Terms that founders should be aware of when raising a seed or angel round in India. Presented at Bangalore Startups.

1. Early-Stage Investment Terms
Bangalore Startups
7TH MARCH 2014
In India

2. Who Am I
12+ 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

3. 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 companies
Over 650 companies, 1,400 founders in 40+ countries around the world,
provide peer review and feedback on products, industry verticals, platforms,
etc.
Conferences & Events
Dedicated conference team has completed 50+ events w/ 300-1,000
attendees per event; total reach of over 25,000+ people
Geeks on a Plane
Invite-only tour for startups, investors, and founders
Learn about global trends, meet international companies, and gain insight/
access to foreign markets
500 Startups
3 BANGALORE STARTUPS

4. 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

5. Beware: Dilution in India
General 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

6. 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
BANGALORE STARTUPS

7. Beware: Vesting
Earn 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
BANGALORE STARTUPS

8. 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)
BANGALORE STARTUPS

9. 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.
BANGALORE STARTUPS

10. Information Rights
Monthly, quarterly and yearly financials
Minutes of meetings of Board of Directors and
copies of materials distributed to the Board
BANGALORE STARTUPS

11. Redemption/Drag-Along
Rights
Usually 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

12. 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

13. 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

14. Thanks!PANKAJ JAIN
PANKAJ AT 500 DOT CO
@PJAIN
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