early stage investment terms in india (seed stage)
DESCRIPTION
Terms that founders should be aware of when raising a seed or angel round in India. Presented at Bangalore Startups.TRANSCRIPT
Early-Stage Investment Terms
Bangalore Startups7TH MARCH 2014
In India
Who Am I12+ 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
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 companiesOver 650 companies, 1,400 founders in 40+ countries around the world, provide peer review and feedback on products, industry verticals, platforms, etc.
Conferences & EventsDedicated conference team has completed 50+ events w/ 300-1,000 attendees per event; total reach of over 25,000+ people
Geeks on a PlaneInvite-only tour for startups, investors, and foundersLearn about global trends, meet international companies, and gain insight/access to foreign markets
500 Startups
�3 BANGALORE STARTUPS
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
Beware: Dilution in IndiaGeneral 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
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
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Beware: VestingEarn 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
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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)
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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.
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Information Rights
Monthly, quarterly and yearly financials
Minutes of meetings of Board of Directors and copies of materials distributed to the Board
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Redemption/Drag-Along RightsUsually 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
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
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
