Skip to main content

Importance of Documentation in Start Up Investing

Pranam

According to INC42 , the Indian start-ups have raised about $42 Billion in 2021 spread over 1584 deals, the same was $25 Billion in 2022 spread over 1517 deals . However, the same between the period I Jan 2023 till 21 March 2023 was $3 Billion spread over 3 deals. As per Tracxn Indian Start-ups raised a mere $5.46 billion in the first SIX months of 2023 as compared to $17.1 billion during the first SIX months of 2022 i.e a substantial decline of 68%.

There are many reasons for this decline , however this post is not for understanding the reasons for such a decline . In this post I will like to highlight the documentations that goes with such Startup Funding Deals.

All said and done, the start-up ecosystem is here to stay as the Government of the day is also promoting the same or atleast that is what is being said. The investors are willing to set aside a part of their corpus to invest in this HIGH RISK asset class. And accelerators and angel funds have made such a investing possible by acting as a medium to invest .It’s also a good news to all founders who want to disrupt the ecosystem. However, it is very important for the investors not let down theirs "guards" to join the bandwagon. So both the investors and the founders should know what they are agreeing to , which becomes all the more critical when one of the parties in more experienced then other .

It starts through a Term Sheet and ends with a definitive Shareholder Agreement.

The early stage investors are seeking higher MOIC (Multiple of Invested Capital) whereas the Founders are seeking patient capital that can help them to create next best product and/or service.

One thing is for sure its all about रोकड़ा , everyone is here to make money. So its better for both the parties to know ATLEAST the following terms while investing and signing the Shareholder Agreement -

  1. Rofo( Right of first offer )
  2. Rofr ( Right of first refusal )
  3. Drag rights
  4. Tag along rights
  5. Liquidation Preference
  6. Affirmative rights
  7. Representation & Warranties
  8. Anti dilution rights

Not knowing about above and more can get you feel cheated and at a loss of capital if you are a investor and growth benefits if you are a founder.

Its like Welcome to Jurassic Park - जुरासित पार्क में आपका स्वागत है 




     

Comments

Popular posts from this blog

Failure: Understanding, Coping, and Rising Again

  यदृच्छालाभसंतुष्टो द्वन्द्वातीतो विमत्सरः। समः सिद्धावसिद्धौ च कृत्वापि न निबध्यते He who is satisfied with gain which comes of its own accord, who is free from duality and does not envy, who is indifferent in both success & Failure, is never entangled ( bandan of karma), although performing actions Failure is a word that can invoke fear and disappointment, but it is also a powerful teacher and a catalyst for growth. Throughout history, failure has shaped many of the world’s greatest achievements. In India, stories of failure and subsequent success are woven into the fabric of our culture, from the world of business and sports to the battlefield and historical events. This blog will explore what failure means, why it happens, how to detect it early, its mental and emotional effects, and ways to bounce back—drawing from Indian history, business, sports, and military examples.   What is Failure? Failure is the inability to meet a desired goal or standard, whether personal ...

Why Entity Structuring is the Cornerstone of a Successful Indian Family Business ?

Pranam  When it comes to Indian family businesses, most of the focus tends to be on growth, succession, and stability. Yet one fundamental aspect often overlooked is Entity Structuring —how your business is set up legally, financially, and operationally. At Veer Consultancy Services (VCS) , we help family businesses not just plan , but execute optimal entity structures that stand the test of time.   Why Does Entity Structuring Matter So Much? ü    An intelligently designed structure can: ü    Minimize tax liability ü   Ensure smooth succession and estate planning   ü   Separate risks   ü   Improve fundraising ability ü   Maintain control in the hands of promoters ü   Protect and grow family wealth   ü   Facilitate governance and reduce internal conflicts   A Proven Approach: HoldCo – AssetCo – OpCo Structure At VCS, we often advise family businesses to adopt a three-tier...

Cost of Carry in an Indian Manufacturing Firm

 The "cost of carry" refers to the total expenses incurred by a manufacturing company to hold and store inventory over a period of time. This concept is crucial for effective inventory management, as it helps companies balance the benefits of holding inventory against the associated costs. In the context of an Indian manufacturing firm, understanding the cost of carry can significantly impact profitability and operational efficiency. Components of Cost of Carry 1. Storage Costs    - Rent or lease payments for warehouses    - Utility costs (electricity, heating, cooling)    - Salaries for warehouse staff    - Costs of equipment (e.g., forklifts, shelving) 2. Insurance Costs    - Insurance premiums to cover inventory against theft, damage, or loss 3. Depreciation and Obsolescence Costs    - Reduction in the value of inventory over time due to factors like obsolescence, perishability, or deterioration 4. Opportunity Costs ...