BUSINESS PLAN FOR START-UPS

Business Plan for Start-Ups

Once the start-ups are bootstrapped or funded by the founder’s own capital or money borrowed from friends and relatives, or have raised angel funding from professional angel investors, it is imperative for start-ups to look for more avenues to raise funds if they want to really make their start-up a success story. Many a times, the founders hesitate to bring in funds from outsiders as that would mean losing some control and ownership over their venture. This is a Catch-22 like situation – the venture needs huge capital to breathe and sustain, yet the founders would want to retain complete control and ownership. Which one to choose – putting life into the enterprise and letting go of control and ownership or retain a tight control in the hope of finding some funds here and there and let the enterprise die a slow death? Well, a lot depends upon the viability and feasibility of the project, too!!!

To approach professional venture capitalists, the first thing the founder needs is a well-drafted and well-presented business plan. Besides giving a holistic picture of the business to the investor, a written business plan also tells the founder what his idea is, how it has been implemented so far and what is the trajectory it will take. It also brings focus to the founder on the important aspects of the business.

DO’s in a Business Plan

While writing the business plan, the most important thing to bear in mind is the underlying concept of the business and its commercial viability. The plan must be presented in a logical sequence and must be well-organized. Having said that, it does not mean that one should fill pages to present the business plan. The roadmap should be clearly defined in as concise a manner as possible.

The investor is most interested in the safety of and return on his funds rather than how eloquently you have presented your plans to him. Hence, the most crucial aspect of the business plan is the market for your products/services. Where do you see the opportunity for your products/services and the gap in the current market, and a few year down the line, which your business can fill? What are the threats you foresee and how you will overcome those threats? If you nail this aspect, you have almost achieved your purpose.

Do a detail and exhaustive research on the market trends for your products/services and present the data in the business plan. The data presented should be realistic and should support your business premise. Put emphasis on your business’ competitive advantages over other businesses in the same industry.

Next comes the financial projections. The financial projections must be realistic and achievable and must mention at what stage the business would become self-sustainable.  The projections should be given on a monthly basis and not on a yearly basis.

And yes, the business plan must include current and future competition and how fast can your business grow to be ahead of that competition. Venture capitalists prefer businesses that can grow rapidly and give them big returns in a lesser period of time.

Above all, the management and organization of the business. The business plan must include the management and organization structure of the company, the experience and abilities of the team to generate confidence in the venture capitalist to invest in the business.

The business plan must contain an Executive Summary which is a snapshot of the company and its vision and mission and goals.

DON’Ts

The business plan must not be over-balanced in its market competitiveness, marketing and sales strategy and financial projections. The venture capitalists come with huge experience behind them and can easily gauge if the projections made are overboard or the competition, both present and future, has been overlooked or underestimated. Hence, detail research and market analysis and trends is essential before even starting your business plan.

Once you are ready with your business plan, all you have to look is for the right VC to be willing to partner with you in your vision and invest in your business.

 ruchira@thejurisociis.com, ruchira@preyorri.com

COMPLIANCES GALORE - FOR INDIAN LISTED COMPANIES

In the name of protection of investors, here is another salvo from the Ministry of Corporate Affairs (MCA). With effect from September 7, 2016, an Investor Education and Protection Fund Authority has been constituted under the Investor Education and Protection Fund Authority Rules, 2016. The Authority will have the responsibility to maintain the Fund and do other related acts. And the companies, on their part, have to follow the Rules with respect to unclaimed and unpaid shares in respect of the dividends which have remained unclaimed for the past seven years continuously. It’s as simple as that.

Or is it? Simple, I mean. Of course not. When the regulator is stepping in, things and business cannot remain simple. There are plethora of rules to comply with, deadlines to be met, statements and returns to be filed, investors to be chased and if you dare to blink and miss, you get penalized.

Well, coming back to the Investor Education and Protection Fund (IEPF) which has been proposed, but yet to be set up under the Companies Act, 2013 wherein the companies would transfer all unclaimed/unpaid shares and dividends for distribution to innocent investors who lose their money by investing in illegal or unlawful funds. The Government would also deposit all disgorged amounts to the IEPF. Interestingly, the Authority has been constituted but the Fund itself is yet to be set up.

The companies have to traverse a detail path in order to transfer the unclaimed/unpaid shares and dividends under the IEPF Rules. First, the companies have to identify such shares with respect to unclaimed dividends, within a period of 90 days after holding its AGM, and every year thereafter, for a period of seven years. Once these amounts are identified, it has to prepare a statement and upload it on its own website and on the website of the IEPF through the prescribed forms for this purpose. The Company Secretary of the company has been assigned this task.

At the completion of seven years, the company has to notify each investor whose dividend has remained unclaimed for seven years. Mind you, the company cannot transfer the funds to the IEPF unless the shareholder has been notified and informed 90 days in advance from the date of transfer. The detailed step-wise procedure for such notification to the shareholder has been provided in Rule 6 of the IEPF Rules, 2016. Let us see what the steps entail:-

1.       Shareholder has to be informed at the current available address;

2.       A notice has to be published in the newspapers in English and regional language having a wide circulation;

3.       Publish information of all such share and their beneficiaries on the company’s own website.

After all this, if the shares and dividends still remain unclaimed, the companies have to transfer the amounts to the IEPF. Any non-compliance with the Rules and the procedures attracts a penalty of minimum five lakh of rupees going upto a maximum of 2 lakh rupees and the officer responsible for the compliance shall be penalized separately up to a maximum of five lakh rupees.

The most interesting aspect of these Rules is that if the concerned shareholder decides to suddenly become aware, after a period of seven years, of his rights as a shareholder and the fruits he was supposed to reap from the investments he had forgotten he had made, he can claim them from the IEPF Authority by simply filling up a form and paying some fee. And the company shall, after verifying his credentials, be obligated to disburse the shares and the dividends earned on those shares.

It is agreed that the poor gullible innocent investors need to be protected from the bad wolves, that is, the companies. At the same time, the investors also need to be educated and careful of their belongings and possessions. The companies bear so much cost in terms of employing resources to maintain and record all the information and seven years is a long time. In my personal opinion, after seven years all unclaimed shares and dividends ought to be forfeited and all claims ought to be rejected, except under most special and genuine circumstances.

Not surprisingly, as a corporate lawyer, I caution my clients to ponder and think at least a dozen times before they are serious about incorporating a company and not less than a hundred times before they would like to see their company listed on one of the national stock exchanges. Because it’s easier to incorporate a company, somewhat arduous to list, but without a doubt, almost impossible to remain fully compliant year after year.

An afterthought - shouldn’t the government also move its hawk-eye to vanishing and fly-by-night companies? What about the money lost by investors in IPOs raised by such companies who just disappear after collecting huge amounts?

Ciao!!!

Ruchira Gupta