Notes from 'Structuring A Startup: TiE Investor Forum'

Speakers:
Anil Joshi, Mumbai Angels
Siddarth Hariani, Phoenix Legal
Aditya, Hotel Logix
Rushabh Gala, Aargus Advisors
Satyam Bansal, MIDDS Pvt. Ltd.

Session Highlights:


1. Structuring

- PVT LTD preferred for credibility and to raise capital.
- Do ensure take legal help on shareholders agreement

- Ensure proper governance and financial prudence - gives confidence to the investor

2. ESOPs

Best way to give share initially is to give share directly at par to people who you want to, do not go the ESOP way initially.

Ensure proper and stringent shareholders meeting. Do not give more than 10% any individual or group - you are opening yourself to litigation

Wait for few years before start the ESOP scheme - it's complex. Even than Not more than 10% ESOP to any specific individual or Pool - 10% entitles to file a suite

Have a buy back agreement if a person leaves

3. Funding (Session by Rushabh Gala, Aargus Advisors)
- Don't expect funding till you have the prototype ready
- Don't haggle over valuation - Apalya started with Rs 1Cr of valuation. Raised series B $7.5mn and the founder still has 25% stake valued much higher than another company in similar space, which was looking at higher valuation and refused funding and is raising first fund now at 25% of Apalya's valuation
- Valuation - Multiples of projected revenue
- Multiple is sector specific, cloud gives higher multiple
- silicon valley is liberal in valuation, India is stingy,
- Pre-revenue in India - difficult to get funded
- Angel would like to hold 26-40%
- Angel would invest money in tranches - based on milestone
- Angel investment agreement will have a typical IRR of 25-30% if the exit does not happen in 5- 7 years
- Typically a VC at Series A funding looks for 30% funding - either he buys out the angel (part/full).
- Promoter typically holds 50% after series A VC funding
- Share 1-2% of equity to the advisor/mentors
- Founder compensation - keep it minimal and reasonable, you do not want the investor to pay your salary

4. Entrepreneur’s perspective (Satyam - never raised funding, sold his animation company to Frameboxx)
- Always treat all the funding comes in Debt - even if it is equity
- Do go thru each point of the investment agreement (runs over 70+ pages) - do not get hassled, it's standard so not much of chance of negotiation. Ensure that you put all the key points in your governance structure
- Do not hold your company to your chest - be ready to exit - if you think it gives the company a good chance to grow.
- In my next venture, I'd be wiser - will raise funding
- Helps to have tie-ups in place - all these help increase credibility