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Author Topic: Legal Advice before selling private equity to Investors.  (Read 1260 times)

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Offline tohimadri

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Legal Advice before selling private equity to Investors.
« on: August 03, 2016, 08:46:43 AM »
We are a startup (estb: July 2014) in bangalore, we provide logistics to online based home delivery Stores and deliver 20L water cans through online methods.

We are planning to sell equity stake to private investors and grow in our business.

Being a Business Lawyer, What points should we take care ?
Please advice.. Your questions are welcome


Offline rajgopal sripathi

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Re: Legal Advice before selling private equity to Investors.
« Reply #1 on: August 22, 2016, 09:34:59 AM »
The query is generic in nature.
However top things that come in to mind are
1) Always ensure that founders do not  dilute  more than 20-25% to Investors during a Series A round.
2)  Please do your due-diligence on the Investors you are taking the funds from, make sure you talk to their portfolio companies and even senior level employees within these firms. Ensure the referral loop includes the so called duds in their portfolio.
3) The red flag would be if you get to hear stories of co-founders being arm-twisted out of their equity or, even their jobs. In which case think hard about how desperate you are for the funds on offer.

4) Term sheet- The most important one.  Normally a term sheet will comprise of TERMS such as Financing Amounts, Valuation, Special Rights(Drag Along,Tag Along, Pre-emption), Exit Issues, Anti-Dilution – Full Rachet / Weighted Average, Liquidation Preference,  Protective Provisions (Veto) AND Conditions Precedent. TO know what each terminology means to the founders, the company and also the business, you will need to engage a lawyer who is conversant with all of the above right from the time you are planning to talk to VC's,, PE....

5) Also Typical Legal Documentation at the time of engaging with a PE/VC includes Investor’s Rights Agreement (IRA), Share Subscription Agreement (SSA), Amended Articles of Association / Memorandum of
Association, Employment Agreements (for key employees)

Hope this helps

Rajgopal Sripathi

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