Frequently Asked Questions - For Founders

Company formation

Do I need to incorporate a private limited company or I can still continue as a proprietor?

If you are at ideation stage, you can continue as a proprietor. No need to hurry.

Private Limited company or Limited Liability Partnership?

Private Limited company as you will be issuing shares of your company to investors. If you plan to remain bootstrap, LLP is also a good option. 

When I need to incorporate a private limited company?

When you reach to a revenue stage or when you have to dilute ownership (typically, when you are raising first funding round).

Startup Valuation

We are at seed stage / MVP stage, never raised any funding. How do we value our company?

Startup valuation at this stage is always a challenge as there is no past performance. There is no standard formula to value your business idea. It’s more of a smart guess work based on various parameters like opportunity, team, etc.

How do you calculate ownership dilution?

Ownership Dilution = Total Investment Amount in the company divided by Post Money valuation.

Do I need a valuation certificate to prove my company’s valuation to the investors?

Not at the time of investment negotiation. As per applicable laws, you will need a valuation certificate from a registered valuer before taking investment in the company bank account.  

What is Pre-Money and Post Money valuation?

Pre Money – Enterprise value of the company before investment

Post Money – Enterprise value of the company after investment

Investor engagements

How do I pitch to an investor?

What do Investor look for?

Term sheet / SHA

Should I accept equity or debt investment?

Both options have it’s own pros and cons.  However, equity is the most expensive instrument for founders. So preserve it as much as and as long as you can.  

During lock-in period what if a founder is unable to continue his/her services?

It depends up on reasons and conditions under which a founder is unable to continue his/her services, which is usually mentioned in the agreements or as per mutual understanding.  

My investors are asking for lock-in of founders shares, why such lock-in? Should we accept or reject?

By accepting Lock-in, you are building trust and confidence to investors who have agreed to invest in. So accept it. Check out this LINK for more details

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