Next Steps After Completing Your Fundraising Business Plan

The first step is to validate your financial projections against current market conditions and regulatory requirements. A business plan built on assumptions from six months ago may already be outdated. Re-check your revenue models, cost structures, and cash flow forecasts against the latest economic data and industry benchmarks.

Next, ensure your plan complies with the disclosure norms under the Companies Act, 2013, if you are a private or public limited company. For startups seeking angel or venture capital, the plan must align with the Securities and Exchange Board of India (SEBI) regulations if you are issuing securities. If you are a partnership or LLP, verify that your plan does not promise returns in a manner that could be construed as a deposit under the RBI guidelines.

Finally, prepare a one-page executive summary that can be shared under a non-disclosure agreement (NDA). This summary should contain only the key metrics and the ask. The full plan is shared only after initial interest is confirmed.

Your business plan should clearly state the funding stage and the type of capital you need. For early-stage ventures, angel investors and family offices are appropriate. For growth-stage companies, venture capital funds or private equity firms are relevant. If you are seeking debt, approach banks or non-banking financial companies (NBFCs) with a separate debt proposal.

The investor type also determines the level of regulatory compliance. If you approach a registered venture capital fund, they will require compliance with SEBI (Alternative Investment Funds) Regulations, 2012. If you approach a bank, you will need to satisfy the Reserve Bank of India’s (RBI) lending norms, including a credit assessment and collateral evaluation.

Do not approach all investors with the same plan. Tailor the financial model and the use of funds section to match the investor’s return expectations. For example, a venture capital fund expects a 3x to 5x return in 5-7 years, while a bank expects steady interest payments.

You must prepare a term sheet, a shareholders’ agreement (SHA), and a subscription agreement. The term sheet is a non-binding document that outlines the key terms of the investment, such as valuation, amount, and investor rights. The SHA and subscription agreement are binding and must be drafted in compliance with the Companies Act, 2013.

If you are issuing convertible notes or Compulsorily Convertible Debentures (CCDs), ensure the terms comply with the Foreign Exchange Management Act (FEMA), 1999, if the investor is a non-resident. For domestic investors, the CCD terms must not violate the pricing guidelines under the Companies Act.

You should also prepare a data room containing your incorporation documents, tax registrations (GST, PAN, TAN), financial statements for the last three years, and any intellectual property filings. Investors will conduct due diligence, and a well-organised data room speeds up the process.

Consult a chartered accountant to review the tax structure of the proposed investment. For a domestic investor, the issue of shares at a premium may attract tax under Section 56(2)(viib) of the Income Tax Act, 1961, if the shares are issued at a price exceeding the fair market value. This provision applies to companies where the consideration exceeds the face value.

For foreign investors, the pricing must comply with the FEMA guidelines. The issue price of shares to a non-resident must not be less than the fair market value determined by a merchant banker or a chartered accountant. Any deviation can lead to penalties and reclassification of the investment.

Also, consider the Goods and Services Tax (GST) implications. While the issue of shares is generally exempt from GST, any advisory or consultancy fees paid to intermediaries may attract GST. Ensure you have the correct input tax credit mechanism in place.

The timeline varies by investor type. For angel investors or family offices, the process can take 4 to 8 weeks from the date of sharing the plan. This includes initial discussions, term sheet negotiation, legal due diligence, and documentation. For venture capital funds, the timeline is longer, typically 8 to 16 weeks, as they have internal investment committee approvals.

For bank loans, the timeline is 6 to 12 weeks, depending on the completeness of your documentation and the bank’s credit assessment process. If you are applying under a government scheme like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), the process may be faster but still requires a thorough business plan.

Plan your cash flow accordingly. Do not assume funds will arrive on a specific date. Maintain a buffer of at least 3 months of operating expenses to cover the gap between the plan and the actual disbursement.

Review your business plan with a chartered accountant to ensure the financial projections and tax assumptions are accurate. Then, engage a corporate lawyer to draft the necessary legal documents. If you are unsure about the investor type or the regulatory compliance, consult a qualified professional.

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This page provides preliminary information. It is not legal advice. For your matter, consult a qualified professional.