galatime.com - Kaushik Gala

Note: The views & opinions expressed in these essays are strictly my own, and not those of any entity I may be associated with as an employee, consultant, promoter, investor, etc.

ARCHIVES

 

Pune

Technology Venture Investors in Pune

 

Technology Entrepreneurship in India - Teams

Entrepreneurial traits

Picking cofounders

 

Technology Entrepreneurship in India - Generating Revenue

Is your business model well-defined?

Your industry's value chain

What is your value proposition?

Which distribution channels will you use?

Who will drive business development?

 

Technology Entrepreneurship in India - Raising Capital

Venture capital & venture capitalists (VCs)

Corporate venture capital

Angels & angel networks in India

Government support for Indian startups

Proof-of-concept funding

Do you need a business plan?

How much money should you raise?

Startup valuation

Pitching to investors

Figure out the term sheet

Negotiating with investors

Due diligence - A necessary evil

Time to sign the investment agreements

 

Equities, ETFs, F&O

› Oct 2011: Equity Risk Premium for India

› Jun 2011: Investing in Indian equities

 

Technology Enterprises in India

› Nov 2010: Technology investment in India - WATER

› Aug 2010: Technology enterprises in India - 3 avatars

 

Risk Capital for MSMEs

› Mar 2010: Risk mitigation for investors in MSMEs

› Mar 2010: Why don't (Indian) MSMEs get risk capital?

› Feb 2010: Angel investing - Will it work for Indian MSMEs?

› Feb 2010: What's so special about innovative MSMEs?

› Feb 2010: Where do Indian/NRI (V)HNIs invest?

› Feb 2010: Funding options for innovative MSMEs in India

› Jan 2010: Innovative MSMEs in India

Time to sign the investment agreements

(Last revised Mar-2012, Send comments to galatime@gmail.com)

Investment agreements are a set of legal documents to be executed once the key terms are agreed upon between founders, company and investors. This includes:

  • Share subscription agreement (SSA) - via which new investors agree to buy shares in your company. [Sample templates: 1, 2.]
  • Shareholders agreement (SHA) - via which new investors, existing investors and you agree on each party's rights and obligations. [Sample templates: 1, 2]
  • Pledge agreement (optional) - via which investor may require founders to pledge a certain number of shares

Lawyers and/or CAs have standardized versions of these agreements. Usually, it is the investors who provide the first versions - these then get negotiated over a period of several weeks.

As a founder, you need to do two things: read every word of the agreements, and engage a trusted advisor to help you understand & negotiate the agreements. The money, effort and time spent on this is worth it. You also need to know who at the investors' firm and their lawyers' firm is working on the agreements - if it is junior associates, expect negotiations/decisions to take longer!

As a private limited company in India, compliance rules require you to hold board and shareholder meetings before signing these agreements. It is important to schedule these meetings to conform to the notice period requirements, and to ensure they do not hold up the investment closing formalities.

These agreements are subject to Murphy's Law - terms suddenly become open for re-negotiation, lawyers go on vacation, co-investors get cold feet, entrepreneurs are torn between running the company vs. reading the 17th version, etc.

Even after the agreements are signed, there are forms to be submitted to the RoC, MCA, fees to be paid, AoA to be modified, BoD changes, etc. - these are well-known formalities, but must be promptly addressed to avoid delays in getting the funds.

Enjoy the ride!