Vikram Upadhyaya

What to expect when you are expecting Series A?

As an entrepreneur, who is all  dreamy-eyed about transforming their startup into a worldclass organization, there couldn’t be better news than finding an investor who sees potential in your idea and agrees to fund it, giving you a better chance to scale up your operations and move to a higher trajectory.

While this is the kind of news most entrepreneurs would love to look forward to, there are things you ought to be aware of and prepared for before you actually start approaching investors.

First and foremost, when an investor funds a company, they get a stake in the company in return. Simple as it may sound, it means that unlike before, you are no longer the only decision maker of the business that you started. You are now, not only financially accountable to your investors, but it is binding on you to make your investor a part of any discussion that has any kind of impact on the company. They have a big say in deciding where to steer the ship. It is important to know this, and also appreciate the value the investor will bring to the company.

You also ought to be prepared for the long drawn and cumbersome process of due diligence, so the investor can closely scrutinize every aspect of the business and validate its sanctity before giving the final nod to the deal, and remember if this crucial step is not handled well or if you are not forthcoming with all the details sought by them, the deal can fall through. So even if it means working overtime and staying late nights, it needs to be done.

The good part is that having investors on board automatically brings in a higher level of financial discipline, since the total amount of funds committed are usually not invested in one go, and  instead are linked to certain milestones. Every penny spent is accountable for and needs to be spent very judiciously in keeping with these milestones. Above all, since funding is nothing but Other People’s Money (OPM) that you are building on to grow a sustainable business, you have not just a moral obligation but also a legally binding obligation in the form of a shareholder agreement to utilize the allocated funds as committed, and work towards maximizing the valuation of the company.  That’s where they get the returns on their investment from. You completely need to go ‘by the book’ and cannot deviate from the initial plan, diverting the funds in areas not originally discussed, planned for or approved by them. You ought to be completely transparent with them, all along the way. 

Note this – since the investors take the risk, the Shareholding Agreement (SHA) is usually a strict document, which you should be prepared to sign, when you start looking for Series A. Make sure to educate yourself with key terminologies beforehand, so as to make the overall process seamless for yourself and the investor.”

Looking at another aspect, as a startup hiring good talent is often a huge challenge, purely because of lack of adequate funds. The situation changes if you have the backing of the right investors because the quality of talent you recruit is important for them. It is often a mandate that you seek the best talent, no matter what the cost.

Afterall, it is the people, their expertise, that can take a business places. That is one of the reasons why prestigious campuses such as IIMs and IITs have become a hotbed of talent for many a startup like Flipkart, TaxiForSure, OlaCabs etc. in the last couple of years. Even lateral hiring for senior positions becomes far easier because of the huge paychecks that need to be doled out at that level. Moreover, startups that have the backing of investors are perceived to be less risky from an employment perspective, and hence attracting the right talent becomes easier.

Also, if the investor comes with prior experience in having invested in other ventures and scaling them up, you benefit not only in terms of getting the much needed funds to scale up and go big, but can also tap into their expertise and network to grow your business. There’s nothing better than having a mentor to show you the way and help you build a strong foundation for the business since it helps in getting an edge in the market in the long run.

Above all, you should remember that an investor pumps in money for a certain time frame only, after which they make an exit since that is the only way to reap the returns. Therefore, the exit strategy needs to be clearly planned and laid out before them, so they know that what and how they benefit, is important to you.

For the same reason, you also need to be fully prepared to handle the situation once they exit. A proper roadmap needs to be chalked out beforehand in terms of succession planning. You need to know how/when and from whom will you be looking at for Series B…

What is important is to remember that Series A itself is a huge milestone in your startup journey, and one that needs to be celebrated and built on to achieve the larger vision.

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