Of Termsheets and Prenuptial Agreement

The fundraising process is equivalent to an arranged marriage process. It all starts with an initial meeting over coffee to get acquainted and understand some mutual aspects:

1. Family Members / Relatives [ Founders & team | General Partners & investment team]
2. What are you currently doing [Stage/Idea of the Venture  | Fund's investment strategy]
3. How much do you earn  [Monetisation | Investment Sweet Spot]
4. Plans for the future  [Founders' vision  | Fund's vision for the venture]
5. Expectations  [Termsheet : ) ]

Based on the information exchange, the two of them decide whether they want to get engaged and married. Similarly, VCs after meeting several entrepreneurs and Entrepreneurs after meeting many VCs will finally meet their soul mates. Some unfortunately do remain bachelors/spinsters.

Following is a simplified pictorial representation of the fundraising process.

Some VC funds provide a termsheet before delving deeper in to the due diligence process. For some VC funds the term sheet is the holy grail of the investment process which is issued only after the investment committee has given the green signal to proceed ahead with an investment case.

When an entrepreneur gets the first termsheet he has mixed emotions. The first one is that of his faith, in his venture, being reinforced. A termsheet sends a gush of adrenalin through the entrepreneur.

When these feelings sink in, terror strikes when the entrepreneur starts reading & understanding the termsheet. Entrepreneurs often feel they will lose control and many get paranoid thinking ‘What if the Investor exercises any of those “dangerous” rights and pulls the plug on the venture.’

Like Uncle Ben tells Peter Parker in Spiderman (a little modified) – With Huge Investments come Huge Responsibilities! In this 4 part series I will write about what the significance of the Term sheet, the various terms included, deciphering these terms and share a typical Series A termsheet. This is to help entrepreneurs understand what are industry norms & what terms to be careful about and the future impact of these terms.

So, what is a Termsheet?

A termsheet is a summary of the terms of investment an Investor proposes before making the investment. Yes, termsheets are negotiable(not carved in stone). Entrepreneurs should share with VCs the terms they are unable to decipher or even have concerns about.

Termsheets are non – binding in nature. This implies, for any reason either of the parties wish to withdraw from the process they can do so without any legal obligation to accept the money or invest it. The binding agreements are the definitive agreements – Shareholders Agreement (SHA) and Share Subscription Agreement (SSA).  The definitive agreements are constructed based on the framework provided by the Termsheet. [I will not be covering the definitive agreements in this series of blog posts]

The following points cover only the essence of a Termsheet.

1. Valuation of the company & proposed investment amount [Typically the VC fund leading the round issues the TS and other co-investors follow the lead. They might propose certain specific terms required by them]
2. Type of securities to be issued [Common / Preferred Shares; Convertible Notes, Options and Warrants]
3. Rights of Investor [Various inspection rights, Right of First Refusal (RoFR), protect interests in further rounds of funding, antidilution, reserved matters]
4. Vesting of Promoter shares [Allocation of founder shares to the Founding team]
5. The Board structure and voting rights [Representation on the company board, decision making process on important issues, voting and other veto power]
6. Exit for Investors and distribution of the proceeds [Liquidation preference & participation rights]
7. Indemnification, Representation & Warranties by the Founders & Company
8. Effect on the capitalization of the company pre & post investment [Scenarios showing distribution on shares - Promoters, Investors, ESOP Pool, etc]
9. Guidelines for the next round of funding [Seniority rights, RoFO, pro-rata investment rights,
10. Assignment of IP [Prevalent while investing in technology companies with crucial patents which affect the business]
11. Milestones to be achieved [In case of investments in tranches - Milestones will be based on performance - user base, revenue, product development, team size, geogrpahical expansion, etc]
12. Bearing of the expenses incurred during the Investment process [Who bears the legal expenses if the deal goes thru or doesn't go through]
13. Closing Conditions [Investors normally include certain closing conditions which when adhered with will trigger the fund transfer]
14. Confidentiality and Exclusivity [Restrictions on interacting with other interested Investment parties after having signed the termsheet & discussing the definitive agreements]

In the Part 2 of this series I will share a typical Series A termsheet. This termsheet is a typical one that VCs  issue. Certain funds may demand some extra rights or put in some specific clauses to capture the fund’s minimum requirement or the risk involved in the investment or could be a legal requirement for fund (if the investing entity is a foreign one).

Parts 3 & 4 will have a closer at some of the important terms and how an entrepreneur should interpret these terms.

Look forward to your feedback and do share suggestions on structuring the rest of the posts for this series. Till then like singer Bobby McFerrin says Don’t Worry Be Happy!

[Kulin Shah worked with Reliance Venture Capital for 3.5 years before starting his entrepreneurship journey. The article has been reproduced from Kulin’s blog.]

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Another Kolkata-based Innovation for Rickshaws [Utilizes Passenger load to push the vehicle]

Not very long ago, we had featured Suprio Das’s Firefly, the battery that gets charged as a rickshaw puller goes about his daily chores, and the Mansukhbhai Jagani’s Bullet Santi, an attachment that helps an Enfield motorcycle double up as a plough. Like many of you, we too felt that the Government of India should support and encourage such novel innovations that help the rural Indian.

The good news is that the Government is taking steps towards encouraging indigenous innovations like these. The President of India had declared 2010-2020 as the Decade of Innovation, and the Prime Minister set up a National Innovation Council under the Chairmanship of Mr. Sam Pitroda, Advisor to the PM on Public Information Infrastructure and Innovations to discuss, analyse and help implement strategies for inclusive innovation in India. NIC would be the first step in creating a crosscutting system which will provide mutually reinforcing policies, recommendations and methodologies to implement and boost innovation performance in the country.

In its first innovation challenge by NIC, the most promising one is Pratik Kumar Ghosh’s redesign of the conventional cycle-rickshaw that will utilize passenger load and bumps on the road to propel the rickshaw and reduce the puller’s effort. The innovator, 55, works as an assistant general manager with Shriram EPC Ltd, Kolkata.

As per Ghosh, in conventional rickshaws,

1. the chassis is horizontal and the load acts as dead load without any forward component,
2. the chassis currently is fixed at all three points with the triangular frame, hence requires more power to propel, and
3. the passenger weight directly falls on the axle.

Ghosh proposes to fix these three limitations by modifying the design in the following ways:

1. The chassis is at an angle of 10 degrees to the ground leaning to the front. Rest is Physics. Any load through the axis of the chassis will have a forward component that will assist propulsion.
2. The chassis is hinged at the pedal hub and the two other points are fixed with the frame. Since the hinged point acts as pivot, the shock generated by the road is transmitted as a force to the frame and makes the hostile road favourable to the puller.
3. The seat frame is tubular and the rear two legs will not swing and remain pressed to the bearing box horizontally, converting the downward passenger load to horizontal forward propulsive force.

 

It is noteworthy that the reduction in required muscle power is achieved at a point where it is required the most–the speed of a vehicle travelling at constant speed would reduce immediately after a bump or a hump, and that is exactly where the new design provides an additional force. Elementary Physics, and we see a reduced effort on the end of a hard worker.

The Innovation Challenge to Reduce Worker Drudgery was launched in October 2011, and had received 468 proposals by January 2012, sent in by institutions and individuals of all backgrounds such as students, engineers, government officials, professionals, and teachers, among others from diverse socio-economic backgrounds from across the country. These were shortlisted to 33 proposals by end February, after which 6 winners were chosen by April 2012. Needless to add, each finalist would receive focused support from the National Innovation Council, to take their ideas to the next level.

Apart from the rickshaw-redesign, the six winning innovations include a human powered motor, a vessel desk, a display unit for street vendors, a low cost cycle for physically challenged, and devices to reduce the drudgery of construction workers and sanitation workers.

Image credit.

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Hello Students, Please Take a Compulsory Internship at Foxconn

Foxconn is a well-known company for many reasons. But it’s not necessary a company where students would like to do their internship. A report from Micgadget wrote that students from Xi’an Technological University don’t really have a choice. All students who enrolled from 2010 must take up an internship role at Foxconn as part of the school’s curriculum. Note that we aren’t sure exactly what kind of work they will be doing, but hopefully it is something they can learn from rather than just a seat on the assembly line.

But hey, at least it’s still an experience, though whether it’s a good or bad is up to the individual perhaps. For any Apple fanboy, it sounds like an interesting way to get a behind-the-scenes look at how iPads and iPhone are made. Though not giving students the choice to pick their internship role at their preferred company appears kind of insane to me (just like the compulsory two-year National Service for all males in here in Singapore). Thinking back on that, this Foxconn internship doesn’t seem like too bad a deal!

The monthly pay as a Foxconn intern is about $240 which, depending on your perspective, may or may not be ok. In the U.S, many companies don’t pay interns for their work. Here in China, Foxconn’s move could be seen as a source of cheap labor. The internship lasts about two months which is not too long, thankfully. If anything, not giving students the choice is perhaps the only issue here.

[Source: HSW via Micgadget]

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iProf partners with over 25 Schools across Rajasthan, UP, Bihar & MP for its Tablet PC based learning solution

iProf, one of the first educational tablet that was launched in 2010 has launched XtraClass – a solution that combines school curriculum with preparation for Engineering and Medical exams, aided by faculty access.

The company has partnered with over 25 schools across various cities like Jaipur, Patna, Agra, Bhilwara, Boondi, Jhalawar, Kasganj etc. reaching out to more than 3000 students. The schools will get high quality interactive study material for CEE (the new JEE pattern), AIPMT, (NEET), CA-CPT and 9^th to 12^thclass curriculum.

Students can choose any Android based 7” tablet PC for accessing the content comprising of video lectures, concept nuggets having 2D & 3D animations, vast library of digital notes and question bank. iProf will empower schools with wi-fi routers which will access iProf servers in Central Data Center over a secure connection. The deployment of latest technology will enable the students to access content additions and upgrades on real time basis. iProf has partnered with industry leaders like IBM, Wipro, Sify etc. to implement an end to end solution for content management and delivery.

Also, students will find the high quality 300+ hours of content, audio and video lectures, digitised reading notes and unlimited practice tests, a valuable support in making learning faster and easier. Complementing the content, iProf Live gives 24×7 student interactivity with faculty. Students may connect with faculty of choice through internet and phone and get their doubts cleared.

Funded by IDG Ventures India, Norwest Venture Partners and Kaplan, iProf also works with coaching institutes to complement their classroom teaching with high quality self-study material covering entrance exams and school curriculum.

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Language-learning Service Rosetta Stone Poised for Asia Push

Rosetta Stone has just announced that it will be making a stronger push in the Asia region, and is relocating its president of global consumer markets to its Tokyo office to work towards that goal.

Rosetta Stone has been around for a long time, and even today still sells their CD ROMs (here’s their Japanese language set). But thankfully, I see they have modernized somewhat, making iOS and Android apps available for free to its subscribers.

The company says that out of the $83 billion global market for language learning, that Japan and Korea make up nearly a quarter at $20 billion. The company’s CEO Steve Swad noted:

Asia has become a pillar of growth for us, and this move reflects our commitment to serving that market. We already enjoy strong brand awareness among consumers in Korea and Japan, and we’re working to gain traction in both our consumer and institutional businesses there.

For me back when I was studying Chinese, Rosetta Stone was the service that I always dismissed as being overpriced. Although I’m sure their target market is not poor students, but perhaps professionals who would like to pick up some new language stills on their own time – and among those sorts of people, there should be lots of opportunity to grow in Asia’s more mature markets, particularly here in Japan.

On a related note, one Rosetta Stone competitor, Duo Lingo, has just launched after months of beta testing. It has already been labelled as a PCMag Editor’s Choice language-learning tool, and you can read their full review here.

The post Language-learning Service Rosetta Stone Poised for Asia Push appeared first on Tech in Asia.

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Viki hires Rocket Internet’s senior product manager Danny Tan as Director of Product

Danny Tan, co-founder of Singapore’s social networking app Found, is rumoured to have joined Viki, a video streaming service that uses crowdsourced fansubs, as a product manager.

Late last month, we reported that Danny joined Rocket Internet as their Senior Product Manager for Southeast Asia, according to the update on his LinkedIn profile. Now, it seems that Viki, which recently signed deals with Warner Music Group (WMG), LOEN Entertainment and SEED Music Group, to stream thousands of music videos from hundreds of artists on its platform, has managed to hire Danny.

According to Danny, he says: “Firstly let me state that the past three months at Rocket Internet had been an absolute blast and I’ve met some of the best entrepreneurs in my life there. I really look forward to them bringing more innovation to Singapore and Asia and am very sad to leave them at a time of tremendous growth.”

“That said, I am even more excited about my new role at Viki. I’ve known Razmig (CEO of Viki) for a while now since we share the same investors in Neoteny Labs. When the right opportunity came for us to work together, I decided it was too good to turn down. As Director of Product, I will focus on growth initiatives across platforms as Viki continues to accelerate into a global player in premium online entertainment. We have a lot of new initiatives coming up but unfortunately nothing ready to announce at this point. As we work hard to bring the best of global entertainment to more consumers, I thank you for your interest and am sure we will have more news to share soon!”

Danny’s new role as product manager will see him bringing his experiences from Found and Rocket Internet to Viki, one of the promising startups in Singapore which managed to put Singapore on the global startup map. Danny is still leading Found as the founder with the app growing its user base at a steady pace of 10 percent month-on-month.

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Viki hires Rocket Internet’s senior product manager Danny Tan as Director of Product

Danny Tan, co-founder of Singapore’s social networking app Found, is rumoured to have joined Viki, a video streaming service that uses crowdsourced fansubs, as a product manager.

Late last month, we reported that Danny joined Rocket Internet as their Senior Product Manager for Southeast Asia, according to the update on his LinkedIn profile. Now, it seems that Viki, which recently signed deals with Warner Music Group (WMG), LOEN Entertainment and SEED Music Group, to stream thousands of music videos from hundreds of artists on its platform, has managed to hire Danny.

According to Danny, he says: “Firstly let me state that the past three months at Rocket Internet had been an absolute blast and I’ve met some of the best entrepreneurs in my life there. I really look forward to them bringing more innovation to Singapore and Asia and am very sad to leave them at a time of tremendous growth.”

“That said, I am even more excited about my new role at Viki. I’ve known Razmig (CEO of Viki) for a while now since we share the same investors in Neoteny Labs. When the right opportunity came for us to work together, I decided it was too good to turn down. As Director of Product, I will focus on growth initiatives across platforms as Viki continues to accelerate into a global player in premium online entertainment. We have a lot of new initiatives coming up but unfortunately nothing ready to announce at this point. As we work hard to bring the best of global entertainment to more consumers, I thank you for your interest and am sure we will have more news to share soon!”

Danny’s new role as product manager will see him bringing his experiences from Found and Rocket Internet to Viki, one of the promising startups in Singapore which managed to put Singapore on the global startup map. Danny is still leading Found as the founder with the app growing its user base at a steady pace of 10 percent month-on-month.

Link to full article

Read More