unlocking the term sheet for startups by george korah
TRANSCRIPT
Start Up Saturday-Term Sheet & beyond
M.George Korah,FCA,DISAM.George Korah,FCA,DISAM/s Korah & Korah, CAsM/s Korah & Korah, CAswww.korahandkorah.comwww.korahandkorah.com Demystifying Finance & Accounting
T R A I N I N G
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Demystifying Finance & Accounting
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Session Details
• Business Entities• Common Financial Terminology• Term Sheets• Valuation Methodologies• ESOPs• Sweat Equity
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COMMON BUSINESS ENTITIES IN INDIA
Proprietorship Partnership Corporates LLPs
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PROPRIETORSHIP
One Owner
Small to medium scale enterprises
Low Capitalisation
Unlimited liability for owner
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PROPRIETORSHIP
Quick setup
Freedom for Decision making
Returns are all yours !
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PARTNERSHIP..
At least two Owners (Partners)
Maximum of 20 Partners
Medium scale enterprises
Medium level capitalisation
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PARTNERSHIP..
Governed by Partnership Act, 1932
Unlimited liability for Partners
Setup requires a Deed of Partnership
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Corporates
Governed by Companies Act, 2013
Private Limited Companies
Public Limited Companies
OPC
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PRIVATE LIMITED COMPANIES
Minimum 2 Share holders
Maximum 200 Share holders
Minimum Authorised & Paid up Capital INR 100,000
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PUBLIC LIMITED COMPANIES
Minimum 7 Share holders
Maximum Shareholders – no limit
Minimum Authorised & paid up capital INR 500,000
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Corporates
Limited Liability
Ease of entry & exit for Owners
High Compliance level requirement
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Financial Terminology
Authorised & Paid up Capital
Balance Sheet, Profit/Loss Statement & CFS
Equity Shares, Preference Shares, Debentures
Partly paid up & Fully Paid up
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Term Sheet
Outlines the terms by which an Investor will make a Financial Investment in your Company
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TERM SHEET
A non-binding agreement setting forth the basic terms and conditions
First step to entering a more detailed legal binding agreement
Covers the more important aspects of a deal, without going into every minor detail
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Term Sheet
Investor Perspective
Growth of Investment and easy exit
Protect their investment
Ensure key persons continue
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Term Sheet
Start up Owners perspective
Raise as much Capital without giving up too much stake
Retain operational & management independence
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Term Sheet
A Term Sheet will spell out
Approximate Funding & timeline
Percentage of Stake expected
Valuation methodology to be adopted
Major expectations of both sides
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Valuation
Concept of Net Worth
Future Potential
Different Valuation methodologies
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Valuation Methodologies
Venture Capital Method (calculates valuation based on expected rates of return at exit)
Berkus Method (estimates value for different attributes of a start up viz Idea,Team,Prototype,Strategic Relationships etc)
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ESOPs
ESOPs gives Employees the option to purchase a certain number of shares in a company at a predetermined price
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ESOPs
The Companies (Share Capital and Debenture) Rules, 2014 govern the grant of stock options
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ESOPs
Neither a ‘promoter’, nor a director holding more than 10 per cent of the equity shares of the company is entitled to take part in this scheme
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ESOPs
An ESOP scheme is to be drafted and approved by shareholders
Letter of Grant should be issued to the employee informing him how many options are being granted to him, what the vesting period would be and how the exercise price will be determined, should he choose to exercise the vested options.
Employee should make an Exercise Application to his employer
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Sweat Equity
Sweat Equity
can be granted to founders for non-cash consideration such as for providing know-how etc
can only be issued after the company has been in business for at least one year
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Sweat Equity
Sweat Equity
a company cannot issue in an year, sweat equity of more than 15 per cent of its total paid-up capital or having value of more than Rs five crore, whichever is higher
Sweat Equity cannot exceed more than 25% of paid up capital at any time
shares issued by the way of sweat equity cannot be transferred for a minimum period of three years.
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Setting up a Business Entity
Questions?
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