Fund Raising Advisory India — Seed, Angel & VC: The Process, Start to Finish
The mechanics of Fund Raising Advisory India — Seed, Angel & VC are what clients ask about once they have decided to proceed. The questions below are the ones raised most often in practice; the full scope of the service is on the Fund Raising Advisory India — Seed, Angel & VC page.
What is a term sheet and what are the clauses I should be most careful about?
A term sheet is a non-binding summary of the key terms on which an investor proposes to invest — it precedes the full subscription agreement and shareholders' agreement. Key clauses to examine carefully: (1) Liquidation Preference — participating or non-participating, and what multiple; a 2x participating preference means the investor gets 2x their money first, then also participates in the remaining proceeds as if they converted to equity — this can leave founders with very little in a modest exit. (2) Anti-dilution — full ratchet (most investor-friendly, most founder-unfriendly) vs weighted average (more balanced) vs no anti-dilution; full ratchet can cause massive dilution to founders in a down round. (3) Board composition — how many investor directors, veto rights, reserved matters. (4) Drag-along — investor's ability to force all shareholders to sell if investor receives an offer at a specified price or return. (5) Information and inspection rights — what financial data must be shared and how often. (6) Founder vesting / good leaver / bad leaver provisions — what happens to founder shares if a founder exits before a certain date.
What is CCPS and why is it the most common VC investment instrument in India?
CCPS stands for Compulsorily Convertible Preference Shares. They are preference shares that must convert to ordinary equity shares on a fixed date or on specified conversion events (such as an IPO, a subsequent round, or a fixed maturity date). VC investors prefer CCPS over ordinary equity because: (a) preference shares can carry liquidation preference — the investor gets their money back first in any liquidity event before ordinary shareholders; (b) CCPS is classified as equity for FDI purposes under FEMA, avoiding the complications of ECB regulations that apply to debt instruments; (c) CCPS allows investor-protective clauses (anti-dilution, information rights) to attach to the share class rather than requiring shareholder-level agreements that can be harder to enforce. For founders, CCPS is preferable to equity debt instruments because conversion rights are retained within the company's authorised share capital framework.
In practice: 01% per annum — is technically cumulative and unpaid cumulative dividends can complicate balance sheets and future rounds. We advise on the right preference dividend structure when reviewing or drafting CCPS terms.
What happens if we miss the 30-day FC-GPR filing deadline after a foreign investment?
Missing the FC-GPR deadline is a reporting contravention under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. A delay in reporting can be regularised by paying the RBI's Late Submission Fee (LSF) — a fixed base amount plus 0.025% of the amount involved for each year of delay, capped at the amount involved, for delays of up to three years (confirm the current base amount with PNPC or the RBI). LSF covers reporting delay only; where the delay comes with any other non-compliance, a compounding application to the RBI's Compounding Authority is still required. Once an LSF advice is issued it must be paid within 30 days or it lapses. Where compounding is required, the fee is levied under FEMA Section 15 and calculated on the amount involved and the period of delay — the formula is prescribed by the RBI — and the process involves preparing a legal memo explaining the delay, paying the compounding fee, and receiving a compounding order from the RBI; timelines depend on the authority and the case, so confirm the current processing time. The compounding order is a public document.
In practice: The most common cause of missed FC-GPR deadlines is not negligence — it is simply that the founders did not know the obligation existed. The 30-day clock starts from allotment, not from when the money is received. In some cases, money is received weeks before shares are formally allotted — the 30 days runs from allotment, not from the FIRC date.
How is the FMV of shares computed under Rule 11UA, and why does it still matter if angel tax is gone?
Under Rule 11UA of the Income Tax Rules 1962 (for income up to FY 2025-26; Income-tax Rules 2026 apply from tax year 2026-27), the Fair Market Value of unlisted equity shares can be determined using either: (a) the Net Asset Value method (book value of assets minus liabilities, divided by number of shares), or (b) the Discounted Cash Flow (DCF) method as determined by a merchant banker or an accountant under the Rule. For FEMA pricing-guideline purposes, the valuation may be certified by a SEBI-registered merchant banker, a chartered accountant or a practising cost accountant. The company can elect which method to use. Section 56(2)(viib) angel tax — which historically relied on this FMV computation to test share premiums — was abolished for all investors effective 1 April 2025 (Finance Act 2024), so this specific tax trigger no longer applies. Rule 11UA valuation remains relevant for two other live purposes: FEMA requires foreign investment to be priced at or above the Rule 11UA (or internationally accepted pricing methodology) fair value as a pricing-guideline floor, and Section 50CA/56(2)(x) (Income-tax Act 1961, for income up to FY 2025-26; Sections 79 and 92(2)(m) of the Income-tax Act 2025 respectively, from tax year 2026-27) can still apply FMV benchmarking to share transfers between parties at less than fair value.
In practice: The NAV method often produces a very low FMV for early-stage companies with minimal assets and accumulated losses. The DCF method, when properly prepared by a credible merchant banker, reflects the going-concern value and future cash flows — and is far more appropriate for growth-stage companies, particularly for FEMA pricing-guideline purposes. We always recommend the DCF method and coordinate the merchant banker engagement, even without an angel-tax driver.
What is FC-TRS and when is it needed?
Form FC-TRS (Foreign Currency — Transfer of Shares) is the RBI reporting form for the transfer of shares between a resident and a non-resident — either from a resident seller to a non-resident buyer, or from a non-resident seller to a resident buyer. It must be filed on the RBI FIRMS portal within 60 days of the date of transfer. FC-TRS is required in: secondary transactions (existing investor selling to a new foreign buyer), founder liquidity events (a founding team member, as a resident, selling shares to the existing foreign VC), and any other cross-border share transfer. Filing is initiated by the AD (Authorised Dealer) bank — which means the relevant bank must be involved in the transaction from the outset, not added at the filing stage.
How long does a typical startup fundraising process take from first investor meeting to money in the bank?
Round timelines depend on the investors, the complexity of negotiations and the case, so confirm the current expectations for each deal; a foreign VC round adds FEMA compliance and foreign law review of the Shareholders' Agreement, which adds time. The regulatory filing obligations (PAS-3 within 30 days of allotment, FC-GPR within 30 days of allotment, MGT-14 within 30 days of resolution) have fixed deadlines that do not adjust for deal fatigue or delayed closes. PNPC tracks all regulatory deadlines from the moment a term sheet is signed.
In practice: The period between verbal agreement on terms and actual wire of funds can be long even after the term sheet is signed — legal documentation negotiation, diligence, regulatory clearances, and bank processing all take time. We help clients understand this timeline upfront so they do not run out of runway while waiting for the close.
What is a liquidation preference and how does it affect me as a founder?
5x or 2x — before ordinary shareholders (usually founders) receive anything in a liquidity event (sale, merger, or winding up). After the preference is paid, the investor may either (a) participate further alongside ordinary shareholders in the residual proceeds (participating preferred) or (b) have already received their entitlement and not participate further (non-participating preferred). In a large exit, a non-participating 1x preference with a low multiple makes little practical difference. In a modest exit where proceeds are close to the investment amount, a 2x participating preference can leave founders with very little or nothing.
In practice: The liquidation preference outcome should be modelled across several exit scenarios — ₹50Cr, ₹100Cr, ₹200Cr, ₹500Cr — before signing any term sheet. The preference that looks harmless at an ambitious valuation can look devastating at a realistic mid-range exit. Founders deserve to see this before signing.
What is the process for filing PAS-3 and when must it be filed?
Form PAS-3 (Return of Allotment) must be filed with the Registrar of Companies through the MCA portal within 30 days of any allotment of shares. ), and the Board resolution authorising the allotment. For preferential allotments under Section 62(1)(c), a separate Form MGT-14 must also be filed within 30 days of the special resolution authorising the allotment. Non-filing of PAS-3 leads to penalties and can create a discrepancy between the cap table and MCA records that creates diligence problems in future rounds.
What are the typical costs of fund raising advisory at PNPC?
Our fundraising advisory fees are structured as professional retainer fees — not as a percentage of funds raised. The engagement scope and fees depend on the stage of the company, the complexity of the round, the instruments involved, and the regulatory compliance work required. A pre-fundraise readiness engagement (cap table audit, IP review, diligence preparation) is a defined-scope project fee. Term sheet review is typically a fixed-fee engagement with a fast turnaround commitment. Post-investment regulatory filings (FC-GPR, PAS-3, MGT-14) are charged on a per-filing basis with transparent pricing. We provide a written fee proposal before any engagement begins — no surprise invoices. For UAE-based clients engaging both the India and UAE offices, we offer a combined engagement structure with a single billing point.
In practice: We are often asked whether our fees are worth it compared to doing the filings independently or using online portals. Our answer: the cost of regularising a missed FC-GPR filing, an avoidable capital gains or Section 50CA tax exposure, or a deal that collapses during diligence due to cap table issues can be significantly higher than the advisory fee for the engagement that would have prevented it.
Where this sits in the wider engagement
Fund Raising Advisory India — Seed, Angel & VC rarely arrives on its own. The statutory basis and the current requirements are set out on the Fund Raising Advisory India — Seed, Angel & VC service page, and the related services are grouped under Business Setup.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Fund Raising Advisory India — Seed, Angel & VC we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.