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Fundraising exercise is the critical step in the lifecycle of every startup as it ensures the growth and scale as being desired by the founders. It is therefore equally important for every founder to understand the entire fundraising process in detail. Fundraising Steps starts from pitching to the investors and ends at issuing the shares after getting the “MONEY IN BANK”. There are many fundraising stages that the founder needs to understand which starts from the Seed round and then goes up to multiple series of rounds. Founder also needs to understand the regulatory aspects involved in fundraising like Foreign Direct investment (FDI) norms, ROC rules and regulations and RBI filings requirements.
There are mainly three sources to raise the money in the startup, other then money being raised through friends and family
Prepare a Pitch Deck and Financial Model of your startup business.
Research on class of target investors.
Sending the Pitch Deck and Financial Model to target investors.
Get investor interest after meeting Investment Committee.
Investor issue Term Sheet which details the valuation, liquidation preference and other related terms.
Investor to appoint Due Diligence Partner for Legal, Business and Financial Due Diligence.
Due Diligence Partner to issue his report.
Executing Shareholders Agreement (SHA) and Share Subscription Agreement (SSA)
Company to start Private Placement process and issue PAS-4 to investor after filing MGT-14 with ROC.
Investor to transfer money in the Bank
Company to issue shares to the investor and issue share certificate.
Pre- Series A round is typically the stage which is after raising Seed round and prior to raising the Series-A round of investments.
Pre money valuation is the valuation which is evaluated by the investor to invest in the startup. Post money valuation is computed after adding the investment amount in the pre money valuation.
Company can issue the shares either via Rights issue or preferential allotment basis.
Preference shares has the advantage of liquidation preference over the equity shares, so therefore VCs and investors prefers to keep the CCPS in lieu of investments.
Pitch Deck is the powerpoint presentation which defines the problem statement, solution statement, industry size, team details etc. However, financial model covers the future projections in spreadsheet format which helps investor to value the company.
Term Sheet is the summarised form of agreement which is issued once investor express his intent to invest in the company, subject to positive due diligence. Shareholder Agreement is the detailed agreement which details the terms of Term Sheet.
Shareholders Agreement (SHA) talks about the rules and regulations of investment like Rights of first offer, Tag along rights, Liquidation preference, Exit, Founders exit etc. Share Subscription Agreement (SSA) only talks about the investment money and therefore includes the clauses like closing date, Conditions precedent to investment, Conditions Subsequent to investment etc.
No, company cannot utilise the investment money before filing PAS-3 with the Registrar of Companies.
Yes, It is the mandatory requirement of Registrar of Companies (ROC) and Reserve Bank of India (RBI) to obtain the valuation certificate at the time of raising investments in the Startup.
Company need to pay the stamp duty on the shares issued and also needs to complete the RBI filings (Form SMF/FC-GPR) in case the investment is received as FDI.
All the investors generally mandate to include the provisions of Shareholders Agreement in the Articles of Association (AOA) so as to avoid any contradictory situation in the later stage.
Shareholders Agreement specifically mentions the clauses as to how the exit will be provided to investors.
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