Here are the rights LetsVenture can get for you
Generally, the investors appoint a representative on the board of the company to keep an eye on business and strategic development as well as the management of the startup.
Board representation is given by founders to substantial shareholders who holds more than 10% shareholding. LV’s investment in most of the startups is less than 2%.
When our investments in a startup is more than 10%, we will negotiate for a board representative/observer. We can ask the lead investors or any other interested investor to take this opportunity to be on the board of the startup as an observer.
In such a situation, LV shall approach the investors of that particular scheme to take their willingness to be appointed as board observer. In case of receiving multiple interest from investors, LV will choose the investors with the highest capital contribution.
When an investor has a board representative, that board member becomes a mandatory member to form a quorum for all or certain business matters.
Founders consider this as a hurdle to continue business and delay in decision making.
When LV’s participation is more than 10% in the cap table and we have a board representation, this right may be negotiated.
Shareholders normally get voting right in all special business activities. The company will call out EGM/AGM to discuss these items. Voting rights provided to the investors (in their capacity as shareholders) shall be in proportion to their shareholding.
There are no challenges in getting this right.
LV gets this right. LV receives EGM and AGM notices and invites to participate in the shareholder meeting. The agenda list in the Notices are reviewed by LV and appropriate actions are taken based on discussion with founders, leads, and investors.
Reserved matters are the actions that the company, its directors and shareholders shall not do without the explicit approval by the investor or at least a certain proportion of specific persons. The decision is 'reserved' for certain people.
Founders consider this as a hurdle to conduct business and agree to give only for substantial shareholders.
With the change in the startup ecosystem, this right is now being offered only to the lead investor of the round or investors with big ticket size. Founders feel that it is a business hurdle to manage too many investors for taking business decisions.
When LV’s investment is more than 3%, we negotiate to have this right. When founders deny to offer this right, LV negotiates to receive notice and allow the company to proceed with the majority consent. Thereby LV gets an opportunity to know the major happenings in the company.
Shareholders will get information pertaining to financial data /business update /statutory notices received /litigation info etc., /management change/major events etc., about the company on a periodical basis through this right. Shareholders also get visitation and inspection right through information right.
Founders consider this as an administrative inconvenience to share periodical financial update and business updates with every investor. They agree to share with substantial shareholders.
Founders deny this right for small-ticket investors.
Whatever be LV’s investment percentage, we try to get this right because we need financial information about the company to update our investors and to prepare the NAV as per SEBI mandate.
When we don't get financials of the company, LV downloads the same from the MCA website by paying the nominal fee to assess and prepare a valuation report.
Anti-dilution protection is triggered when new shares are issued by the company at a price which is lower than the price at which the shares were purchased by the existing investor. Essentially, it protects the investor from the dilution of equity stake due to down-round financing.
They agree to share with substantial shareholders, not with every investor.
This right is now being offered only to the lead investor of the round or investors with big-ticket size.
A 3% shareholding is the threshold to get this right in the industry. Since this protects our investment if the company raises down round, we give away certain other rights in negotiations to get this right.
Pre-emptive rights allow the shareholders to buy additional shares in any future issue of the company's common stock before the shares are offered to any other person.
There are no challenges in getting this right.
This right is available to each existing shareholder as per the Companies Act and hence there is no challenge in getting it.
Tag-along or co-sale rights are essentially the opposite of drag-along rights. Where tag-along rights give minority shareholders negotiating rights in the event of a sale, drag-along rights force the minority shareholders to accept whatever deal is negotiated by majority shareholders" This is an exit mechanism wherein , investors will be given Tag Along and Drag Along rights in the event that they are not provided a satisfactory exit by the founders and the startup."
There are no challenges in getting this right.
A 2% and above is the threshold to have this right. We can negotiate to get these exit rights.
This is part of the Exit right. Shareholders get the IPO participation full/partially during the IPO.
There are no challenges in getting this right.
We get this right.
Liquidation Preference (LP) is the order in which the proceeds of the assets of a company are divided among its shareholders, and it is contingent on the happening of a pre-determined liquidation event. Investors may ask for participatory LP with a certain multiple to their investment (for example: 2X participatory LP). Founders normally negotiate for 1X non-participatory LPs.
Founders agree to share with substantial shareholders, not with every investor.
With the change in the startup ecosystem this right is now being offered only to the lead investor of the round or investors with big-ticket size.
We structure in such a way that we subscribe for CCPS securities which will have preference over the equity shares. While we participate in CCD and Safe notes, we negotiate hard to get this right by giving away certain rights.
Every investor, while making an investment in a company, is also keen to devise an Exit strategy that will provide the investor with an assured Exit from the company and a return on the made investment. Furthermore, from an investor’s perspective pre-deciding an Exit policy is important to provide for a smooth Exit from an unprofitable or non-performing investment. Usually, an Exit can be structured by following any one or more of the following options:
Initial Public Offering
Third-Party Sale
Buyback of Securities
Call Option
Put Option
There are no challenges in getting this right.
Founders don’t offer Exit rights when the shareholding is less than 1 %. However, we negotiate to get this right.
Normally, the investors would insist on a lock-in period for a certain number of years (normally 3 years) on the shareholding of the founders. During this period, the founders will not be allowed to transfer or sell their shares to any third party.
Founders agree to share with substantial shareholders and but with every investor
In recent times, we see the founders reducing the lock in period to 1 year or negotiating for a waiver. We give away this right to get anti-dilution and liquidation preference rights.
Right of First Offer (ROFO) or the Right of First Refusal (ROFR) allow the continuing shareholders an option to purchase the shares from the exiting investor/founder in order to consolidate their control over the company. Inclusion of either of these rights in the SHA serves dual benefits – first, it allows the continuing shareholder to maintain control over the entry of a new shareholder, and second, it addresses the liquidity concerns of the exiting investor.
There are no challenges in getting this right.
Founders don’t offer Exit rights when the shareholding is less than 1 %. However, we negotiate to get this right.
Shareholders may ask for founders or promoters’ personal liability in SHA. The parties can opt for a suitable insurance scheme like the Directors and Officers (D&O) Liability Insurance.
Founders agree to share with substantial shareholders, not with every investor.
Founder’s personal liability is offered only to substantial shareholders of 10% and above. LV insists on companies taking D&O insurances. However, startups taking D&O insurance are yet to happen in India.
Shareholders may ask the promoters or founders not to start a similar business along with the startup or after their exit from the start up for certain period.
Founders agree to share with substantial shareholders, not with every investor.
Generally, the SHA does not capture this. We put this as part of the reserved rights to have a check.
Shareholders may ask for Indemnity (security or protection against a loss or other financial burden) on breach of reps and warrants made by the company/founder and willful misconduct and fraud.
Founders agree to share with substantial shareholders, not with every investor.
Most of the companies agree to it. However, certain founders negotiate on the percentage of indemnity.
