Indian startups raised $1.7 Bn from investors in just the first quarter of 2014-15, which is a 300% growth from that of last year. In India, 147 deals were finalized between January to March this year. Moreover, India witnessed 67% more deals than in China in absolute volume, again in the first quarter itself (Courtesy: Media Reports). Then why is the investment process still considered to be a draconian task? Why there is still a feeling in the air that it is extremely difficult to please “vulture capitalists”?
Investors are normal people with normal psyche. Just like you and me, they want to secure their investment. We have been assisting a number of startups in securing investments for their business. What we have seen is, if you get your basics right, Investment can be a cake walk.
In this article, we have compiled six basis points that investors look for in any startup. If you get this right, half your work is done. The other half? Let you prototype win it!
Internal agreement among co-founders
Last day I came across a discussion in a certain startup group. A young CEO was being criticised because he wanted to document his understanding with his friend and co-founder of his startup. Most of the suggestions were spurts of passion, suggesting him to trust his instincts rather than “mere pieces of paper” with respect to his understanding with his co-founder.
This is THE picture when it comes to starting up in India. Most startups are co-founded by young guys from college who dream to build their own world. Fair enough. Now, what happens when one of them gets a lucrative job and leaves or changes his mind altogether about starting up? Most do not exit formally. That is to say, they remain in the books of the company but they are not practically involved in the business. What would be his share in the company while he exits? Or what would be his share when your business is valued for investment? Your investors do not want to give him a penny because he never did a thing for your business. But legally he is entitled to his 10% stake in the company!
Fiasco! This could have been easily avoided if you had your terms documented with your co-founder. This is exactly what a Founder’s Agreement does. It outlines the rights, duties, responsibilities among co-founders. Clarity related to exit, dilution, participation and vesting of sharers is a must have in your list. This is one of the key points that pave the road for a hassle free funding. Not only does it give the investors a confidence on the soundness of the stability of the company, it also instils a sense of transparency and trust. As they say, an investor invests in “people”.