Startup Law Videos - Legal aspects of startup funding

In today's world of startups and angel funding it is important for the your company to find the right funding. Proper funding is important to catapult your company into the unicorn group. But more importantly, the legality of the matters regarding funding is imperative for the success of your startup baby. The following steps have to be kept in mind :

1) The first step in the quest for proper legal funding is the search of an investor and discussing the broad terms of investments. These talks are often conducted face to face and a term sheet is signed. Before putting the pen to the paper, you should keep in mind the key clauses. The term sheet would include what the pre and post money valuation is going to be and how many shares would be given to the investors. More importantly, it is necessary to understand the type of securities offered to the investors. Typically these are called CCPS (Compulsorily Convertible Preference Share). These are preferred over other securities because they provide you opportunities that other kind of securities are not associated with.

2) In case of procurement of funding from a domestic investor, the important thing to do is to sign the Convertible Note, where the important thing to note down is that your startup is at its early stages and that it does not have enough numbers and business to show for and hence the investor can invest the money in your company which, in the next round of funding will be converted into equity at a certain discount. But this does not apply to foreign investors.

3) There are certain other clauses which an early startup can look into, although the startup cannot negotiate on these lines to its full advantage. One important point is the Liquidation Preference Clauses. In an event of liquidation event being triggered, the investor will look to safeguard his investment which means if the investor has invested 10 million in you company and your company's worth is 25 million, then if a liquidation event is triggered he will get his 10 million dollars back. Sometimes if the investor also has a 50% owning in shares then in addition the 10 million dollars he will also get 50% of the remaining 15 million dollars.

Advocate Dhruv Suri can be consulted for further information at http://lawrato.com/advocate-dhruv-suri or by calling 09599-000-555.