right-to-win?
Product Moat • Are there technical barriers to entry for other
competitors to replicate the product?
Assignment
Rahul is building a software for creators/ social media influencer to launch
their own storefront. The app allows a creator to make their own white-
labelled storefront with a separate domain and a no-code storefront website
builder. Rahul wants to build a global product.
1. How would you define the ideal customer profile for the product?
2. What would be the constraints associated with the product?
3. How would you define the total addressable market?
4. Provide a detailed calculation for the TAM on an excel sheet. (neatly
formatted, legible and organized).