Documentation For A Startup Before & After Investment
FUNDING MANTRA: DOCUMENTATION FOR A STARTUP BEFORE AND AFTER INVESTMENT
- Brilliant company ideas provide value to society in this era of startups. The early bird gets the worm, as the saying goes.
- Comparing millennial classics in the food tech field, such as Swiggy and Zomato food delivery, had a significant impact. The ability to conceive and implement well-executed ideas has become a necessity in New India’s way of life. Unicorns are startups that have a market capitalization of more than one billion dollars. Their names would not be the talk of the town if they had waited a little longer to put their ideas into action.
- But this is only part of the tale; what makes these businesses genuinely lucrative is the value seen by their investors, as these are unlisted businesses that the general public cannot invest in.
- Angel Investors, Private Equity, Venture Capital, and Investment Bankers are elite individuals or businesses that select and invest in such unique and revolutionary startups.
- Take, for example, the USD 2.2 billion raised (through April 2021). Swiggy raised USD 2 million in Series A fundraising and is now in Series J. Every round of investment required the firm to persuade its investor not just of its business concept, but also of the company’s governance and legal documents.
- In this post, we’ll go over numerous documentation tasks that a business must maintain and provide to potential investors in order to close a deal.
- Pre-Funding and Post-Funding documentation has been separated. For the Startup’s healthy growth, it is necessary to continue this activity with rigor, ensuring that all compliance is met on a regular basis.
- CERTIFICATES OF REGISTRATION
These are your company’s source documents, and they must be kept up to date at all times.
- SHARE CERTIFICATES
Share certificates are significant documents that grant shareholders or promoters ownership of a firm. Any irregularity can result in additional expenditures, such as stamping or franking fees, as well as logistics.
The most common problems occur when
- TRADEMARKS, LICENCES, AND PATENTS
Every startup currently derives the majority of its value from its intellectual property (IP). It can be, to name a few. :-
It is essential that the company safeguards its intellectual property by registering a patent, copyright, or trademark with the appropriate authorities in the jurisdiction in which they operate and maintaining such certifications.
- FILE OF COMPLIANCE
Now that you have all of the necessary registration paperwork, the following step is to keep a monthly tracker and compliance file to ensure that all regulatory requirements are met and reported on a regular basis. Any breakdown in compliance can lead to:-
FINANCIAL STATEMENTS
Financial Statements are an essential set of reports that represent a company’s performance. The following are some basic assertions.
CONFIDENTIALITY AGREEMENTS (No. 6)
Most entrepreneurs believe that consumer data, formulae, processes, and strategies aren’t vital to the success or failure of their business. These secrets, however, are discovered to be the reason for the startup’s success. Employees, consultants, and potential investors with whom sensitive material will be discussed must all be protected by a well-drafted Non-Disclosure Agreement.
Before exchanging information with an investor, always obtain an NDA signed.
- PITCH DOCUMENT OR BUSINESS PLAN
A pitch document is an official presentation to investors about your company. It might be a simple PPT that outlines the following features of your company.
A pitch document should persuade an investor that your idea is a good one and that you have the finest team to carry it out.
REPORTS ON VALUATION
According to the Companies Act of 2013, Enterprise and Share Valuation must be carried out by a registered valuer who has been approved by the IBBI. The startup can have its firm valued, which will aid it in creating a better pitch document and assisting promoters in deciding on shareholder dilution. The following are some of the most commonly used valuation methodologies.
TERM SHEET
You can now approach a potential investor after you’ve completed all of the processes in making your firm ready. Once you’ve piqued the investor’s interest, you’ll be asked to sign a term sheet authorizing the transfer of funds in installments. This is similar to signing a purchase agreement when purchasing a home. The following are some of the aspects that a term sheet will include (including but not exhaustive).
10. DUE-DILIGENCE
When you have signed a term sheet, it contains various terms and conditions based on which investor will release funds. Due diligence is one such condition which investors always include
Types of Due- diligence
A. Financial Due Diligence
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Financial Due Diligence
B. Legal Due Diligence
- C. Authorized capital increase
Hola! When an investor agrees to fund your initiative, the first step is to contact your Company Secretary to complete the secretarial compliance process, which includes.
- SHAREHOLDERS DEFINITIVE AGREEMENT
This might be referred to by a variety of terms, such as Debenture holders Definitive Agreement, and so on. From here on out, this agreement will be the most crucial instrument tying the investors and promoters. The majority of the time, it will be an extension of a term sheet that spans many pages and has several intricate details. Some more points that could be mentioned are:
- EMPLOYMENT CONTRACT
In the term sheet, the majority of investors want a strict employment agreement with the founders. This is done to protect the interests of investors and to encourage founders to commit for the long term. The following are examples of common terms that can be used here:
Following the investment or funding, there is a process to follow.
You still can’t use the money you got from investors in your first round of fundraising. According to the Companies Act of 2013, monies can only be used by the firm after allotment of shares or securities; until then, they must be retained in an escrow account.
As a result, post-investment compliance with the term sheet and the Act is required.
- Modifications to the AOA and SHARE CERTIFICATES
After the legal process is finished, the company secretary must complete the allotment process, which entails a number of steps.
REPORTS ON INVESTOR RELATIONSHIPS
Now that you’ve completed the round of funding, which can take anywhere from 3 to 9 months to complete, it’s important to look after your investors by adhering to the terms of the definitive agreement and following best practices. Regular updates on the company’s or project’s progress can encourage investors to invest more. Some of the reports may be difficult to understand.
A. Monthly Quarterly performance report
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Monthly Quarterly performance report B. Compliance Reports
- C. Project report
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