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Early stage investment terms in india (seed stage)

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Terms that founders should be aware of when raising a seed or angel round in India. Presented at Bangalore Startups.

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Early stage investment terms in india (seed stage)

  1. Early-Stage Investment Terms Bangalore Startups 7TH MARCH 2014 In India
  2. Who Am I 12+ years on Wall Street (technology & operations in hedge funds) Got bored. Quit. Moved to India in 2007. Started a company. Failed. Co-founder of HeadStart and founder of Startup Weekend India building community TLabs an accelerator run by Times of India Couple of angel investments 500 Startups India & NYC BANGALORE STARTUPS
  3. Seed fund and accelerator program (Mountain View, San Francisco, Mexico City) Mentor Network / Community 200+ design, technology, marketing, and product experts provide 1:1 mentoring to portfolio companies Over 650 companies, 1,400 founders in 40+ countries around the world, provide peer review and feedback on products, industry verticals, platforms, etc. Conferences & Events Dedicated conference team has completed 50+ events w/ 300-1,000 attendees per event; total reach of over 25,000+ people Geeks on a Plane Invite-only tour for startups, investors, and founders Learn about global trends, meet international companies, and gain insight/ access to foreign markets 500 Startups 3 BANGALORE STARTUPS
  4. Pre/Post-Money Pre-money = value of co before investment Post-money = value of co after investment 4.5Cr Pre-money 1.5Cr Investment Post-money = 6cr Dilution = 25% BANGALORE STARTUPS
  5. Beware: Dilution in India General Terms asked for: 25% Dilution at angel round + 10% option pool (usually created before investment so no dilution for investors) 30%+ dilution at Series A + 20% option pool 2 founders/ 50% each Before closing angel round 10% option pool / 45% per founder After closing angel round, each founder at 33.75% Target: 10-15% at angel round, maybe 20% 20-25% at Series A, possibly 30% BANGALORE STARTUPS
  6. Board of Directors Control & Responsibility + fiduciary duties as directors Typically at early stage angels ask for one board seat. Push back or ask for resignation at Series A BANGALORE STARTUPS
  7. Beware: Vesting Earn your equity. You don’t own it…yet. Vesting clock starts when you start working for company Typically, founders vest stock monthly; employees generally have a one year cliff (usually 25%) Sometimes investors ask to start clock upon closing the round. Push back hard on this. If founder leaves, unvested shares are bought back by company BANGALORE STARTUPS
  8. Pari Passu Talk to YOUR lawyer Usually negotiated much later than seed/angel stage (whether liquidation preference of Series B should be senior or pari passu w/ Series A) BANGALORE STARTUPS
  9. Liquidation Preference Who gets paid first (and how much) when the company gets acquired or shuts down (linked to Pari Passu) Strive to keep it simple. BANGALORE STARTUPS
  10. Information Rights Monthly, quarterly and yearly financials Minutes of meetings of Board of Directors and copies of materials distributed to the Board BANGALORE STARTUPS
  11. Redemption/Drag-Along Rights Usually not seen in the US at seed / angel rounds Be careful of provisions that: Force founders / company to buy back investors’ shares at fair market value (redemption rights) Force founders / investors to sell the company (drag-along rights) BANGALORE STARTUPS
  12. ROFR (Right of First Refusal) / Co-Sale Rights Typically any founder common stock being sold is first offered to investors Investors have co-sale rights on any stock founders sell (if they turn down ROFR rights) Typically no time-limit on these rights held by investors
  13. Resources http://500.co/blog http://www.gothamgal.com http://avc.com http://www.feld.com http://www.bothsidesofthetable.com Venture Deals by Brad Feld
  14. Thanks!PANKAJ JAIN PANKAJ AT 500 DOT CO @PJAIN 14

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