Board rights are crucial for investors who provide financial support to a venture and want to have a say in key and strategic decisions. Companies raise money based on a business plan that outlines their strategic and operational goals. Investors need to ensure that the company is following the agreed plan and using the investment effectively. Therefore, investors would also ask for certain affirmative rights, such as specific voting rights on issues like changing the business model, taking on a large amount of debt, hiring or firing CXOs, fundraising, etc.

Board rights should be negotiated by the founders, taking into account the percentage shareholding of the investors and the existing board structure of the company. A founder also needs to make sure that the investor director who joins the board of the company adds some value in terms of technical or market knowledge and skills.

It advisable for founders to negotiate affirmative rights in a manner that does not overly burden the company's daily operations with unnecessary approval processes. Additionally, it is recommended to grant the affirmative rights exclusively to investors who maintain a specific ownership stake in the company.

Board rights are crucial for investors who provide financial support to a venture and want to have a say in key and strategic decisions. Companies raise money based on a business plan that outlines their strategic and operational goals. Investors need to ensure that the company is following the agreed plan and using the investment effectively. Therefore, investors would also ask for certain affirmative rights, such as specific voting rights on issues like changing the business model, taking on a large amount of debt, hiring or firing CXOs, fundraising, etc.

Board rights should be negotiated by the founders, taking into account the percentage shareholding of the investors and the existing board structure of the company. A founder also needs to make sure that the investor director who joins the board of the company adds some value in terms of technical or market knowledge and skills.

It advisable for founders to negotiate affirmative rights in a manner that does not overly burden the company's daily operations with unnecessary approval processes. Additionally, it is recommended to grant the affirmative rights exclusively to investors who maintain a specific ownership stake in the company.

Founders’ vesting refers to the practice of ensuring that the founders of a company remain committed to the business for a specific period of time. This is achieved though the vesting of founder’s shares in the company.

Founders vesting is typically implemented to mitigate the risk of founders leaving the company prematurely, potentially harming its stability and growth. It provides assurance to investors that the founders are dedicated to the success of the venture.

Founders should agree to vest their ownership stake over a specific period of time. This means that their shares will gradually become fully owned by them, reducing the risk of an immediate departure. Typically, a four-year vesting period with a one-year cliff is a common arrangement.

Founders need to secure their commitment to the company's success while also ensuring that they have sufficient flexibility and control over their own destiny. The Founder can negotiate the period of vesting with the investors and also have some carve out for liquidity and emergency purposes.

Anti-dilution rights protect investors from a decrease in the value of their ownership stake in a company during subsequent funding rounds.

When discussing the anti-dilution rights with investors, founders should negotiate the trigger events that activate the anti-dilution provisions. Common triggers include down-round financing (issuance of shares at a lower price than the previous round) or a change of control (sale or merger). Additionally, founders should understand the implications of each anti-dilution formulas or provision and choose the one that is more favorable to the company.

While founders should try to negotiate favorable terms for their company, they should also consider the investor's perspective. Striking a fair balance will help maintain a positive relationship with investors and encourage them to continue supporting the company.

Investors typically require startups to provide relevant information about their performance, such as future projections, cash flow statements, or MIS, until the investor holds shares in the company. This information is crucial for investors as it guides them on how the company is doing and its reputation in the market. It also assists investors in determining whether to invest more in the company.

Founders should consider the type and nature of information requested by the investor before agreeing to any such information rights. The frequency of information delivery also needs to be considered and negotiated while providing information rights to investors as it should not add extra reporting burden on the company and the founders.

Investors, especially early-stage, should exercise this right as it provides them with the power to tag along if the founder exits or sells the company. They invest not only in the disruptive concept but majorly, at an early stage, in the team, the founders’ expertise, their execution ability, leadership skills, etc.

In case the founders decide to sell their shares and move on, then the basic premise of investing in the company gets diluted. With the core team going for an overhaul and the new management stepping in, the investors may not have the same view as them or be able to form strong connections with them. Consequently, early-stage investors would not like to remain associated with the company. Hence, this right provides them with an option to exit with the founders.

Founders should make sure that the Tag-along rights should be time-bound, and the Investor must provide their response within a specific period.

"Liquidation Preference refers to the priority of payment distribution to investors in the event of liquidation. This determines the sequence in which investors receive their investments back and the proceeds from the sale of company assets. Liquidation occurs when the business is not performing well and the company is either sold or liquidated, resulting in the distribution of proceeds among the shareholders.

Investors show confidence in the company's people, product, and future growth by providing capital. Therefore, they would prefer to recover at least their initial investment before any proceeds from a sale are given to other shareholders.

While it is a standard ask from the investors, the amount associated with the liquidation preference to the investor should be carefully negotiated by the founders. Typically, it is equivalent to the amount invested by the investor.

Investors would like to have the pro rata pre-emptive rights to invest more when the company raises its next round of funding. It allows them to double down on well-performing companies, maintain their percentage holding and retain some important rights.

For companies, investors doubling down in future rounds is a great endorsement and provides confidence to incoming investors. This also provides early-stage investors to invest in winners of their portfolio and partake in the growth journey of their investee company.

Pre-emptive rights are market standard and not providing this right to investor is rarely possible, however, Founders should make sure that the Pre-Emptive Rights should be time-bound, and the Investor must provide their response within a specific period. The company should not be prevented from obtaining funds, and if there is no response within a specific timeline, it shall be presumed that the pre-emptive offer has been declined.

The Right of First Refusal gives investors the right to purchase any shares that the founders of the company want to sell to a third party. Before selling their shares to any third party, founders need to provide an offer to purchase their shares to the investors at the same terms and price agreed with the third party. Once the offer is declined by the investors, the founders are free to sell the shares to a third party.

If a company has a group of small shareholders, the investor can also request a Right of First Refusal on the sale of shares held by the group of small shareholders.

It is recommended to grant this rights exclusively to investors who maintain a specific ownership stake in the company, rather than all investors. When negotiating this right, the founder should ensure that it has a specific time limit, and the investor must respond within that period. If no response is received within the set timeframe, it will be assumed that the right of first refusal has been declined and the founders are free to sell their shares to a third part.

Exit rights are particularly important as they allow investors to realize their returns on investment.

"The investor and the founder agree on an exit date, which is typically 5-7 years from the investment date. Company and founders are required to facilitate an exit for the investors, which can be through any of the following:

• IPO
• Strategic Sale
• Buy Back
• Secondary Transaction