{"id":3330,"date":"2018-03-20T10:58:21","date_gmt":"2018-03-20T10:58:21","guid":{"rendered":"https:\/\/www.indiabizforsale.com\/blog\/?p=3330"},"modified":"2022-04-18T10:11:39","modified_gmt":"2022-04-18T10:11:39","slug":"3-investor-rights-you-must-know-before-putting-your-money-in-a-startup","status":"publish","type":"post","link":"https:\/\/www.indiabizforsale.com\/blog\/3-investor-rights-you-must-know-before-putting-your-money-in-a-startup\/","title":{"rendered":"3 Investor Rights You Must Know Before Putting Your Money in a Startup"},"content":{"rendered":"<p style=\"text-align: center;\"><strong><em>\u201cYou Can\u2019t Fight for Your Rights If You Don\u2019t Know What They Are\u201d<\/em><\/strong><\/p>\n<p style=\"text-align: justify;\">Investment in a startup is an opportunity to enter a new industry, a new market and develop a long partnership with your investees. Though, sometimes it can be a little scary to fully comprehend the terms and conditions entailed in the deal documents.<\/p>\n<p style=\"text-align: justify;\">A typical deal agreement covers five key areas \u2013 deal economics, investor rights, governance, management and control, and exit. We have worked closely with <strong><a href=\"https:\/\/www.indiabizforsale.com\/business\/business-opportunities-for-sale\">thousands of businesses<\/a><\/strong>, business buyers and investors over the last 10 years, and in this article, we will share with you the key rights that are available to an investor in a startup.<\/p>\n<p style=\"text-align: justify;\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-4140\" src=\"https:\/\/indiabizforsale.com\/blog\/wp-content\/uploads\/2018\/03\/Top-3-Investors-Rights-You-Must-Know-Before-investing-in-Startup.png\" alt=\"Top 3 Investors Rights You Must Know Before investing in Startup\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.indiabizforsale.com\/blog\/wp-content\/uploads\/2018\/03\/Top-3-Investors-Rights-You-Must-Know-Before-investing-in-Startup.png 1080w, https:\/\/www.indiabizforsale.com\/blog\/wp-content\/uploads\/2018\/03\/Top-3-Investors-Rights-You-Must-Know-Before-investing-in-Startup-300x300.png 300w, https:\/\/www.indiabizforsale.com\/blog\/wp-content\/uploads\/2018\/03\/Top-3-Investors-Rights-You-Must-Know-Before-investing-in-Startup-1024x1024.png 1024w, https:\/\/www.indiabizforsale.com\/blog\/wp-content\/uploads\/2018\/03\/Top-3-Investors-Rights-You-Must-Know-Before-investing-in-Startup-150x150.png 150w, https:\/\/www.indiabizforsale.com\/blog\/wp-content\/uploads\/2018\/03\/Top-3-Investors-Rights-You-Must-Know-Before-investing-in-Startup-768x768.png 768w, https:\/\/www.indiabizforsale.com\/blog\/wp-content\/uploads\/2018\/03\/Top-3-Investors-Rights-You-Must-Know-Before-investing-in-Startup-830x830.png 830w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_83 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.indiabizforsale.com\/blog\/3-investor-rights-you-must-know-before-putting-your-money-in-a-startup\/#Top_3_Investors_Rights_You_Must_Know_Before_Investing_in_Business_or_Startup_in_India\" >Top 3 Investors Rights You Must Know Before Investing in Business or Startup in India<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.indiabizforsale.com\/blog\/3-investor-rights-you-must-know-before-putting-your-money-in-a-startup\/#1_Rights_Against_a_Down-round\" >1. Rights Against a Down-round:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.indiabizforsale.com\/blog\/3-investor-rights-you-must-know-before-putting-your-money-in-a-startup\/#2_Rights_Against_Investor_Overriding\" >2. Rights Against Investor Overriding:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.indiabizforsale.com\/blog\/3-investor-rights-you-must-know-before-putting-your-money-in-a-startup\/#3_The_right_of_First_Refusal_ROFR\" >3. The right of First Refusal (ROFR):<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.indiabizforsale.com\/blog\/3-investor-rights-you-must-know-before-putting-your-money-in-a-startup\/#Final_Thought\" >Final Thought<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Top_3_Investors_Rights_You_Must_Know_Before_Investing_in_Business_or_Startup_in_India\"><\/span>Top 3 Investors Rights You Must Know Before Investing in Business or Startup in India<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>\u200c<\/p>\n<h3 style=\"text-align: justify;\"><span class=\"ez-toc-section\" id=\"1_Rights_Against_a_Down-round\"><\/span><strong>1. Rights Against a Down-round<\/strong>:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p style=\"text-align: justify;\">This right is called Anti-Dilution Right, and it protects the investor from devaluation of his stocks against any future investment into the startup at a lower price or valuation. If there is a down-round, i.e., the business raises the next investment at a lower valuation, then the prices of shares of the earlier investors are also reduced to the current price with retrospective effect. The adjustment is reflected by a proportionate increase in their shareholding percentage. Need a refresher on business valuation? The following article tells you in a nutshell<strong> <a href=\"https:\/\/www.indiabizforsale.com\/blog\/everything-you-need-to-know-about-business-valuation\/\">everything you need to know about business valuation<\/a>.<\/strong><\/p>\n<h3 style=\"text-align: justify;\"><span class=\"ez-toc-section\" id=\"2_Rights_Against_Investor_Overriding\"><\/span><strong>2. Rights Against Investor Overriding:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p style=\"text-align: justify;\">This provision is collectively referred to as \u2018Control Rights,\u2019 and it makes the business owner liable to communicate and take approval of the investors for any material changes in ownership, business model, strategy, any material transaction, contracts, and so on. Control Rights are usually negotiated between the investor and the business before finalizing the agreement, however, at the end of the day, the stronger your partnership with the investee, the more you can stay involved in the startup. Here are some additional <a href=\"https:\/\/www.indiabizforsale.com\/blog\/tips-to-remember-while-investing-in-a-business\/\"><strong>tips you should remember when investing in a small business.<\/strong><\/a><\/p>\n<h3 style=\"text-align: justify;\"><span class=\"ez-toc-section\" id=\"3_The_right_of_First_Refusal_ROFR\"><\/span><strong>3. The right of First Refusal (ROFR):<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p style=\"text-align: justify;\">What if a business owner or promoter decides to sell a part or all of his shareholding? ROFR gives the investors precedence over any third party when it comes to purchasing the owner\u2019s \/ promoter\u2019s shareholding. It is only when there is a written <em>refusal<\/em> from investors to buy the promoter\u2019s stocks that a third-party sale can be initiated. How does this protect the investor? Note that as an investor you not only bet your money on the startup but also on the people running it \u2013 i.e., the owners or the promoters. You can avoid onboarding an unknown third-party by exercising ROFR.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Final_Thought\"><\/span>Final Thought<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p style=\"text-align: justify;\">While we have tried to explore the key investor rights briefly in this article, a <strong><a href=\"https:\/\/www.indiabizforsale.com\/business\/business-consulting\">professional deal consultant<\/a><\/strong> can help you understand the full plethora of rights available to an investor, and help you negotiate the same. <strong><a href=\"http:\/\/Indiabizforsale.com\">Indiabizforsale.com<\/a><\/strong> is India\u2019s most preferred business opportunity platform that is trusted by over 40,000+ business owners, investors, buyers, consultants and investment bankers. To know more about what we do and how we can help you, <a href=\"https:\/\/www.indiabizforsale.com\/\"><strong>explore us<\/strong><\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>\u201cYou Can\u2019t Fight for Your Rights If You Don\u2019t Know What They Are\u201d Investment in a startup is an opportunity to enter a new industry, a new market and develop a long partnership with your investees. Though, sometimes it can be a little scary to fully comprehend the terms and conditions entailed in the deal&hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_uag_custom_page_level_css":"","footnotes":""},"categories":[154,69],"tags":[159,243,9,195,394,393,244],"featured_image_src":null,"author_info":{"info":["indiabizforsale"]},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v24.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Top 3 Investor Rights You Must Know Before investing in Startup<\/title>\n<meta name=\"description\" content=\"Planning to Invest in Startup? Top 3 investor rights you must know before investing in any SMEs in India. 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