Fundraising for startups: Is your house in order?

By Rajesh Begur and Rowena De Sousa, ARA LAW
0
1607
LinkedIn
Facebook
Twitter
Whatsapp
Telegram
Copy link

As per a 2015 survey by Nasscom (the National Association of Software and Service Companies) India has paved the way to secure the third position in the world with three to four startups emerging every day, primarily in the areas of e-commerce, consumer services and aggregators. The report also states that total funding in 2015 had grown by about 125% from a year earlier. Various campaigns launched by the government – Start Up India, Make In India, Digital India, National Policy for Skill and Entrepreneurship – and various other policy measures in the form of tax rebates have contributed to a favourable startup ecosystem.

A startup may seek funding for varied reasons. Funding can provide capital required to back its business plan or the pace at which it aims to grow, visibility and reputational benefits, a mentor that will constantly guide it in making critical business decisions, risk allocation and other benefits.

Rajesh Begur
Rajesh Begur

Legal due diligence

A startup may go through various stages of fundraising, including angel funding, seed round funding and growth/early stage funding. After the angel funding stage, an important exercise that a startup will have to go through during a fundraising process, after having executed a term sheet, is a legal due diligence.

A legal diligence exercise is typically conducted at the seed and the growth/early stage rounds of funding and identifies: (a) risks associated with the investment; (b) a risk mitigation plan; and (c) a list of items that would need to be inserted in the definitive documents in the nature of conditions precedent to funding, conditions subsequent, representations and warranties to be obtained from the founders, and indemnities.

Most startups spend a lot of time developing their business and tend to neglect various legal and regulatory compliances. The importance of a legal diligence cannot be underestimated given that the investor will not write the cheque until they are satisfied with the outcome of a legal diligence. Given the above it is important for startups to put their house in order before commencing fundraising initiatives.

You must be a subscribersubscribersubscribersubscriber to read this content, please subscribesubscribesubscribesubscribe today.

For group subscribers, please click here to access.
Interested in group subscription? Please contact us.

你需要登录去解锁本文内容。欢迎注册账号。如果想阅读月刊所有文章,欢迎成为我们的订阅会员成为我们的订阅会员

已有集团订阅,可点击此处继续浏览。
如对集团订阅感兴趣,请联络我们

Rajesh Begur is the managing partner of ARA LAW, a first-generation law firm with offices in Mumbai and Bengaluru. Rowena De Sousa is an associate partner at the firm.

ARA Law

The Capital, 1001 C, B Wing

Bandra Kurla Complex, Bandra (East)

Mumbai – 400 051, India

Tel: +91 22 6619 9815

Fax: +91 22 6619 9899

Email: rajesh@aralaw.com

www.aralaw.com

Mumbai | Bengaluru

LinkedIn
Facebook
Twitter
Whatsapp
Telegram
Copy link