SS100 The Centennial Startup

Saturday

Session Overview:

• Stages of Funding

• Understanding Term Sheet & SHA

• Getting Ready for Funding-What to Expect

Stages of Funding• Term Sheet Negotiation which involves Business Valuation &

Business Plan

• Due Diligence

• Agreement Signing & Infusion of funds

• Issuance of funding instrument- Share Based / Debt Based Funding

• Corporate Law and RBI Compliances ( some compliances starts at the initial stage )

Stages of Funding..Term Sheet & SHA Negotiation

• Term Sheet is mostly Non-binding agreement which Sets forth basic terms and conditions under which an investment will be made.

• Whereas SHA is a formalized binding agreement governing the relationships among the shareholders and the company. It is the fine print of term sheet after considering the results of due diligence in a very detailed way.

• Things to Keep in Mind while signing Term Sheet & SHA?

Stages of Funding..Business Valuation & Business Plan

• Process of determining the economic value of a business or company

• Depends upon purpose of Valuation, Stage of Business, Past Financials, Expected financial results, industry scenario and various other allied factors

• Business Plan is the primary marker that is used by the investors to make the key decision

Stages of Funding..

BUSINESS VALUATION

Nature of Business

Earning Capacity of the Firm

Expected Turnover

Goodwill

Asset Liability Position

Forecasted Growth

Promoter’s Background

Relative Valuation of

similar businesses

Factors to be considered for Business Valuation

Stages of Funding..Due Diligence

• “Due Diligence” is nothing but an investigation to assess risk.

Conducted to:

• Check the Internal Control Systems are in place or not

• To calculate the financial risk involved

• Judge the awareness of the business owners

• Assess the team structuring and Operational Processes in place

• Verify the claims of the pitchers

• Excavate undisclosed risks

Getting Ready For Funding

• Incorporate the big market risks and the means of overcoming them.

• Avoid highly inflated impractical valuations

• Consideration of Unit Economics - Unit economics is basically concept of economics of direct revenues and costs associated with a particular business model expressed on a per unit basis.

1) Business Plan & Financial Introspection

Getting Ready For Funding…

1) Business Plan & Financial Introspection

• Identify the purposes of funding / Examine the financial needs of your business

• Understand and identify achievable milestones. • Weigh up the probability of upside and downside

chances of occurrence.• Accommodate shock absorbers in case of downside

occurrence

Getting Ready For Funding…

2) Raising it from someone who is right for you ?

• Do your homework on the investor - Two people can be brilliant individually but they may not be compatible together

• Are you reading the fine print? Have you understood every aspect of the deal?

• Preferences of investors – some specialize in tech startups while some in SAAS while others in real estate, Choose an investor who identifies with your business

• Are you seeing the investor as a partner or someone external?

Getting Ready For Funding…

3) Hacking the Due Diligence Process

• Ownership of Intellectual Property should reside with the Company and not the Director(s)/Shareholder (s)

• Internal Differences of Founders should be thrashed out before pitching for investment

• Secretarial practices should be in place

• State Specific licenses and permits have been obtained or not

Getting Ready For Funding…

3) Hacking the Due Diligence Process:

• Proper record of all the filings with the Government department till date should be in records of the Company

• Internal Agreements and contracts between shareholders or directors should be reduced to writing

• Check the formulation, maintenance and renewal of contracts with service providers and vendors

Getting Ready For Funding…

3) Hacking the Due Diligence Process:

• All structural changes in company should be duly recorded with the RoC and should take place as per standard guidelines of the Companies Act, 2013

• All the compliance related filings should be up to date.

• Litigation issues, if any should be properly recorded and if possible sorted as early as possible.

• Best to appoint an inspector internally to set everything in place before the due diligence check from the investor is due

RBI & Corporate Compliances

Corporate Compliances:

• Issuance of Shares or Debt Capital

• Holding of Board and Extra-ordinary General Meetings within stipulated time

• Filings to be made with the Registrar of Companies

• Issuance of Share Certificates/Debenture Warrants

• Updation of Secretarial Records

RBI & Corporate Compliances

RBI Compliances (when investor is foreign national):

On receipt of funds:

• File “Advance Reporting Form” to the RBI• Issue shares within 180 days

On issue of shares to foreign investors:

Report in specified form (FC-GPR) to the RBI, within 30 days from the date of issue of shares along with prescribed documents.

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