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#6 Investor Pitching

Investor Pitching

Funding contracts

where we understood how you can raise funds for your startup

You went to investors and they have given you money you asked for in return of equity

These are not the only two things here. Investors are not looking only for your shares

You will not get satisfied by money only

There are many other things which you have to take care of

Today we will discuss about that

Whenever you for investment then all talks goes around shares

But one more important thing comes here which is “Board of Director’s seat”

Board of Directors will give the vision for running the company i.e in which direction the company should move

They appoint CEO and person of major designations

So if you don’t have majority of seats under board of directors,even if you have 80-90% of shares,if they want,they will not make you the CEO of the company

So you have to keep majority of board of director’s seat in your hands

For eg if you have 10 seats of the company,then try that 6 or more of them are always with you

So that you have the full control of the company

Baord of Directors have alot of power

And if that power goes into wrong hands,your company may get into loss

So it is better to keep all these things under your control

Now next thing is “tag along clause”

Let’s assume you have one investor and he has 50% stake

Your company is getting more successful

And big investors are showing interest in your company

That investment partner of yours want to sell his share to some big investor

Let’s assume he is selling 20% of share to some investor in return of which he is taking 100 Crore

If your agreement has “tag along clause” then you can stop him to sell 20% of stake invidually

Here 10% stake will go from you and 10% from the other person

which means you will get 50-50% of the whole amount

Now opposite of this is “Drag along clause”

If you are 51% shareholder then you can stop the other person from selling his shares

Let’s assume a company has 3 partners. You have 51% stake,20% stake is of your friends and rest are with investors

If your friends want to sell his shars,then being a majority shareholder you can stop or force him to sell all his shares

which means if you have majority of shares yiu can sell whole company to anyone you like

This is possible only if your agreement has “drag along clause”

You can force all your partners and investors to sell their shares to a specific company

The last thing that comes here is “Share option pool”

You have a startup and you have scarcity of money but you want expensive talents

You want to bring IIT and IIMians in to your company

But you don’t have that much money to give them

So what is the practice nowadays? You give some percent of shares to employees

Additionally,you give less salary to him, like you will get an IIT or IIMguy in 20-30K,you have to give 5-10% of shares to him

All these things depends on evaluation of your company

So that share which you will give to that IIM guy,from where will it go-you,partner or investor?

You create a share pool while making the company

Like I am giving 5%,10% by other and 20% by some other person

You make a pool of shares by adding the amount of stake which owned by each person

from where these persons get the money

in the form of shares

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