24. Templates, Checklists, and Frameworks¶

24.1 Executive Summary¶

• Pre-Fundraising Readiness Checklist (20 items) ensures corporate housekeeping, financial compliance, and investor-ready documentation before approaching investors
• Investor Targeting Checklist (15 items) provides systematic framework for building 50-100 qualified investor pipeline with warm introduction pathways
• Due Diligence Data Room Checklist (60+ items) organizes corporate, financial, legal, product, commercial, and regulatory documents to accelerate investor review
• Term Sheet Review Checklist (30 items) enables clause-by-clause analysis of valuation, liquidation preferences, anti-dilution, board composition, and protective provisions
• Reference Check Questions (20 items) facilitate reverse due diligence on investors to assess value-add, responsiveness, and behavior during challenges

This chapter provides battle-tested templates and frameworks that founders can implement immediately. While legal documents requiring attorney drafting appear in Appendix A, this chapter focuses on operational tools: checklists for systematizing fundraising workflows, email templates for investor communications, decision frameworks for strategic choices, and structured approaches to board governance. These resources compress years of founder experience into actionable formats, reducing the chaos of fundraising into manageable, repeatable processes. The Indian-specific adaptations recognize regulatory differences (DPIIT recognition, FEMA compliance, CCPS structures) while maintaining compatibility with global best practices.

24.2 Fundraising Preparation Checklists¶

Pre-Fundraising Readiness Checklist (20 Items)¶

Before initiating investor outreach, systematically verify corporate and operational readiness. Investors conduct due diligence; discovering fundamental gaps during that process signals poor execution capability and delays or kills deals.

Corporate Housekeeping

1. Certificate of Incorporation Current: Verify incorporation documents reflect accurate company name, registered office address, and authorized share capital. For Indian startups: confirm MCA-registered address matches physical location.

2. Articles of Association Permit Fundraising: Review AoA to confirm company authorized to issue preference shares, create ESOP pools, and modify share capital. Pre-approve necessary amendments before investor discussions to avoid last-minute delays.

3. Share Register Accurate and Updated: Maintain comprehensive register of members showing all shareholders, share classes, numbers held, issuance dates, and consideration paid. Discrepancies between cap table and legal register are red flags requiring immediate resolution.

4. All Previous ROC Filings Current: Check MCA portal for pending filings. Late or missing AOC-4, MGT-7, PAS-3, or MGT-14 filings indicate operational sloppiness. Clear all backlogs before fundraising; typical resolution time 30-45 days.

5. Board and Shareholder Resolutions Properly Documented: Organize minute books with complete records of all board meetings, general meetings, and written resolutions. Investors will request these during due diligence; incomplete records suggest governance weaknesses.

6. Director KYC and DIN Updated: Verify all directors have current DIN (Director Identification Number), filed KYC forms, and maintain registered addresses. Indian regulatory requirement; failure blocks share allotments.

7. No Outstanding Statutory Dues: Clear any pending PF, ESI, GST, TDS, or professional tax liabilities. Outstanding government dues create acquisition obstacles and suggest financial mismanagement.

8. Company PAN and GST Active: Confirm company PAN valid and linked to bank accounts. GST registration current with timely return filings. Investors verify tax compliance during financial due diligence.

Financial Compliance

1. Financial Statements Prepared and Audited: Maintain audited financials for previous 2-3 years (or since inception if younger). Investors require audited statements for Series A+; seed may accept management accounts if professionally prepared.

2. Income Tax Returns Filed for All Years: Verify ITR filed for all financial years since incorporation with no pending demands or disputes. Tax non-compliance creates major funding obstacles and triggers investor withdrawal.

3. TDS Returns Current: Ensure quarterly TDS returns filed on time. Late TDS filings incur penalties and indicate payroll/compliance weaknesses.

4. Management Information System (MIS) Functioning: Implement basic MIS tracking monthly revenue, burn rate, CAC, LTV, churn, and runway. Investors expect data-driven management; lack of metrics signals operational immaturity.

FEMA Compliance (If Previous Foreign Investment)

1. All FC-GPR Filings Completed: Verify FC-GPR filed within 30 days for every previous foreign investment round. Late filings require compounding; address before new round to avoid regulatory complications.

2. FLA Annual Returns Filed: Confirm FLA filed by July 15 deadline for all years with foreign liabilities or assets. Missing FLA filings create FEMA violations requiring compounding.

3. No Pending FEMA Violations: Resolve any outstanding FEMA compliance issues through RBI compounding process before new fundraising. Active violations jeopardize new foreign investments.

DPIIT Recognition (If Applicable)

1. DPIIT Recognition Certificate Obtained: Complete Startup India registration and obtain DPIIT recognition for tax benefits (Section 80-IAC) and angel tax exemption. Application process takes 3-9 months; initiate early.

2. Section 80-IAC Certificate Obtained (If Claiming Tax Exemption): Separately apply to Inter-Ministerial Board for 80-IAC certification after DPIIT recognition. Required for claiming 100% income tax exemption on profits.

Founder and Team Preparation

1. Cap Table Clean and Updated: Maintain accurate capitalization table in Carta, Pulley, or Excel showing all shareholders, options, SAFEs, convertible notes, and fully diluted ownership. Messy cap tables delay closings.

2. Founder Vesting Agreements in Place: Implement 4-year vesting with 1-year cliff for all founders if not already established. Investors require founder alignment; unvested founder equity is major red flag.

3. IP Properly Assigned to Company: Ensure all founders, employees, and contractors executed IP assignment agreements vesting all work product in company. IP ownership ambiguity kills deals immediately.

Typical Completion Time: Allow 60-90 days for comprehensive readiness if starting from deficient state; 30 days if reasonably current with compliance.

Investor Targeting Checklist (15 Items)¶

Successful fundraising requires systematic targeting of 50-100 qualified investors with defined warm introduction pathways. Spray-and-pray cold outreach achieves <1% response rates; warm introductions via mutual connections achieve 40%+ meeting conversion.

1. Define Investment Thesis Match: Identify investors actively investing in your sector (fintech, SaaS, marketplace, etc.), stage (pre-seed, seed, Series A), geography (India-focused, Southeast Asia, global), and check size ($100K-$500K seed, $2M-$5M Series A). Pitching agricultural tech startups to consumer internet funds wastes everyone's time.

2. Research Recent Investments (6-12 Months): Analyze investor portfolio additions in past year via Crunchbase, VCCEdge, Tracxn, or investor websites. Recent activity signals active deployment; 2+ year gaps suggest dormant fund or pivoted focus.

3. Identify Portfolio Companies in Your Space: Note direct and adjacent portfolio companies. Investors with thesis-aligned investments bring operational expertise but may have conflict concerns if investing in direct competitor.

4. Map Decision-Makers: Identify specific partners/principals responsible for your sector. Angel List, LinkedIn, and firm websites indicate partner specializations. Address pitches to relevant decision-maker, not generic firm email.

5. Identify Warm Introduction Paths: For each target investor, map mutual connections via LinkedIn, co-founders, advisors, or existing investors. Prioritize 2^nd-degree connections (friend-of-friend) over cold outreach. Document introduction pathway in tracking spreadsheet.

6. Note Investment Criteria: Record published investment criteria (minimum revenue, growth rate, team size, geography restrictions). Many funds list detailed criteria on websites; pre-qualifying saves rejected pitches.

7. Track Fund Vintage and Deployment Status: Research fund vintage year and typical fund life (10 years standard). Funds in years 1-5 actively deploy; years 6-8 slow considerably; years 9-10 focused on portfolio support only. Target funds in active deployment phase.

8. Document Average Check Size: Note typical initial investment and follow-on reserves. Asking for $500K from fund writing $5M+ checks signals misalignment; they'll pass or demand excessive dilution.

9. Assess Value-Add Beyond Capital: Identify investors offering operational support (recruiting, sales, product), strategic connections (enterprise customers, channel partners), or specialized expertise (regulatory, technology). Pure financial investors less valuable in early stages.

10. Note Co-Investment Patterns: Research which investors frequently co-invest together. Syndicates offer advantages (faster diligence through trusted co-investor due diligence, larger round sizes, follow-on capital access). Target lead investor and likely co-investors simultaneously.

11. Review Founder References Publicly: Search for founder reviews on Twitter, blog posts, Quora, Reddit discussing investor experiences. Red flags include: slow decision-making, difficult governance dynamics, unhelpful during challenges, excessive reporting requirements.

12. Create Tiered Target List: Categorize investors into Tier 1 (dream investors, perfect fit, high conviction), Tier 2 (good fit, solid option), Tier 3 (acceptable fallback). Approach Tier 1 first; if traction strong, you'll close them. If rejected, feedback improves Tier 2 pitches.

13. Build 50-100 Qualified Investor List: Comprehensive seed round targeting requires 50-100 qualified investors across all tiers to achieve 5-10 serious conversations resulting in 1-3 term sheets. Smaller lists increase rejection risk and reduce negotiating leverage.

14. Sequence Outreach Strategically: Approach Tier 2 investors first for pitch practice and feedback, then Tier 1 with refined pitch. Avoid simultaneously pitching competing funds within same firm (creates confusion and rejection).

15. Maintain CRM Tracking: Use Airtable, Notion, or dedicated fundraising tools (Visible, Affinity) tracking investor name, contact, introduction source, outreach date, meeting status, feedback received, next steps. Systematic tracking prevents dropped threads and enables data-driven sequencing.

Targeting Timeline: Allow 2-4 weeks for comprehensive investor research and introduction mapping before outreach begins. Quality targeting reduces overall fundraising time by focusing energy on highest-probability paths.

24.3 Due Diligence Preparation¶

Due Diligence Data Room Checklist (60+ Items)¶

Investors conduct comprehensive due diligence before finalizing investments. Organizing documents in virtual data room (VDR) using Dropbox, Google Drive, or specialized platforms (Firmex, Intralinks, DealRoom) accelerates review, signals professionalism, and reduces founder time burden from repeated document requests.

Category 1: Corporate Documents (12 items)

1. Certificate of Incorporation
2. Articles of Association (current version with all amendments)
3. Memorandum of Association
4. Complete share register (all shareholders, share classes, issuance dates)
5. Capitalization table (Excel/Carta showing fully diluted ownership including options, SAFEs, convertible notes)
6. All previous board resolutions (organized chronologically)
7. All previous shareholder resolutions (ordinary and special)
8. Minutes of all board meetings since inception
9. Minutes of all general meetings since inception
10. DIN and KYC documentation for all directors
11. List of current officers (directors, company secretary, key management personnel)
12. Organizational chart (legal entity structure if multiple subsidiaries)

Category 2: Financial Documents (15 items)

1. Audited financial statements (previous 2-3 years or since inception)
2. Management accounts (current fiscal year, monthly or quarterly)
3. Budget and financial projections (next 3 years with assumptions)
4. Revenue breakdown by customer/product/geography (supporting detail)
5. Detailed expense breakdown (operating expenses, capital expenditures)
6. Bank statements (previous 12 months for primary operating accounts)
7. Current accounts receivable aging report
8. Current accounts payable aging report
9. Loan agreements (all outstanding debt obligations)
10. Convertible note agreements (if any outstanding SAFEs or notes)
11. All income tax returns filed since inception
12. TDS returns (all quarters since inception)
13. GST returns (all periods since registration)
14. Outstanding statutory liabilities summary (PF, ESI, taxes)
15. 409A valuation reports (if applicable, for US entities with options)

Category 3: Legal and Compliance (10 items)

1. All material contracts (>$50K annual value or strategic importance)
2. Customer contracts (template agreements and top 10 customer contracts)
3. Supplier/vendor agreements (material suppliers and service providers)
4. Office lease agreements (premises, co-working space, etc.)
5. Shareholders agreements (current and all historical versions)
6. Founder agreements and vesting schedules
7. Employee agreements (templates for different levels/roles)
8. Consultant/contractor agreements (templates and material engagements)
9. Non-disclosure agreements (standard template)
10. Litigation and disputes (list of pending/threatened litigation; "None" if applicable)

Category 4: Intellectual Property (8 items)

1. IP assignment agreements (all founders, employees, contractors)
2. Patent applications and grants (list with status, filing dates, jurisdictions)
3. Trademark registrations (all registered marks with certificate copies)
4. Copyright registrations (if any registered copyrights)
5. Domain name registrations (list of all company-owned domains)
6. Open source software inventory (all OSS used, licenses, compliance status)
7. Third-party IP licenses (inbound licenses for technology, content, brands)
8. IP litigation or disputes (any pending challenges; "None" if applicable)

Category 5: FEMA and Regulatory (Indian Specific, 8 items)

1. FC-GPR filings and acknowledgments (all previous foreign investment rounds)
2. FC-TRS filings (if any share transfers involving non-residents)
3. FLA annual returns (all years with foreign investment)
4. Valuation reports (for all foreign investment rounds showing FMV compliance)
5. DPIIT recognition certificate (if applicable)
6. Section 80-IAC tax exemption certificate (if applicable)
7. Sectoral compliance documentation (fintech: RBI approvals; healthcare: licensing; etc.)
8. Press Note 3 declarations (beneficial ownership declarations from all foreign investors)

Category 6: Product and Technology (5 items)

1. Product roadmap (features planned, release timeline)
2. Technology architecture documentation (system design, infrastructure)
3. Security and data privacy policies (information security, GDPR/data protection compliance)
4. AWS/cloud infrastructure details (architecture, costs, scalability)
5. Product metrics dashboard (DAU/MAU, engagement, retention, churn)

Category 7: Commercial Traction (7 items)

1. Customer list (current customers, anonymized if necessary for confidentiality)
2. Top 10 customers by revenue (anonymized revenue concentration analysis)
3. Customer acquisition and retention metrics (CAC, LTV, payback period, churn)
4. Sales pipeline (qualified leads, conversion rates, sales cycle length)
5. Case studies or testimonials (customer success stories)
6. Marketing materials (pitch deck, one-pagers, website analytics)
7. Competitive analysis (key competitors, differentiation, market positioning)

Organization Best Practices

• Folder Structure: Create clear hierarchy (01_Corporate, 02_Financial, 03_Legal, etc.) with descriptive file names including dates (e.g., "2024-03_Audited_Financials.pdf")
• Index Document: Provide clickable index with document descriptions and last updated dates
• Redactions: Redact sensitive information (personal employee data, customer pricing) until later due diligence stages; indicate redactions clearly
• Version Control: Include document dates; update as new versions created (e.g., monthly financial updates)
• Access Logs: Use VDR platforms tracking who accessed which documents; helps assess investor engagement levels
• Preparation Timeline: Allow 1-2 weeks for comprehensive data room assembly if documents already exist; 4-6 weeks if significant documentation gaps require creation

Indian Founders: Emphasize FEMA compliance documentation; foreign investors specifically scrutinize FC-GPR filings, valuation reports, and Press Note 3 declarations to ensure regulatory compliance before proceeding.

24.4 Term Sheet Evaluation Tools¶

Term Sheet Review Checklist (30 Items)¶

Term sheets contain 15-25 provisions affecting founder ownership, control, and exit outcomes. Systematic clause-by-clause review prevents accepting predatory terms concealed in legal language.

Valuation and Economics (Items 1-7)

1. Pre-Money vs Post-Money Valuation Clarity: Confirm term sheet specifies whether stated valuation is pre-money (before investment) or post-money (after investment). Post-money protects founders from option pool dilution; pre-money shifts pool burden to founders. Calculate exact post-round ownership percentages to verify alignment.

2. Fully Diluted Capitalization Definition: Verify "fully diluted" includes all common stock, preferred stock on as-converted basis, all outstanding options, warrants, and reserved unissued option pool shares. Narrow definitions understate dilution.

3. Option Pool Size and Treatment: Note ESOP pool size (typically 10-20%) and whether created pre-money or post-money. Pre-money pools dilute founders and existing shareholders; post-money pools dilute investors proportionally. For $10M post-money valuation, $2M investment, and 15% pre-money pool: founders diluted from 100% to 68%, investors get 20%, pool holds 15%. With post-money pool: founders hold 80%, investors hold 20%, then 15% pool carved from both proportionally.

4. Liquidation Preference Multiple: Standard is 1x non-participating (investor receives greater of preference or pro-rata common). Red flags: 2x or higher multiples, cumulative dividends added to preference, or participating preferred allowing "double dipping."

5. Participation Cap (If Participating Preferred): If investors insist on participating preferred, negotiate cap at 2x-3x invested amount. Uncapped participation allows investors to claim unlimited multiples while common shareholders receive nothing until very high exit values.

6. Dividend Provisions: Standard is non-cumulative dividends paid only when declared by board. Red flags: cumulative dividends (accrue automatically), compounding dividends (increase exponentially), or dividends senior to other obligations.

7. Conversion Rights: Confirm preferred stock converts to common at any time at investor's option, with conversion ratio subject to anti-dilution adjustments. Mandatory conversion upon qualified IPO (typically $50M+ proceeds at $20+ per share) aligns interests.

Control and Governance (Items 8-14)

1. Board Composition and Size: Standard early-stage composition: 2 founder designees, 2 investor designees, 1 mutually agreed independent. Red flags: investor majority from day one, single investor controlling multiple seats, or no independent director provision.

2. Board Observer Rights: Investors without board seats often negotiate observer rights (attend meetings, access materials, no voting). Reasonable provision but limit to 1-2 observers to prevent overcrowded meetings.

3. Protective Provisions Scope: Standard protections cover: amending certificate/bylaws adversely to preferred, authorizing senior/pari passu securities, redeeming/repurchasing shares (except employee agreements), declaring dividends, liquidation/merger/asset sale, changing board size. Red flags: operational veto rights (hiring/firing executives, contracts exceeding low thresholds, budget approvals), which impede daily operations.

4. Protective Provisions Voting Threshold: Standard requires majority of preferred stockholders voting as single class. Red flags: single series veto rights (when multiple series exist, earlier series can block later), or super-majority (66%+) requirements difficult to achieve.

5. Information Rights: Standard requires quarterly unaudited financials, annual audited statements, annual budget within reasonable timeframe. Reasonable provision with limited burden. Red flags: monthly detailed reporting, real-time access to all systems, or unlimited audit rights.

6. Voting Rights: Standard is 1 vote per share on as-converted basis. Red flags: super-voting shares for investors (10x, 100x), weighted voting provisions favoring specific investors, or blank check authority to create new voting classes.

7. Drag-Along Rights: Standard provision requires all shareholders to vote for qualified sale if approved by majority of board plus majority of preferred (sometimes common approval too). Ensure "qualified sale" defined with minimum price protection (at least 1x-2x liquidation preference). Prevents minority shareholders from blocking favorable exits.

Anti-Dilution and Founder Protection (Items 15-21)

1. Anti-Dilution Protection Type: Standard is broad-based weighted average (factors in all outstanding shares when calculating adjustment). Red flags: full ratchet (resets investor price to lowest subsequent round, devastating founders), or narrow-based weighted average (excludes option pool, providing more protection than broad-based).

2. Anti-Dilution Carve-Outs: Confirm anti-dilution excludes: stock splits, stock dividends, conversions, option/warrant exercises at or above conversion price, and strategic issuances (acquisitions, commercial partnerships, equipment financing). These exclusions prevent anti-dilution triggering in routine scenarios.

3. Founder Vesting: If imposed by investors, standard is 4-year vesting with 1-year cliff. Negotiate credit for time already served (e.g., if 2 years since founding, start vesting at 50% with remaining 50% over 2 years). Single-trigger acceleration upon change of control uncommon but founder-favorable; double-trigger (termination without cause or for good reason within 12 months of exit) more common and acceptable.

4. No-Shop Period: Investors request exclusive negotiation period (30-60 days) to prevent founder from shopping term sheet. Reasonable timeframe is 30-45 days. Red flags: 90+ days locks founders in too long, or binding term sheet creating legal obligation before definitive agreements.

5. Right of First Refusal/Co-Sale (ROFR): Investors often obtain ROFR on founder share sales (investors can purchase at same price before sale to third party). Reasonable protection against unwanted new shareholders. Ensure ROFR lapses upon IPO and permits transfers to family members or trusts without triggering.

6. Pay-to-Play Provisions: Provision penalizes investors who don't participate in future down rounds by converting their preferred to common, losing liquidation preference and anti-dilution protection. Founder-favorable in down rounds (reduces liquidation overhang) but signals potential future difficulties.

7. Redemption Rights: Red flag provision allowing investors to force company to repurchase shares after specified period (typically 5+ years). Problematic because startups rarely have cash for redemptions; creates leverage for investors to force sales or recapitalizations on unfavorable terms. Resist strongly; if unavoidable, negotiate 7+ year timeline and board approval requirement.

Dilution and Future Rounds (Items 22-25)

1. Pro-Rata Rights: Standard provision giving investors right to participate in future rounds to maintain ownership percentage. Reasonable investor protection; doesn't obligate participation.

2. Major Investor Definition: Threshold defining which investors receive pro-rata, information, and other rights (typically $500K-$1M invested or 5% ownership). Prevents dozens of small investors from administrative burdens.

3. Preemptive Rights: Some term sheets grant investors preemptive right to purchase new shares before external offering. Similar to pro-rata but with priority over new investors. Acceptable provision.

4. Registration Rights: Investors negotiate demand registration rights (force IPO registration) and piggyback rights (include their shares if company voluntarily registers). Standard in VC deals; limited practical impact since company controls IPO timing.

Legal and Structural (Items 26-30)

1. Governing Law and Venue: Standard provisions specifying which state/country laws govern and where disputes resolved. Indian companies typically use Indian Arbitration Act; Delaware entities use Delaware courts. Review for reasonableness (arbitration in Singapore for Indian company may be impractical).

2. Conditions Precedent to Closing: List of requirements before investment closes (satisfactory due diligence, legal documentation, regulatory approvals, key employee retention). Standard provisions but review for unreasonable conditions creating investor exit opportunities.

3. Expense Reimbursement: Investors typically require company to reimburse their legal fees upon closing ($25K-$75K for Series A). Sometimes capped (e.g., $50K maximum). Red flags: uncapped fees, reimbursement even if deal doesn't close, or requiring reimbursement of multiple investors' counsel.

4. Indemnification: Directors and officers indemnification and D&O insurance provisions. Standard protections for investor directors. Ensure founders receive same indemnification and insurance coverage.

5. Founder Representations and Warranties: Founders often required to represent accuracy of provided information, IP ownership, no conflicts, etc. Reasonable scope but ensure qualified by "to founder's knowledge" and limited to material matters to avoid strict liability for minor unknowns.

Review Process: Engage experienced startup lawyer for all term sheet reviews. Typical legal fees $10K-$25K for seed, $25K-$50K for Series A. Investment far exceeds cost; predatory terms can cost millions at exit.

24.5 Investor Evaluation Framework¶

Reference Check Questions for Investors (20 Items)¶

Founders conduct due diligence on investors through reference calls with portfolio company founders. Request 3-5 references from investor (their selected examples) plus independently identify 2-3 companies in portfolio, especially those facing challenges.

Value-Add and Operational Support (Questions 1-5)

1. "How has [Investor Name] added value beyond the capital invested? Can you provide specific examples?" Assess whether investor provides recruiting help, customer introductions, strategic guidance, or purely financial capital. Best investors regularly provide 5-10 meaningful introductions quarterly.

2. "How accessible is [Partner/Principal Name] when you need advice or support? How quickly do they typically respond to urgent requests?" Evaluate responsiveness. Partners responding within 24 hours to urgent matters show commitment; >1 week response times signal passive investor or overextended partner.

3. "What areas has [Investor] been most helpful with? What areas have been least helpful?" Understand investor strengths (e.g., excellent for sales/marketing, weak on product/technical). Match investor strengths to your key gaps.

4. "Does [Investor] actively participate in board meetings? Do they provide useful strategic guidance, or mainly focus on metrics and reporting?" Distinguish between value-adding strategic partners and financial-only board members who add little beyond monitoring.

5. "Has [Investor] introduced you to customers, partners, or recruits? How material were those introductions?" Quantify impact. Top investors facilitate multiple customer introductions leading to 6-7 figure contracts or key executive hires.

Decision-Making and Board Dynamics (Questions 6-10)

1. "How long did [Investor's] investment process take from first meeting to term sheet? From term sheet to closing?" Understand investor pace. Seed deals typically close 4-8 weeks; Series A 8-12 weeks. Much longer suggests indecisiveness; much faster may indicate less rigorous diligence.

2. "How would you describe [Investor's] board meeting style and expectations? Do they micromanage or give appropriate autonomy?" Assess governance approach. Micromanaging investors request excessive reporting, question every decision, and slow operations. Good investors set clear KPIs and trust execution within agreed parameters.

3. "Has [Investor] ever disagreed strongly with management decisions? How did they handle that disagreement?" Evaluate conflict resolution style. Investors who productively disagree while respecting founder authority add value; those who threaten, escalate to lawyers, or weaponize board votes create toxic dynamics.

4. "Does [Investor] respect the board's role, or do they try to get involved in day-to-day operations?" Distinguish appropriate governance from operational interference. Investors calling employees directly, demanding changes to product roadmap, or overriding executive hiring decisions overstep boundaries.

5. "How transparent is [Investor] about their fund dynamics, timeline, and ownership requirements?" Understand fund pressures. Partners approaching fund end-of-life may push for near-term exits or bridge rounds rather than patient capital strategies aligned with long-term value creation.

Challenging Situations and Crisis Response (Questions 11-15)

1. "How did [Investor] react when you missed targets or faced unexpected challenges? Can you describe a specific difficult situation?" Critical question. Fair-weather investors supportive during growth but unhelpful or hostile during downturns add little value. Best investors remain supportive, help strategize solutions, and access networks during crises.

2. "Did [Investor] support you during down rounds, bridge financing, or difficult pivots? How actively did they participate?" Assess whether investor provides patient capital or becomes adversarial when valuation declines. Investors participating in down rounds alongside new investors signal commitment; those refusing to participate but blocking deal signal misalignment.

3. "Has [Investor] ever attempted to remove a founder or executive? What were the circumstances?" Understand investor's threshold for governance intervention. Sometimes board-initiated founder removals are justified (fraud, gross negligence); other times driven by impatience with execution pace.

4. "How reasonable is [Investor] about follow-on funding and pro-rata participation? Do they support bringing in new investors, or try to maintain control?" Evaluate investor's approach to future rounds. Best investors support bringing in strong new investors even if dilutive; controlling investors blocking new capital to maintain ownership percentages harm company.

5. "If you could go back, would you take [Investor's] money again? Why or why not?" Direct question elicits gut reaction. Founders who hesitate or say "no" signal serious concerns even if unwilling to detail publicly.

Logistics and Follow-On Dynamics (Questions 16-20)

1. "How burdensome are [Investor's] reporting requirements? How much time do you spend preparing board materials and investor updates?" Quantify administrative burden. Reasonable expectation: quarterly board meeting (1-2 days prep), monthly metrics email (30 minutes), annual budget process (2-3 days). Excessive: weekly detailed reports, daily metrics dashboards, or ad-hoc requests consuming multiple days monthly.

2. "Has [Investor] participated in your follow-on rounds? If not, why not?" Non-participation in subsequent rounds (failure to exercise pro-rata rights) signals loss of conviction. Understand rationale: fund constraints, changed thesis, or disappointment with execution?

3. "Does [Investor] introduce you to potential follow-on investors, or do you have to source them independently?" Top investors leverage networks to facilitate introductions to Series A, B, C investors, dramatically reducing fundraising friction. Passive investors provide no support for future rounds.

4. "How does [Investor] handle conflicts of interest with other portfolio companies in similar spaces?" Assess investor fairness when multiple portfolio companies compete or serve overlapping markets. Best investors maintain confidentiality and treat all portfolio companies fairly; worst investors favor later/larger investments at expense of earlier/smaller ones.

5. "What advice would you give me about working with [Investor]? Anything I should know that isn't obvious from public information?" Open-ended question inviting candid feedback. Listen for hesitations, qualifications, or warnings about specific partner behaviors.

Reference Check Execution: Conduct 30-45 minute calls with 5-7 founder references before accepting term sheet. Mix investor-provided references with independent references identified through LinkedIn, portfolio page research, or mutual connections. Weight independent references more heavily; investor-selected references may be curated to present favorable picture.

24.6 Negotiation Communication Templates¶

Email Templates for Investor Negotiations (8 Templates)¶

Template 1: Initial Term Sheet Response (Positive Interest)

Subject: Re: [Company Name] - Term Sheet Review

Hi [Investor Name],

Thank you for the term sheet. We're excited about the prospect of partnering with [Firm Name] and appreciate the competitive terms, particularly [specific positive element, e.g., "the post-money option pool treatment and founder-friendly board composition"].

We'd like to discuss a few provisions before proceeding:

1. [Specific ask #1 with brief rationale]
2. [Specific ask #2 with brief rationale]
3. [Specific ask #3 with brief rationale]

We're targeting term sheet finalization by [date, typically 7-14 days from receipt] to maintain our fundraising momentum. Are you available for a call [suggest 2-3 specific times] to discuss these points?

Looking forward to continued partnership.

Best regards, [Founder Name]

Template 2: Pushing Back on Participating Preferred

Hi [Investor Name],

Thanks for the call yesterday. I've reviewed the liquidation preference language with our counsel, and I'd like to revisit the participating preferred structure.

Our concern: In moderate exit scenarios ($20M-$40M), participating preferred significantly reduces founder and employee proceeds, creating misalignment. For example, at a $30M exit:

• With 1x non-participating: You receive $20M, common shareholders receive $10M
• With uncapped participating: You receive $20M preference + 40% of remaining $10M = $24M, common shareholders receive $6M

This $4M difference represents 40% of common holder proceeds. Given that founders and employees drove company value creation, we'd prefer alignment where everyone participates proportionally in upside.

We'd be comfortable with participating preferred capped at 2x invested amount, which provides downside protection while maintaining alignment in significant exits.

Would [Firm Name] be open to shifting to 1x non-participating or participating capped at 2x?

Happy to discuss further.

Best, [Founder Name]

Template 3: Requesting Anti-Dilution Change

Hi [Investor Name],

We'd like to discuss the full ratchet anti-dilution provision in Section 4.3 of the term sheet.

Full ratchet provisions can be devastating to founders in down rounds. If we raise a future round at lower valuation—even marginally lower due to temporary market conditions—your conversion price resets entirely to the new price, massively diluting founders and employees.

Example scenario: Series A at $4.00/share, down round at $3.50/share. Full ratchet converts your 500K shares to 571K shares (500K × $4.00 ÷ $3.50), adding 71K shares diluting founders by 14.2%. If down round was $2.00/share, your 500K shares become 1M shares, doubling your ownership at founder/employee expense.

Industry standard is broad-based weighted average anti-dilution, which provides reasonable protection without catastrophic founder dilution. This formula considers total capitalization and investment amount, resulting in modest adjustments rather than full resets.

Would [Firm Name] consider changing Section 4.3 to broad-based weighted average? This is standard in 95%+ of venture deals and appropriately balances investor protection with founder retention incentives.

Looking forward to your thoughts.

Best regards, [Founder Name]

Template 4: Negotiating Board Composition

Hi [Investor Name],

Thanks for the productive conversation yesterday. I wanted to follow up on board composition.

The current term sheet provides for 5-person board: 1 founder designee, 3 investor designees, 1 independent. This structure gives investors immediate control (4 of 5 votes if independent sides with investors).

We'd prefer balanced structure: 2 founder designees, 2 investor designees, 1 mutually-agreed independent. This maintains alignment and prevents either party from unilateral control while ensuring independent director serves as tiebreaker on major decisions.

Rationale:

• Founders maintain day-to-day operational authority
• Investors have sufficient representation for oversight
• Independent director ensures decisions reflect company best interests, not factional interests
• Standard structure in most seed/Series A deals

We're committed to collaborative governance and regular communication. Balanced board structure reinforces that partnership ethos while protecting both parties.

Would [Firm Name] be open to 2-2-1 composition?

Best, [Founder Name]

Template 5: Requesting Removal/Reduction of Protective Provisions

Hi [Investor Name],

We've reviewed Section 5 (Protective Provisions) and wanted to discuss narrowing the scope to focus on major structural decisions.

Current language requires investor approval for:

• Any expenditure exceeding $50K
• Hiring/terminating employees
• Contracts exceeding $100K annually
• Opening/closing offices
• Setting/modifying annual budgets

These operational veto rights significantly slow decision-making for day-to-day operations. For reference, our current monthly burn is $150K, so exceeding $50K happens weekly for payroll, cloud infrastructure, and marketing.

We'd propose limiting protective provisions to major structural matters:

• Amending certificate/bylaws adversely to preferred stock
• Authorizing senior/pari passu securities
• Liquidation/dissolution/merger/sale of substantially all assets
• Redeeming or repurchasing shares (except employee repurchases per standard agreements)
• Incurring debt exceeding $500K
• Changing authorized board size

This preserves investor protection on major decisions while allowing operational flexibility. We're happy to provide monthly financial reports and quarterly board meetings for transparency without requiring pre-approval of routine decisions.

Would [Firm Name] be comfortable with this narrowed scope?

Thanks, [Founder Name]

Template 6: Declining Term Sheet Gracefully

Subject: Re: [Company Name] Term Sheet - Decision Update

Hi [Investor Name],

Thank you again for your term sheet and the time you've invested getting to know [Company Name].

After careful consideration, we've decided to proceed with another investor whose terms more closely align with our needs and whose strategic expertise in [specific area] complements our immediate priorities.

This was a difficult decision. We were impressed by [Firm Name]'s [specific positive: portfolio, track record, sector expertise, etc.], and we genuinely appreciated [specific positive interaction: your product feedback, customer introduction, team meeting, etc.].

We'd love to keep you updated on our progress and potentially explore partnership in future rounds. May I add you to our quarterly investor update distribution?

Thank you again for your time and consideration.

Best regards, [Founder Name]

Template 7: Requesting Term Sheet Extension

Subject: [Company Name] - No-Shop Extension Request

Hi [Investor Name],

Our legal counsel needs an additional 7 days beyond the current [Date] no-shop expiration to finalize due diligence on [specific issue: IP assignments, prior investor consent, regulatory filing, etc.].

We remain fully committed to closing with [Firm Name] and are not entertaining other offers. The extension is purely to ensure clean documentation rather than rushing through critical legal review.

Would [Firm Name] be comfortable extending no-shop to [New Date, typically 7-14 days later]? We'll prioritize finalizing outstanding items this week to avoid further delays.

Thanks for your flexibility.

Best, [Founder Name]

Template 8: Providing Update During Diligence

Subject: [Company Name] - Weekly Update #[Number]

Hi [Investor Name],

Quick update on diligence workstreams:

✅ Completed:

• Financial data room populated (trailing 24 months of bank statements, revenue details, expense breakdowns)
• Legal data room 95% complete (pending final contract redactions)
• Customer reference calls scheduled with [Customer A], [Customer B], [Customer C]

🚧 In Progress:

• Technical architecture documentation (completing by Friday)
• Updated cap table showing proposed round (completing by Thursday)
• Background checks on founders (awaiting final consent form from [Co-founder Name])

📅 Next Steps:

• Board meeting scheduled for [Date] to approve final terms
• Shareholder consent process begins [Date]
• Target closing: [Date]

Blockers: None currently. Let me know if you need anything else from our side.

Looking forward to closing!

Best, [Founder Name]

24.7 Decision Frameworks¶

Raise vs. Bootstrap Decision Matrix¶

Many founders face fundamental question: raise institutional capital or bootstrap through profitability? Framework evaluates decision across 8 dimensions.

Dimension 1: Growth Capital Requirements

• High Capital Need (Favor Raising): Marketplace businesses requiring two-sided liquidity, hardware companies with manufacturing costs, enterprise SaaS with long sales cycles (18+ months to revenue), infrastructure-heavy businesses (logistics, delivery)
• Low Capital Need (Favor Bootstrapping): Service businesses, consulting/agency models, SaaS products with short sales cycles, businesses with immediate customer revenue (e-commerce, D2C)

Dimension 2: Market Timing and Competitive Dynamics

• Winner-Take-Most Markets (Favor Raising): Network effects businesses (social, marketplace), markets with 1-2 dominant players capturing 80%+ value, "land grab" opportunities where speed determines market leadership
• Fragmented Markets (Favor Bootstrapping): Professional services, local markets, niche B2B software, markets with thousands of sustainable competitors

Dimension 3: Personal Financial Situation

• Runway Available (Favor Bootstrapping): Significant savings (12+ months living expenses), working spouse providing income, ability to live lean for 2-3 years
• Runway Constrained (Favor Raising): Limited personal savings, dependents requiring stable income, high cost-of-living geography with limited flexibility

Dimension 4: Control and Autonomy Preference

• High Control Preference (Favor Bootstrapping): Founders unwilling to cede board seats, answer to investors, provide regular reporting, accept operational oversight
• Willing to Partner (Favor Raising): Founders comfortable with collaborative governance, investor oversight, strategic input, potential dilution for right partnerships

Dimension 5: Growth Ambition and Timeline

• Exponential Growth Target (Favor Raising): Building for $100M+ revenue in 5-7 years, targeting IPO or $500M+ acquisition, aiming for market category leadership
• Sustainable Lifestyle Business (Favor Bootstrapping): Building for $2M-$20M revenue supporting founder lifestyle, profitable within 2-3 years, sustainable 20-40% annual growth

Dimension 6: Team and Recruiting Needs

• Need to Recruit Competitively (Favor Raising): Competing with Facebook, Google, unicorn startups for senior talent requiring $200K+ comp packages with equity upside
• Generalist or Junior Team (Favor Bootstrapping): Can hire generalists, junior developers, offshore/contract talent, or founder handles multiple functions (product, sales, operations)

Dimension 7: Technology and Product Complexity

• Deep Tech/Hard Science (Favor Raising): Biotechnology, hard science, AI requiring GPU compute, nuclear/space technology with 5-10 year development timelines before revenue
• Proven Technology Stack (Favor Bootstrapping): Building on proven frameworks (React, Ruby, Python), SaaS with established patterns, mobile apps, e-commerce platforms

Dimension 8: Risk Tolerance

• High Risk Tolerance (Favor Raising): Comfortable with binary outcomes (lose everything or 100x return), willing to sacrifice years for potential massive outcome, view dilution as acceptable cost
• Moderate Risk Preference (Favor Bootstrapping): Prefer incremental progress with visible milestones, value certainty of ownership over magnitude of potential outcome, sleep better with profitability

Decision Matrix Scoring

Rate each dimension 1-5:

• 5: Strongly favors raising
• 4: Moderately favors raising
• 3: Neutral
• 2: Moderately favors bootstrapping
• 1: Strongly favors bootstrapping

Average score:

• 4.0+: Strongly consider raising institutional capital
• 3.5-3.9: Raising makes sense but not essential; could go either way
• 2.6-3.4: Neutral; consider hybrid (angel/friends-family round then bootstrap to profitability)
• 2.0-2.5: Bootstrapping favorable unless specific opportunity for exceptional investor
• <2.0: Bootstrap; raising likely creates more problems than value

Examples in Practice

• Zerodha (India): Bootstrapped brokerage platform, now valued at $3B+, profitable from year 1, founders retained 100% ownership. Low capital requirements (technology platform), fragmented market (thousands of brokers), founders preferred control over growth speed.
• Airbnb: Raised $6B+ across multiple rounds. High capital needs (global expansion, regulatory battles, trust/safety infrastructure), winner-take-most marketplace dynamics (network effects), competitive landscape requiring speed. Founders diluted to <10% each but created $100B+ company.

Investor Selection Matrix¶

When holding multiple term sheets, systematically evaluate investors across 10 dimensions weighted by importance to your situation.

Evaluation Dimensions

1. Valuation and Dilution (Weight: 25%): Post-money valuation, ownership diluted, liquidation preference structure, anti-dilution provisions. Higher valuation isn't always better if terms are worse; optimize for net founder ownership at exit scenarios.

2. Investment Terms Quality (Weight: 20%): Board composition, protective provisions scope, investor rights (pro-rata, ROFR, information), redemption rights, pay-to-play. Founder-friendly terms worth accepting lower valuation.

3. Investor Brand and Signal Value (Weight: 15%): Top-tier investor brand (Sequoia, Accel, Lightspeed) signals quality to customers, recruits, follow-on investors. Tier 1 investor enables easier Series B/C; Tier 3 investor may create signaling risk.

4. Domain Expertise and Value-Add (Weight: 15%): Investor operational experience in your sector (fintech, SaaS, marketplace), geographic expertise (India, Southeast Asia, global), functional expertise (product, sales, technical).

5. Network Access (Weight: 10%): Customer introductions (enterprise sales), partnership opportunities (channel partners), recruit referrals (executives, senior ICs), follow-on investor intros (Series B/C VCs).

6. Responsiveness and Engagement (Weight: 5%): Partner response time to emails/calls, attendance at board meetings, proactive check-ins between formal meetings, availability during crises.

7. Portfolio Conflicts (Weight: 5%): Existence of competing portfolio companies, investor policy on portfolio conflicts, track record of handling conflicts fairly.

8. Fund Dynamics (Weight: 3%): Fund vintage year (early funds more engaged), GP commitment/fund size (larger funds may neglect small checks), partnership stability (recent partner departures signal issues).

9. Geographic Proximity (Weight: 2%): Investor location relative to company HQ, willingness to travel for board meetings, time zone compatibility for communications.

10. Personal Chemistry (Weight: 5%): Gut instinct on partnership quality, communication style compatibility, shared values and vision alignment.

Scoring Process

Create spreadsheet with investors as rows, dimensions as columns. Score each dimension 1-10, multiply by weight, sum total weighted score per investor.

Example Scoring

In example above, Accel Partners scores highest despite lower valuation (8 vs 10) due to superior terms, brand, expertise, and network. Generic VC offers highest valuation but lacks value-add dimensions. India Focussed Fund provides strong middle ground with excellent local expertise and proximity.

Recommendation: Accept highest total weighted score unless specific dimension is non-negotiable (e.g., if portfolio conflict is dealbreaker, eliminate investor regardless of total score).

24.8 Board Meeting and Governance Templates¶

Board Meeting Agenda Template¶

Pre-Meeting Distribution: Send board package 48-72 hours before meeting containing: financial statements, metrics dashboard, key decisions requiring board approval, discussion topics with background materials.

Standard Board Meeting Agenda (2.5-3 hours)

1. Opening and Formalities (5 minutes)

• Call to order, attendance confirmation, quorum verification
• Approval of previous meeting minutes
• Conflicts of interest disclosure

2. CEO Update and Business Review (30 minutes)

• Executive summary of quarter/period performance vs. plan
• Key wins and challenges
• Strategic priorities for upcoming quarter
• Team updates (hiring, departures, promotions)

3. Financial Review (20 minutes)

• CFO/finance lead presents: revenue, expenses, burn rate, runway, cash position
• Budget vs. actual variance analysis
• Updated forecast and runway projection
• Discussion and questions

4. Metrics and KPIs (15 minutes)

• Product metrics: DAU/MAU, engagement, retention, churn
• Sales metrics: pipeline, conversion rates, ARR, logo count, expansion revenue
• Marketing metrics: CAC, payback period, channel performance
• Customer success metrics: NPS, support ticket volume, renewal rates

5. Strategic Discussion Topics (45 minutes)

• Pre-selected topics requiring board input (2-3 per meeting)
• Examples: pricing strategy, international expansion, M&A opportunities, competitive response
• Structured discussion with background memo distributed in advance

6. Decisions Requiring Board Approval (15 minutes)

• Option grants (review ESOP grant committee recommendations)
• Major contracts (those requiring board approval per protective provisions)
• Budget approvals (annual budget or material amendments)
• Other routine approvals

7. Executive Session (Optional, 15 minutes)

• Independent directors and investors meet without management
• Opportunity for candid discussion of CEO performance, compensation, concerns
• CEO typically rejoins for feedback summary

8. Closing and Next Steps (5 minutes)

• Action item recap with owners and deadlines
• Confirm next board meeting date and location
• Adjourn

Post-Meeting Follow-Up: Secretary distributes draft minutes within 7 days for review; final approved minutes filed at subsequent meeting.

Best Practices:

• Limit slide count (15-25 slides typical for 2.5 hour meeting)
• Focus board time on strategic discussion, not information download (package serves that purpose)
• Pre-wire controversial decisions through individual director conversations before meeting to avoid surprises
• Invite functional leaders (VP Product, VP Sales) to present specific topics, then excuse them to respect their time

24.9 Key Takeaways¶

1. Systematic Checklists Reduce Chaos: Pre-fundraising readiness (20 items), investor targeting (15 items), and due diligence data rooms (60+ items) compress fundraising from months of fire-drills into organized workflows executed in weeks.

2. Term Sheet Review Requires 30-Point Checklist: Founders often focus exclusively on valuation while ignoring participating preferred, full ratchet anti-dilution, redemption rights, and excessive protective provisions that can cost millions at exit. Systematic clause-by-clause review prevents accepting predatory terms.

3. Reference Checks Are Bilateral: Conducting 5-7 founder reference calls on investors—including independent references beyond investor-provided names—uncovers investor behavior patterns (responsiveness, support during challenges, value-add) not visible in pitch meetings.

4. Email Templates Enable Firm Negotiation: Structured templates for pushing back on participating preferred, requesting anti-dilution changes, and negotiating board composition allow founders to advocate clearly for founder-friendly terms while maintaining professional relationships.

5. Decision Frameworks Clarify Bootstrap vs. Raise: Eight-dimension matrix (capital needs, market timing, financial situation, control preference, growth ambition, recruiting needs, complexity, risk tolerance) scores 1-5 to yield quantitative recommendation rather than emotional decision-making.

6. Investor Selection Requires Multi-Dimensional Scoring: Choosing among multiple term sheets based solely on valuation ignores 9 other critical dimensions (terms quality, brand, expertise, network, responsiveness, conflicts, fund dynamics, geography, chemistry). Weighted scoring matrix reveals optimal choice.

7. Board Meeting Structure Drives Efficiency: Standard agenda allocating specific time blocks (30 min business review, 20 min financials, 15 min metrics, 45 min strategic discussion, 15 min approvals) with 48-72 hour advance package distribution ensures productive governance without operational interference.

24.10 Red Flags to Watch¶

🔴 CRITICAL: Investor Requiring Redemption Rights - Clause allowing investors to force company buyback of shares after 5-7 years creates leverage for investors to compel unfavorable exits or recapitalizations. Startups rarely have cash for redemptions. Resist strongly; if unavoidable, negotiate 7+ year timeline and board approval requirement.

🔴 CRITICAL: Full Ratchet Anti-Dilution - Provision resetting investor conversion price to lowest subsequent round price devastates founders in down rounds. If Series A at $4/share followed by down round at $2/share, investors double their share count at founder expense. Broad-based weighted average is industry standard; full ratchet is predatory.

🔴 CRITICAL: Participating Preferred Without Cap - "Double dipping" structure where investors receive liquidation preference first, then participate pro-rata in remaining proceeds with no cap. In $10M exit with $3M invested at 30% ownership, investors receive $3M preference + 30% of remaining $7M = $5.1M (51% of total proceeds despite 30% ownership). Accept only if capped at 2x-3x.

🟡 CONCERNING: Multiple Liquidation Preference (2x-3x) - Provision guaranteeing investors 2x-3x invested amount before common shareholders receive anything. Standard is 1x. Higher multiples appropriate only in distressed financings with elevated risk; accepting 2x+ in normal market signals founder weakness or desperation.

🟡 CONCERNING: Excessive Protective Provisions - Investor veto rights over operational decisions (hiring/firing, contracts >$50K, expenditures >$100K, opening offices) impede day-to-day operations and signal investor distrust. Protective provisions should cover major structural matters (liquidation, senior securities, certificate amendments) not routine operations.

🟡 CONCERNING: Investor Board Majority from Day One - Board composition giving investors 3 of 5 seats at seed/Series A stage signals severe investor control. Standard seed/Series A board is 2 founders, 2 investors, 1 independent. Investor majority appropriate only in turnaround/distressed situations.

🟡 CONCERNING: No-Shop Period Exceeding 60 Days - Exclusivity period preventing founders from entertaining other offers should be 30-45 days maximum for seed/Series A. Longer periods (90+ days) lock founders in while investors conduct leisurely diligence with no urgency.

🟡 CONCERNING: Cumulative Compounding Dividends - Dividends that accrue automatically and compound create exponential liquidation preference growth. If 8% cumulative compounding dividend on $2M investment compounds for 5 years, liquidation preference grows to $2.94M before any exits. Accept only non-cumulative dividends paid when declared.

24.11 When to Call a Lawyer¶

Always Require Lawyer

1. Term Sheet Negotiation: All term sheets require experienced startup lawyer review ($10K-$25K for seed, $25K-$50K for Series A). Investment at stake ($500K-$5M+) far exceeds legal cost; predatory terms can cost millions at exit.

2. Shareholders Agreement Drafting: SHA defines investor rights, board composition, protective provisions, transfer restrictions, and exit mechanics. Errors or omissions create governance nightmares lasting company lifetime.

3. Down Round Negotiations: Down rounds with anti-dilution adjustments, pay-to-play provisions, and potential recapitalizations require sophisticated legal counsel to model scenarios and negotiate protections.

4. Complex Cap Table Situations: Multiple share classes (common, preferred A, B, C), SAFEs, convertible notes, and warrants create modeling complexity requiring legal and financial expertise to ensure accurate dilution calculations.

5. Founder Disputes and Departures: Any disagreement regarding equity split, vesting, IP ownership, or founder removal requires immediate legal counsel to document resolution and prevent litigation.

Lawyer Optional (Templates May Suffice)

1. Standard Employment Agreements: For non-executive employees in routine roles, template employment agreements from Cooley GO, Clerky, or other reputable sources suffice with minor customization for role/compensation.

2. Basic NDAs: Standard mutual NDAs for customer/partner discussions available from multiple template sources (Cooley GO, NVCA, Clerky). Use templates unless NDA involves IP licensing, exclusivity, or other complex provisions.

3. Standard Advisor Agreements: FAST (Founder/Advisor Standard Template) from Founder Institute provides industry-standard framework for 2-year monthly vesting advisor equity (0.25%-1% depending on stage and engagement level).

Recommended Law Firms

India: Trilegal, Khaitan & Co, AZB & Partners, IndusLaw, Argus Partners, Ikigai Law (boutique startup specialist)

United States: Wilson Sonsini, Cooley, Orrick, Gunderson Dettmer, Fenwick & West

Fee Structures and Costs: Detailed guidance provided in Chapter 25: When to Call a Lawyer.

24.12 Indian Context¶

Indian startups must adapt global fundraising frameworks to accommodate regulatory requirements (FEMA, DPIIT, Companies Act 2013) while maintaining compatibility with international investor expectations.

FEMA Compliance Integration into Checklists¶

Pre-fundraising readiness checklist for Indian companies with foreign investment must include:

• All FC-GPR filings completed within 30 days of previous rounds (Section 2.4 FEMA compliance)
• FLA annual returns filed by July 15 deadline for all years with foreign liabilities/assets
• Valuation reports for each foreign investment round demonstrating RBI pricing guideline compliance
• Press Note 3 declarations from all foreign investors confirming beneficial ownership not from land-bordering countries (China, Pakistan, Bangladesh, Myanmar, Nepal, Bhutan, Afghanistan) unless government approval obtained

Due diligence data room must include dedicated "FEMA and Regulatory" folder containing these documents plus:

• DPIIT recognition certificate (if applicable) providing angel tax exemption
• Section 80-IAC tax exemption certificate (if claiming 100% profit tax exemption for 3 years)
• Sectoral compliance documentation (fintech: RBI approvals, healthcare: licensing, etc.)

CCPS Term Sheet Provisions¶

Indian startups issuing Compulsorily Convertible Preference Shares (CCPS) rather than traditional preferred stock must address:

• Conversion Trigger: Specify automatic conversion upon qualified IPO (typically ₹50 crore+ proceeds) or mandatory conversion after 10-20 years per Companies Act 2013 Section 55
• Pricing Compliance: Include language confirming issuance price determined through RBI-compliant valuation methodology (DCF, comparable company analysis, or recent investment round if arm's length)
• Preference Rights: Document liquidation preference, dividend rights, and voting rights within Articles of Association amendment
• Board Resolution Requirements: Attach board resolution format complying with Sections 42 and 62 of Companies Act 2013 for private placement

Indian vs. US Checklist Differences¶

Statutory Compliance: Indian checklists require ROC filing documentation (AOC-4, MGT-7, MGT-14, PAS-3) that US Delaware entities don't file. Indian companies must demonstrate annual compliance current; US startups rarely encounter equivalent requirement until Series A due diligence.

Tax Filings: Indian due diligence requires TDS returns (quarterly withholding tax), GST returns (monthly/quarterly), and income tax returns. US startups provide federal/state tax returns and quarterly payroll tax filings (Form 941) but complexity differs.

Timeline Differences: Indian fundraising compliance workflows require additional 30-45 days vs. US equivalents due to:

• FC-GPR filing within 30 days of allotment (no US equivalent)
• Valuation report preparation for FEMA compliance (1-2 weeks)
• DPIIT recognition application if not already completed (3-9 months)
• PAS-3 filing within 15 days of allotment (stricter than US requirements)

Cost Differences: Indian legal and compliance costs typically 40-60% of US equivalents in absolute terms but similar as percentage of round size:

• Seed legal ($50K-$100K India vs. $75K-$150K US)
• Series A legal ($100K-$300K India vs. $200K-$500K US)
• Valuation reports ($25K-$100K India, required for FEMA; $50K-$150K US 409A valuations)

Investor Selection Considerations for Indian Founders¶

Indian founders must weight additional factors in investor selection matrix:

• India Expertise: Investors familiar with FEMA compliance, DPIIT processes, Companies Act requirements reduce friction. Global investors unfamiliar with Indian regulations create compliance burden and delays.
• Rupee vs. Dollar Checks: Foreign investors invest in foreign currency (USD), triggering FEMA reporting and pricing guideline requirements. Domestic Indian investors invest in rupees without FEMA complications but smaller average check sizes ($100K-$500K seed vs. $500K-$2M US seed).
• Geographic Proximity: Indian investors based in Bangalore, Delhi, Mumbai provide hands-on support and network access difficult for US/Singapore-based investors to replicate despite video calls.

Template Adaptations for Indian Context¶

Negotiation email templates require minimal adaptation; fundraising power dynamics transcend geography. However, reference check questions should include:

• "How did [Investor] handle FEMA compliance and regulatory filings? Did they understand Indian requirements or create additional burden?"
• "Has [Investor] supported Indian portfolio companies through regulatory challenges (RBI audits, angel tax disputes, DPIIT recognition delays)?"

Board meeting agendas should include quarterly FEMA compliance review (upcoming FC-GPR deadlines, FLA filing status, Press Note 3 declarations from new investors) as standing item to prevent missed deadlines and penalties.

24.13 References¶

1. Cooley GO. (2024). "Startup Document Generator and Free Legal Documents." cooleygo.com/documents
2. Y Combinator. (2024). "YC Safe Financing Documents." ycombinator.com/documents
3. National Venture Capital Association. (2024). "Enhanced Model Term Sheet v3.0." nvca.org/model-legal-documents
4. Carta. (2024). "Better Startup Offer Letter Template with Visual Equity Explanation." carta.com/blog/better-offer-letter
5. Founder Institute. (2024). "FAST Agreement for Startup Advisors." fi.co/fast
6. Alphabridge. (2024). "Understanding Liquidation Preference and Participation." alphabridge.co/understanding-liquidation-preference
7. Ledgy. (2024). "Anti-Dilution Provision Guide for Startup Founders." ledgy.com/blog/anti-dilution-provisions
8. Pulley. (2024). "Single-Trigger vs. Double-Trigger Acceleration." pulley.com/guides/single-trigger-vs-double-trigger
9. Cooley GO. (2024). "What are Single and Double Trigger Acceleration." cooleygo.com/single-and-double-trigger-acceleration
10. Phoenix Strategy Group. (2024). "Liquidation Preferences: Participating vs. Non-Participating Explained." phoenixstrategy.group/blog/liquidation-preferences
11. HSBC Innovation Banking. (2024). "Understanding Key Terms that Affect Board Composition." hsbcinnovationbanking.com/understanding-board-composition
12. Yair Udi. (2024). "What are Protective Provisions (or veto rights)." yairudi.com/protective-provisions
13. Qapita. (2024). "ROFO vs ROFR: Navigating Share Rights Transfer." qapita.com/blog/rofr-and-rofo

Navigation¶

Previous: Chapter 23: Indian Success Stories and Lessons Learned
Next: Chapter 25: When to Call a Lawyer
Back to: Table of Contents

Related Chapters:

• Chapter 6: Preparing to Fundraise
• Appendix A: Legal Templates Library
• Appendix B: Operational Templates
• Appendix C: Calculator Methodologies
• Appendix D: Glossary
• Appendix E: Startup Resources Directory

Disclaimer¶

This chapter provides educational information about startup funding and is not legal, financial, or investment advice. Every startup situation is unique. Consult qualified professionals (lawyers, accountants, financial advisors) before making any funding decisions.

Last Updated: November 2025