In this Startups Landscape, breakthrough business ideas improve value addition to the society. But transforming a bright business idea into a money munching machine seeks immense hardship, professionalism, and funding. Unfortunately, not all bright ideas have the backup of required financial cushion. This is where fundraising for startups come into play. This write-up aims to flash some light on technicality of the fundraising process, mainly the documentation part that will ease out your fundraising journey. The article enlists fundamental documentation related to the fundraising for startups in India.
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Prominence of Documentation in Fundraising for Startups
In general, Institutions like Venture Capital[1], Private Equity, Angel Investors, & Investment bankers predominately favour those ideas that have potency to garner great ROI in future. So it would take more than a casual effort for the start-ups to convince these investors and crack the deal.
So does that mean the chances of getting an ideaapproved is remarkably difficult?
Well, the answer is No; provided you have a right blueprint to follow that entail on-par documentation and other tangible details that we have discussed in following section.
Read our article:Process of Startup India Registration: A Step by Step Guide
Documents regarding fundraising for startups in India
We have divided the documents relating tofundraising for startups into pre-funding & post-funding.It is vitalto undertake this activity cautiously for the steady growth of the startups,with the norms adhered to at regular intervals.
Pitch deck
A Pitch deck refers to an official presentation which the startups mainly use to convince prospective investors during the fundraising process. It can be a simple power point presentation that manifests the following attributes of the business. In laymen terms, a pitch deck is a way to project your idea to any no. of the audience, mainly investors. One of the most critical facets of an effective pitch deck is to sync it based on the audience & forum to which it is supposed to be presented. Several prime components to a pitch deck include elaborative summary slides, the issue you are encountering, the product, the strategy/market, the employees, financials/projections & the tone you wish to convey.
A pitch deck refers to the accumulation of slides that serves as the backdrop for your presentation. It acts as a visual guide & reference to the valuable points you wish to make to prospective investors, & it can be the difference between a mediocre pitch & one that ensures the funding.
Here’s what the Pitch deck ideally comprises in general
- Nature of product and services
- Survey on supply chain (demandand supply)
- Revenue generation model
- Project costing report
- Cashflow projections
- Unique Selling Proposition
- Industry-related data
Non-disclosure agreement (NDA)
NDA acts as a protective measure forstart-ups in the fundraising campaign as it is only thing that keeps theirtrade secret, aspiring idea, IPs alive and safe. Hence, it plays pivotal rolesin the process of fundraising for startups.
Startups in India often presume that consumer data, formulas, processes, & techniques are not imperative for making or breaking the venture. But, most successful businesses have a different thought on that as they strongly believed these factors are critical for startups growth.
Thus, it is imperative that employees,investors and consultants with whom valuable data would be shared have to becovered by a précised Non-Disclosure Agreement.
Do not forget to enclose your signature inNDA before sharing details with investors.
Due-Diligence report
Due diligence refers to the process of research and analysis that take place before the initiation of any venture, investment, acquisition, so on and so forth. The company usually leverages due diligence to identify to pain points & value of the subject of the due diligence. These findings are then aptly summarized in a report, commonly known as a due diligence report.
The process of due diligence take place in orderto;
- Analyze multifarious aspects toavail better clarity on entities’ commercial potential
- Determine the financialviability of the proposed venture at a comprehensive level
- Examine the prevalent legalnorms and regulatory framework linked with the proposed ventures or businessdealing.
Areas of Focus in a Due Diligence Report
Viability: Accessing the feasibility of the target entity can be done via anextensive study of the business & financial plan.
Monetaryfacet: Critical fiscal data & a ratio analysiswould be imperative to comprehend the complete picture.
Personnel: A critical parameter to consider is the potential & credibilityof the individual working in the company.
Environment: No business functions in isolation. Therefore, it is imperative todig down into the macro-environment & its overall impact on the targetentity.
Technology: A very significant factor to consider is technology’s assessmentavailable with the entity. Such an assessment is imperative as it aids pinpointfuture actions.
Prevailing& Key Liabilities: Any type of pendinglitigations & regulatory problems ought to be taken into account.
Effectof synergy: The establishment of coordinationbetween the target entity and the prevailing company serves as a medium fordecision making.
Term sheet
A term sheet refers to a non-binding agreementthat manifests the fundamental terms and norms of an investment. The term sheetacts as an intuitive template & basis for more information, legally bindingdocuments. Once the parties are engaged, reach an agreement on the informationcited in the term sheet, a binding agreement that conforms to the sheet detaildrawn up. Ideally, a term sheet encompasses the given aspects
Shareholder agreement
A shareholders’ agreement, broadly known asa stockholders’ agreement, refers to a legal contract that briefs out how anentity ought to perform its functions and drafts shareholders’ duties &rights. The agreement also entails detail pertaining to the company & theprotection of shareholders. Such agreements aim to ensure that shareholders aretreated impartially & their rights are respected. Further, it also enablesshareholders to make decisions regarding the selection of future shareholdersand facilitates protections for minority positions.
Pointto be noted: Make sure the documentations mentioned should revolve around the following traits:
- Coherent
- Compelling
- Clarity
- Conciseness
Conclusion
Positioning yourself as a genuine contender for funding requires a tremendous amount of professionalism and a pre-planned approach. The documents mentioned above are nothing but essential prerequisites to kick start your funding journey. It is needless to mention that these documents should be created with due consideration, preferable under the guidance of field experts. Keep in the subtle preparation of document is the key to the success in the journey of Fundraising for Startups.
Read our article:Benefits of Startup India Registration in India
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