Raising capital is a long and tedious process that usually takes 4 to 6 months before the money reaches the bank account. At the time of raising funds, investors ask for evaluating the company’s records and information as part of the due diligence process. To understand all nuances that come as part of fundraising, our Founder, Srinivas Katta engaged in an interactive session – Preparing your startup for fundraising at TiE Bangalore. The aim was to aid startups be prepared and reduce the time taken to close funding rounds.
The talk mainly emphasized the following points:
1. Cap Table
- Structuring the elements of your cap table- Why it is essential to have a correct cap table and how regulators and investors look at the cap table for decision making.
- Freezing allocation of equity between founders and other stakeholders of the company.
- Importance of creating an ESOP pool at the company’s initial stages.
- Allocation of ESOP to key managerial personnel.
- Importance of completing the share issuance process and transfers on time.
2. Key contracts/registrations/compliances
- Statutory filings to be made with the regulatory bodies regarding the fundraise.
- Importance of having well defined employment contracts, vendor contracts, IP ownership contracts at the initial stages of the company.
- Benefits of being registered under the Startup India Scheme.
- Importance of POSH policies, data privacy policies for startups.
3. Intellectual property registration
- Obtaining IP ownership and registration under the necessary patent, trademark and related IP, depending on the nature of the business being undertaken.
4. Founders agreement
- Importance of having a written agreement that legally binds the founders of the company and the common terms to be captured therein, key terms being founder vesting, founder exit, non-compete, transferability of shares.
5. FDI Compliances
- Approvals to be sought for FDI investment.
- Regulatory compliances and documentation to be filed with the regulatory bodies under different routes(government and automatic) of foreign investments.
- Importance of having contracts, policies and procedures in line with the business model of the company to be FDI compliant.
6. Accounts and Finance
- The importance of having an organized financial data.
- The need to be tax compliant ensuring correct categorization/classification of data at all times to be diligence ready.
To understand how each of these points plays out in the context of a startup, click on the video link.