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Startup Funding Paperworks
Did you know that 90% of startups that have IP protection raised funding successfully? IP is any form of original creation that can be bought or sold. IP is protected by legal rights such as patents, trademarks, industrial designs and copyright. These are few simple and cost-effective ways of protecting your ideas and your business. This article will help you understand the strong positive correlation between IP Rights and Fundraising.

Presence of IP Assets (Patents, Trade Marks, trade secrets, domain names etc.) helps in
  • Adding value to improve the competitiveness;
  • Improving sustainability by ensuring freedom to operate, and keeping at bay unscrupulous competitors
  • Developing relationships with employees, consultants, suppliers, subcontractors, business partners and customers
  • Obtaining funds.
What Investors seek before committing capital?
  • Competitive: Patentable Subject matter in your idea
  • Right to Commercialize: Manage risks of infringement of Others IP (Freedom to Operate)
But, how does IP correlate with Funds Raised?
  • Improve Valuation to get funding or get acquired
  • Improve Contribution margin from early sales, thereby needing fewer investment funds
  • Even if business fails, the patents may have value for acquiring company
  • Defend itself against attacks for IP infringement by rivals
  • Negotiating Tool in Joint Development, Customer-Supplier Relationship, Avoid Price War (Commodity)
Most obviously, a startup with strong patent protection will have a higher exit value, i.e. the value when listed on a public market or sold in a trade sale. Loop with IP, Funds, and Startups
  1. The higher value is a premium paid for a startup with high gross margins that results from the degree of patent-enabled monopoly protection for its products and services.
  2. Based on patent-enabled monopoly rights, startups that have good patent portfolios accrues larger contribution margin from their early sales, and thus need to raise fewer investment funds in order to further promote their own growth by investment in R&D, marketing, and company enablement.
  3. For investors in start-ups, typically venture capitalists, patent portfolios also represent downside protection. Even if a startup happens to fail (runs out of cash or breaches debt covenants), the company’s patent portfolio can sometimes be sold, licensed or enforced, in order to recover some of the original investment.
  4. A Venture Capitalist only gets to share in the profits when the whole fund is profitable, hence it is very important to get capital back from the startups that fail since this helps the entire fund to move towards profitability. Thus for a startup, this means that seeking investment from professional investors usually means committing to creating a patent portfolio.
  5. A patent portfolio represents downside protection for founders and staff of a startup as well. This means that, even if the business fails, the startup may have value to an acquirer (say a competitor) because of the patent portfolio; this can afford founders and management (who have to negotiate such deals and be rewarded for doing so) some exit value.
In many cases, a startup does not only sticks to the original business plan. As a startup develops, it finds new opportunities, encounters different problems, and has to deal with a rapidly changing and competitive environment. Having a patent portfolio provides a startup with more strategic choices when a change of direction is required. IP Infringement is not new and not only a headache for Small Startups. From Edison losing the IP suit for Bulb to the dispute of Invention of Telphone between Elisha Grey and Graham Bell, From Bajaj & TVS to that of Apple and Nokia, one thread linking all is that one who filed for Patent first and able to commercialize the Idea won the race.

If you are reading this, then you sure have a plan, let’s connect and figure out opportunities for you.
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Funding Compliance, Startup Funding Paperworks
The ‘angel tax’ for investors, who provides funding for startups, has been removed by the Government, to boost entrepreneurship and job creation in the country. Funding given to startups which are notified under the plan mentioned by PM Narendra Modi in January, will not face tax even if it exceeds the face value.


Unregistered venture capital funds such as Resident angel investors, domestic family offices or domestic funds can now relax and not worry about the invested amount getting taxed. Under existing rules, funds raised by an unlisted company through equity issuance are covered under this tax to the extent the amount is in excess of the fair market value. In case of extra inflow, it is charged the corporate tax rate, resulting in an effective tax of over 30%.


In many cases, the valuation of startups is far in excess of market value as it is based on the promise of the idea and not the immediate worth. In such a case, the startup would end up losing a chunk of the inflow to this ‘angel tax’. This has been long awaited and is a very welcome step. The abolition of this so-called ‘angel tax’ has been a long-standing demand of the industry,? said Amit Maheshwari, partner, Ashok Maheshwary &Associates LLP.  

It is a summarization of an article in Economic Times. For more information, visit http://economictimes.indiatimes.com/small-biz/startups/government-to-make-changes-in-section-562-of-income-tax-act-in-a-bid-to-promote-startups/articleshow/52803513.cms?utm_source=facebook.com&utm_medium=referral&utm_campaign=ETFBMain



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ESOP, Start up Lessons, Startup Funding Paperworks
The shareholdings of the company decide the ownership of that Private Limited Company. In order to introduce new investors or transfer the ownership of the company, you need to transfer the shared of that private limited company.


The Procedure for Share Transfer
  1. Shareholder should decide to sell his share to the existing shareholders or any other investor. After deciding he needs to give notice, in writing, to the Board of directors about the transfer of shares of the company.
  2. The shareholder determines the price of the shares, which cannot be less than the face value. After price determination, notice is given to the shareholders about the availability and price of the shares. Post which the payment is made by the individual acquiring the shares (either an existing shareholder or a new investor).
  3. Then the company needs to file form MGT-14 to ROC.
  4. Share Certificate is issued. If it is given to an existing shareholder then he needs to surrender his old certificate.
Documents Required
  • MOA, AOA and Certificate of Incorporation
  • Name of Shareholder
  • Name of Father/Spouse
  • Residential address of shareholder
  • Email ID
 
  • Percentage of Shares
  We at Wazzeer can help you with the process.



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Start up Lessons, Startup Funding Paperworks
The funding Scenario in the Startup world has changed in 2016. Due to this change the Indian e-commerce ecosystem had to adopt stricter evaluation norms for their business models, now focusing more on profitability and consolidation. With the inflow of fresh funding decreasing and the focus on profitability by investors increasing, leading it to swift changes in business model by companies. The current wave of consolidation among e-commerce players may intensify, leading to fewer, stronger players emerging within each category and the recent government regulations which prevents discounts and dependence on large vendor may require changes in strategy in future The hyper-valuations seen in successive funding rounds in 2014-15 also seem to be correcting. Fidelity had marked down its holding in Flipkart by about 40 per cent as of February 2016. Valuation of Rocket Internet’s Global Fashion Group (parent company of Jabong) sinked by about 67 per cent during its last fund raise in April 2016, while Fabfurnish was acquired by Future Group at a substantial discount for USD 3 million. It?s a summarization of an article from Economic Times.

For details, visit http://economictimes.indiatimes.com/small-biz/policy-trends/funding-squeeze-causing-stricter-evaluation-of-e-commerce-models/articleshow/52364495.cms



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Funding Compliance, Start up Lessons, Startup Funding Paperworks


Due Diligence is the process which is done by the Investors to obtain information about the firm or company in which they are planning to Invest, both from a legal and business perspective. It is done to assess the amount of risk involved, hence once you are planning to get investment take your time to prepare due diligence.

 

For doing so, you need to know the stages of funding

  • Term Sheet Negotiation
  • Business Valuation & Business Plan
  • Due Diligence
  • Agreement Signing
  • Issuance of funding instrument- Share Based and Debt Based Funding
  • Corporate Law and RBI Compliances

 

As you can see after you clear due diligence the agreement is signed so taking care of due diligence is very important. So, people have queries such as why due diligence is done? What is the process involved? What should be taken care of ? In this article all your queries will be answered.

 

Why Due Diligence?
  • Check the Internal Control Systems are in place or not
  • To calculate the financial risk involved
  • Judge the awareness of the business owners
  • Assess the team structuring and Operational Processes in place
  • Verify the claims of the pitchers
  • Excavate undisclosed risks

Process of Due Diligence:
  • Investor appoints a team
  • Definite Mandate is set for the team
  • Confidentiality Agreements are formulated between parties
  • Due Diligence Questionnaire and checklist is prepared and circulated
  • Investigation takes place
  • Due Diligence Report is formulated and circulated

 

Things you need to take care of:
  • Your Company should be Incorporated as it not only provides Professionalism but also a sense of security to the other transacting party
  • Registration and filing under PF, ESI, VAT, Service Tax must be in place
  • Any Legal issue must be resolved beforehand
  • Maintain Income and Expenditure statement, P&L Accounts, other financial statements
  • Ownership of Intellectual Property, including non-exclusive licenses, infringement, inappropriate use and potential action, has to be dealt and agreed upon.
  • If you have previously raise funds, all your documents regarding it should be in order

 It is a summarization of an article written from Tax mantra. For more information, visit https://taxmantra.com/unknown-facts-about-due-diligence-for-funding/


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Funding Compliance, Start up Lessons, Startup Funding Paperworks
Today, it is not possible to predict the funding scenario of Indian Startups. 2016 has seen a low funding phase while 2014 and 2015 saw a boom in Indian Startup funding. Apart from the slowdown of funds inflow, we now hear more of startups shutting down and merging or conglomerating. This happened because the closure cycle of Investment has become long as it is focusing more on business economics rather than due diligence.

Changes in Funding Scenario in Indian Startups

  1. Focus Shifting to Business unit Economics:
Unit Economics is direct Revenue and Cost that you incur from your business model. The fundamentals in this case are
  • Lifetime value (LTV):The amount of revenue a single unit generates during the entire duration of a customer’s usage of the service.
  • Cost per acquisition (CPA):How much it costs to acquire one unit.
Your business exists as long as your LTV is more than your CPA  

  1. Cockroaches are getting some love:
Initially investors used to fund companies valued at $1billion or more but now that trend has changed. Investors are more inclines towards startups which are bootstrapped, have a strong business model and those who can self generate funds.  

  1. Down-round funding:
 A down round is funding round where investors reinvest in a company whose valuation has come down when compared to previous years. There is no harm in it has the startups are now being pushes to provide world class product or world class service.  

  1. Conventional businesses are back in favour:
One more trend in the startups is the shift of senior and middle level employees to the conventional business. According to a recent ET report, a few of the top-level employees from unicorn startups have moved to conventional businesses 
  1. More failure stories, and that is fine
There has been an increase in the number of startups that has been failed and shut down or curtailing their operations to make ends meet. But it’s fine. There are stories all over the internet like Lesson from my failed startup , you learn from your mistakes and then make it big. Failing and accepting failures are very much a part of entrepreneurship, and this needs to be learnt and understood.  

  1. Mergers or acquisitions in same or allied sector
Mergers of startups which are in the same sector have become quite frequent nowadays. It helps in making investment portfolio for investors more centralized. It not only decreases the market but also helps in efficient utilization of market from investor’s point of view.   It’s a summarization of an article written by Alok Patnia. For the complete article you can visit, http://yourstory.com/2016/05/startup-funding-changes/


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Funding Compliance, Startup Funding Paperworks
The legal and compliance process
  1. Obtaining the Foreign Inward Remittance Certificate (FIRC) from the Indian bank.
  2. Filing the Annexure – 6 with the RBI within 30 days from the receipt of the money along with a copy of FIRC and a covering letter.
  3. Valuation of the shares to be made by the Charted Accountants and obtaining the valuation report.
  4. Board meeting to be conducted to allot the share to the respective investors.
  5. Obtaining the Know Your Client (KYC) of investor from the remittance Bank.
  6. Obtaining Certificate from Statutory Auditors or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.
  7. Obtaining Certificate by a Company Secretary.
  8. Share allotment details (Extracts of allotment)
  9. Form FC – GPR to be filed through “AD category I bank” within the 60 days from the date of allotment of shares to the RBI along with the following documents
  • Certified copy of FIRC
  • KYC in original
  • CS Certificate in original
  • CA certificate in original
  • Extracts of the Board Meeting for allotment
  • Covering letter


 Further the entire reporting i.e. filing Form FC – GPR should be completed with in 180 days from the date of inward remittance.  

 

For a trustworthy Professional advice on this matter Contact us.

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Funding Compliance, Start up Lessons, Startup Funding Paperworks
The legal and compliance process  
    • Increase in Authorized share capital
      • Conduct of a Board meeting to approve the increase and calling the EGM
      • Call EGM and approve the increase in authorized capital
      • Filing of forms:
        • SH7
        • MGT14 (may or may not be needed, depending on the article of the company
    • Share holder agreement
      • You need to draft a shareholder agreement
      • After drafting they should sign the agreement after agreeing on various aspects of it
    • Issue of shares under rights issue mode
      • Conduct Board meeting
      • Filing of forms
        • PAS3
        • MGT14(may or may not be needed, depending on the article of the company)
    • Issue of shares
      • Accept money from the investors
      • Pay the stamp duty
      • Issue share certificates
    • Valuation Certificate by CA to certify the Valuation (Can be done in parallel)
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