Every Venture wanting to Raise Funds has to invest a lot of time and effort to raise money to scale and keep the business going. All the effort and time invested can go for a toss, if you miss one important but under-estimated aspect. Every VC/Angel investor, before pumping in their money, will perform a due-diligence process. This process varies in tenure and complexity based on the industry, nature of the transaction, and also the stage of investment. Any deal is successfully closed, only after satisfactory-completion of due-diligence, failing which, the deal drops dead. Sometimes, they get a legal opinion, before proceeding. Here are a few points for startups to focus on when setting their house in order:
- Incorporation (legalization): The most basic mistake that most entrepreneurs commit is their failure to legalize their entity and because of this has been the bane and downfall of many a startup. A legal entity adds professionalism to the startup as well as the confidence to the other transacting party.
- Revenue registration/dues: The one thing that every person hates is Tax. Yes, that obligation to pay the government whenever due, no matter what. But it is prudent that startups get their revenue registrations in place first, as even non-filing/registration, attracts the long arm of the law.
- Founders Agreement: Founders agreement is really important for any startup. No one remembers what they have typed in their mail the previous night, let alone verbal agreements that are the norm during the startup phase. Putting things in words is not a reflection of the lack of trust, it’s just prudence.
- Legal issues: No matter how frivolous, real, or imaginary; all it requires to scare away potential investors is to utter lawsuit. Let your legal health do the talking, rather than trying to convince someone to put their money in a place, which is replete with legal landmines.
- Organization: After you have incorporated your startup, you need start striving to put relevant processes, procedures, etc., in place from the moment you set up shop.
- Accounting: Pull up your socks and start keeping account of all your income and expenditure. Maintain Income and Expenditure statement, P&L Accounts, other Financial statements.
- Employee agreements: Every employee who works must be contracted with basic clauses to protect the interests of both the parties. Also, records of past employees to be maintained. Basic compliances like Labour law, PF etc., to be met.
- Intellectual property: Ownership of Intellectual Property, including non-exclusive licenses, infringement, inappropriate use and potential action, have to be dealt and agreed upon.
- Third-party agreements: The same rules apply for every third-party that transacts with the enterprise. Vendors, associates, affiliates, contractors, and other partners need to sign proper agreements, with non-disclosures, how the relationship is defined, responsibilities, and IP assignment.
- Previous fundraising documents: If you have already raised funds, then future investors would like to know the details of fundraising, utilization, its impact, etc. Put these in order so they can understand them thoroughly. It is a summarization of an article from Your Story.
Wazzeer is vouched by Entrepreneurs as the reliable Legal and Accounting Partner. We would be glad to provide you with Funding Due-Diligence and Compliance part. Let’s Connect!