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Raising capital is essential for the success, and even survival, of any new Pakistani startup. Many business owners start with their own personal capital before realizing that they need more money to keep their business running. Thankfully, there are many different options and sources of investment for new startups. For simplicity sake, it is best to consider the different stages of startup fundraising. This way, you can assess which stage your startup is at, and make investment fundraising decisions wisely. Stages of Startup Fundraising   1. Pre-Seed Round Pre-seed funding is the earliest funding round whereby investors provide a startup business with capital to develop its product in return for equity in the company. At this stage, capital raised is usually not more than $2 million. Moreover, investors at the pre-seed round tend to be friends, family, or the business owners themselves who invest in the startup. 2. Seed Round The pre-seed round raises just enough capital to take the business idea off the ground, but it is not long before a startup will require seed fundraising. This is the first official equity funding stage. The most common sources for raising seed money are family, friends, new business incubators, angel investors and venture capital investors. 3. Series A Once the startup has established itself in the market and developed a user base, it is a good time to consider Series A funding. At this point, businesses are usually generating between $2 million to $15 million in revenue, and have formed a solid long-term business plan. The most common source for Series A funding are more traditional and well-established venture capital investment firms. 4. Series B Series B funding occurs once the business has reached the growth stage. This is all about expanding and raising the capital needed to support high demand. At this point, the business has proven to investors that it has major growth and profitability potential. This stage is similar to Series A, but there will be an incorporation of more Venture Capital firms that specialize in later stage investment. There also tends to be a key anchor investor that helps to draw in other investors.   5. Series C, D, E and beyond Businesses that reach the Series C funding stage have already become quite successful and want to scale their operations. At this point, they may be seeking more investment to tap into a new segment, explore a new market, or test out a new product with additional marketing research. In Series C funding, groups such as hedge funds, investment banks, private equity firms, and large secondary market groups enter the picture. 6. IPO Successful companies that make it past Series C funding may reach the finish line, also known as the Initial Public Offering. This happens when the business decides to “go public” and sell shares on the stock exchange to raise capital. By definition, the IPO process of making shares of a private company available to the public (on the stock market) in order to raise capital. These are the major stages of startup fundraising for startups. Interested in learning more? Contact us at Vixperts today – we offer the best bookkeeping, accounting, valuation, and financial consulting services for Pakistani businesses!

A term sheet is a generally non-binding agreement that shows the basic terms and conditions of an investment. It is usually listed bullet-point style, and used as a basis for the contract once the deal is agreed upon.   Term sheets are mostly important for startups and new Pakistani businesses. This is because new business owners tend to find this document is a great way of attracting investors,including venture capitalists.   What is Included in a Term Sheet? A good term sheet will be comprehensive enough to showcase all the major aspects of an investment agreement, without too many minor details that are usually included in the contract. All in all, it’s purpose is to ensure that the business and investor are on the same page about the agreement,   Some of the major components that are typically included in a term sheet are the business valuation, investment amount, percentage of stakes, voting rights, liquidation preference, anti-dilutive provisions, investor commitment, and details on how dividends and proceeds of sales would be distributed.    3 Term Sheet Clauses to Look Out For As a new Pakistani startup owner, it is natural to try to raise as much investment as possible. However, it is also important to be alert during term sheet negotiations, to ensure that you do not lose control of the business.   That being said, here are 3 term sheet clauses to look out for during negotiations with venture capitalists and investors:   1. Business Valuation  Firstly, realistically evaluate your business with the help of KPIs and industry benchmarks. While a very positive business valuation will likely attract more investors, it can put a burden on you to perform exceptionally well if you want to get a future round of funding. Not only that, but an unrealistic valuation can make you look deceitful when investors perform their due diligence. So keep it safe with a realistic valuation that you can negotiate with.   2. Partner Participation Rights Establish voting rights for all types of investors. There are three types of partner participation rights:   On-Participating – Most owner friendly option. The investor chooses between straight liquidation preference or a pro-rata share of all proceeds. Capped Participation – Same as full, but total return from liquidation and participation rights is capped at a defined multiple. Full Participation – Most investor friendly. The investor first receives their liquidation preference and then a pro-rata share of any remaining proceeds.   3. Anti-Dilution Clauses  Anti-dilution provisions are a provision that protects investors from dilution due to subsequent equity issuances. It also adjusts relative ownership percentages to prevent new stock lowering oft the investors’ stake.   Keeping an eye out for these term sheet clauses can ensure that your owner rights are protected in investment agreements. To learn more about investment, venture capital, due diligence, and more for your Pakistani business, contact us at Vixperts today!