IPO Preparation Steps

ESOPs don’t always work, but when they do its magical 5000 Swiggy employees made around 9000 crores in the IPO Some would have made 100 cr plus Many many more would have made 10 cr plus Life changing money for most people and will enable risk taking and another 100 plus startups from this set If you are evaluating offers from startups with significant ESOP component, this is how you should evaluate it For an employee to make meaningful money through ESOPs, 2 things must happen: - Growth in company value - Employee friendly ESOP policies that ensures employees make money when company grows a) Growth in Company Value This is where employees need to think like investors Just like investors are particularly wary of what valuation they are coming in, entry valuations should matter for employees too ESOPs are allotted basis the current valuation The likelihood of a 10x growth in your ESOPs if you are joining a startup valued at 100 million $ is much higher compared to joining a startup already valued at 5 billion $ A 75 lakh ESOP allotment in a 1000 cr valued org with chances of a 10x growth could be a better offer than 2 cr ESOP allotment at a 20000 cr valued org with lower chances of future growth The second thing to judge is the business model and the likelihood of the business to grow( very important for Seed/Series A/B startups) b) ESOP Policies The startup ecosystem is full of stories where employees didn’t make money despite the company growing and having multiple liquidity events. Swiggy, Zomato are examples of great ESOP policy. Many companies have extremely shitty ones Here are the things that should matter most while evaluating policies: 1. Vesting Schedule: The standard is 25% vesting after every year. Any schedule which has higher vesting towards the later years is a red flag Vesting should never be performance linked If performance is bad, it is management’s responsibility to fire 2. Vesting on Leaving/Startups Exit: If you exit, you should retain all options that has vested If a startup gets acquired before all your options vest, there should be accelerated vesting 3. ESOP Communication: There should always be written communication( preferably through ESOP portal) Verbal communication for ESOPs is a huge red flag 4. Strike Price: Strike Price should be as low as possible( Re 1 ideally). This maximizes the value creation for the employee 5. Holding/Exercise Period: Converting options to shares is a major tax liability exercise. With limited exercise period, it becomes impossible for employees to exercise as it means paying up to 40% real taxes on notional capital gains in an asset class that is not liquid Ideally, holding period should be infinite for vested options, even after exit This enables employees to wait for liquidity events without incurring upfront taxation to be paid out of own pocket

Do you know what auditors look for when examining financial statements? Let's dive into the audit assertions! Assertions about Classes of Transactions: -Occurrence: Ensuring that recorded transactions actually happened and are related to the company. No fictional sales here! -Completeness: Checking that all transactions are properly recorded and disclosed. Nothing left out! -Accuracy: Making sure there are no errors in recording transactions and that disclosures are correctly measured and described. Accurate numbers matter! -Cut-off: Verifying that transactions are recorded in the correct accounting period. No time travel allowed! -Classification: Confirming that transactions are posted in the right accounts. Raw materials in repairs and maintenance? We'll catch that! -Presentation: Aggregating or disaggregating transactions for clear descriptions and relevant disclosures. Let's make financial statements easy to understand! Assertions about Account Balances: -Existence: Ensuring assets, liabilities, and equity interests are real and not overstated. No imaginary assets here! -Rights and Obligations: Checking legal ownership or control of assets and obligations to repay liabilities. It's all about rights and responsibilities! -Completeness: Confirming that all assets, liabilities, and equity interests are properly recorded and disclosed. Nothing missing! -Accuracy, Valuation, and Allocation: Verifying appropriate valuation and recording of assets, liabilities, and equity interests. Plus, proper allocation of overhead costs! -Classification: Ensuring assets, liabilities, and equity interests are recorded in the correct accounts. Let's organize things properly! -Presentation: Presenting assets, liabilities, and equity interests in a clear and understandable manner. Financial statements should tell a compelling story! Understanding audit assertions helps auditors ensure the reliability and accuracy of financial statements. #AuditAssertions #FinancialStatements #Auditors #audit #accounting #finance

The word "engagement" has recently become diluted. Some investors use it to describe any meeting with a company, even to shoot the breeze, and do so to advertise how many engagement meetings they have. But engagement is specifically about creating long-term value. Here's The Investor Forum CIC's principles of effective engagement. Effective engagement requires a process that: • is set in an appropriate context of long-term ownership and has a focus on long-term value preservation and creation, so that the engagement is aligned with the investment thesis • is framed by a close understanding of the nature of the company and the drivers of its business model and long-term opportunity to prosper • is based on clear objectives, focused on effecting change • recognises that change is a process and that, while haste may at times be necessary, change should not be inappropriately rushed • employs consistent, direct and honest messages and dialogue • is appropriately resourced so that it can be delivered professionally in the context of a full understanding of the individual company • uses resources efficiently so that engagement coverage is as broad as possible whilst using all the tools available, including collective engagement • involves reflection so that lessons are learned in order to improve future engagement activity https://lnkd.in/eMvP6w_B

During my career, I’ve secured tens of millions in funding. But looking back there are some things I wish I’d known before I started. Here are four tips I’ve learned the hard way about approaching potential investors with your business idea: 1️⃣ Know your numbers inside out Investors want to see not just passion but also a deep understanding of your business model. It doesn’t matter if you’re not a “numbers person”. Frankly neither am I. I just work hard to master them. Be prepared to discuss your financials in detail: multi-year revenue projections, cost of sales, fixed expenses, and break-even points. Comfort with your numbers demonstrates that you’ve done your homework and are serious about your venture. 2️⃣ Tailor your pitch to the specific investor Not all investors are created equal. Research who you're pitching to and adjust your message accordingly. What do they value? What sectors do they invest in? Who else have they backed and why? Use part of your pitch meeting to ask them about their history and motivations. This is absolutely not about changing your business plan or finances, but thinking about what you emphasise to align your narrative with their interests. 3️⃣ Have a clear exit strategy Investors will back enterprises for all sorts of reasons: a passion for the sector, enthusiasm for the founder, or market potential. But the number one reason they’ll back you is to yield an attractive rate of return. Be ready to discuss how and when they’ll make money from investing in you. Whether it’s through acquisition, IPO, or another exit strategy, showing that you have a plan to return a multiple of their initial investment will instil confidence. It’s not just about the immediate future; it’s about how you envision the long-term growth of your business. 4️⃣ Practice your storytelling People connect with stories, not just facts and data - important as those are. Use storytelling to convey your vision, the problem your business solves, and why you’re the right person to tackle it. A compelling narrative that links to the forecast performance of your business will engage investors emotionally, making them more likely to remember you and your pitch long after the meeting is over. What’s your experience of pitching for funding? What are you still wary of with investors? Share your tips or questions in the comments below!

8 Board-Level Actions to Embed Sustainability 🌍 Sustainability is increasingly recognized as a core driver of long-term business performance. However, its integration remains uneven, especially at the governance level. While many companies have advanced operational initiatives, few have established the board structures, oversight mechanisms, and decision-making processes required to embed sustainability into corporate governance. As expectations from regulators, investors, and other stakeholders evolve, boards must become catalysts for strategic alignment, risk management, and capital allocation that reflect environmental and social priorities. A common starting point is the creation of a dedicated committee within the board focused on sustainability. This structure provides continuity in oversight, supports alignment across business units, and ensures that environmental and social considerations are consistently reviewed at the highest level. Approving sustainability targets at the board level strengthens long-term commitment and reinforces accountability. Targets should be aligned with science, supported by credible data, and accompanied by clear milestones to guide performance tracking. Aligning executive compensation with sustainability outcomes helps translate commitments into operational action. Incentive structures that reward measurable progress on environmental and social issues increase internal alignment and focus. Boards should ensure that sustainability risks are integrated into the enterprise risk management system. This includes identifying physical and transition risks and evaluating the company’s resilience through forward-looking scenario analysis. Capital review processes should require that new investments include environmental and social impact metrics alongside financial projections. This supports more informed decision-making and strengthens the link between capital allocation and sustainability objectives. Disclosure oversight must be treated with the same level of rigor as financial reporting. Ensuring the accuracy and completeness of ESG data, supported by third-party assurance where appropriate, increases transparency and trust. Board capability on sustainability requires continuous development. This includes targeted training for directors and the inclusion of individuals with deep expertise in climate, human rights, biodiversity, or other material topics depending on the company’s context. Embedding sustainability in governance is not an add-on. It is an essential shift that enables boards to make informed and responsible decisions in a rapidly changing world. The companies that align governance with sustainability will be better positioned to manage risk, capture opportunity, and build long-term value. #sustainability #sustainable #business #governance #esg

The ESOP Mirage: How Startups Sell You Ownership Without Ever Paying for It A startup tells you: 👉 “You’re a fractional owner.” 👉 “Think like a founder.” 👉 “Your wealth grows with the company.” It’s the perfect pitch: Work for a below-market salary today and get rich later. It's a win-win, right? Then, when it’s time to cash in, the excuses start rolling in: 🚫 “There’s no liquidity event.” 🚫 “We need board approval.” 🚫 “Investors come first.” 🚫 “There are tax complications.” 🚫 “You didn’t exercise, so it’s worthless.” By the time you get past the excuses, you realize the truth: 👉 ESOPs were never meant to pay you. They were meant to keep you from leaving. The Game Here’s how it works: 1️⃣ Startups sell the dream of ownership so they can pay you less. 2️⃣ The moment you leave, they find ways to void your ESOPs—forcing you to exercise (pay tax-heavy strike prices) or lose everything. 3️⃣ If you hold onto your shares, they ensure there’s no easy way to sell them. Sound familiar? That’s because it is. It’s a playbook, not an accident. Not All Founders Are Like This Some founders do the right thing. Some have made early employees rich (a few good guys who have done buybacks, allowing employees to liquidate their stock options are Zerodha, Urban Company, The Sleep Company, Swiggy, Razorpay, Mygate and a few more) But too many exploit the credibility of the good ones, using ESOPs as a mirage- a fake reward that disappears when you reach for it. At Finflux - By M2P , we had no ESOP scheme. We never made that promise. But when the company was acquired by M2P Fintech, my co-founder Ashok Auty and I still gave 20% of our benefit to our team members. Not because we had to. Because it was the right thing to do. How To Protect Yourself If ESOPs are a big part of your comp, ask these questions before you accept the offer: ✅ How do I get paid? ✅ Is there a clear path to liquidity? ✅ What happened to past employees’ ESOPs? ✅ Do I need board approval to sell my shares? If they dodge, walk away. A promise without a plan is just a lie with good marketing. 💬 What’s your ESOP story? Let’s talk.

How to do Audit??📝 Sharing a simple step-by-step guide to help fellow CA articles understand the process. Audit Process – Step-by-Step ⸻ 1️⃣ Pre-Audit Preparation ◆ Understand Scope:  • Period: Financial Year / Quarter ◆ Collect Documents:  • Financial Statements (Trial Balance, P&L, Balance Sheet)  • GST Returns, Income Tax Returns  • Bank Statements, Loan Statements  • Fixed Asset Register, Stock Register  • Agreements, MOUs, Lease Deeds ⸻ 2️⃣ General Ledger Review ◆ Export GL from Tally/ERP ◆ Scan for unusual entries: ✅ Large round-figure entries ✅ Negative balances in assets/liabilities ✅ Suspense Account, Misc. Expenses ⸻ 3️⃣ Revenue Audit ◆ Match Sales Register → GSTR-1, GSTR-3B, Income ◆ Check: ❗ Unbilled Revenue ❗ Revenue Cut-off (sales booked in correct period) ❗ Discounts/Rebates accounted ⸻ 4️⃣ Purchase and Expense Audit ◆ Purchase Audit • Match Purchase Register → GSTR-2A / 2B • Check invoices, POs, GRNs, approvals • Verify rates, quantities, vendor details • Review input tax credit (ITC), TDS compliance ❗ Watch for duplicate or missing entries ◆ Expenses Audit  • Purchase → GSTR-2A/2B match  • Salary → Check with payroll, TDS return  • Rent, Professional Fees → Verify TDS compliance ◆ Look for: ❗Personal expenses booked in business ❗ Large cash expenses (> ₹10,000 disallowed under Income Tax) ⸻ 5️⃣ Bank & Cash Audit ◆ Reconcile bank balance → Bank statement ◆ Check cash balance → Cash book, physical count (if internal audit) ⸻ 6️⃣ Fixed Assets Audit ◆ Check:  • Additions & disposals during the year  • Depreciation as per Companies Act / Income Tax Act  • Physical verification (if done) ◆ Watch for: ❗ Capital expenses wrongly booked as revenue ❗ Missing asset identification ⸻ 7️⃣ Statutory Compliance Audit ◆ Verify compliance:  • GST returns (GSTR-1, 3B, 9)  • TDS returns, Form 26AS  • PF, ESI, PT filings  • Income tax advance tax, returns ◆ Check: ❗ Penalties for late filings ❗ Interest on delayed payments ⸻ 8️⃣ Receivables & Payables Audit ◆ Ageing analysis:  • Debtors → overdue & doubtful  • Creditors → old balances ◆ Review: ❗ Provision for bad debts ❗ Excess credit balances ⸻ 9️⃣ Inventory Audit ◆ Physical stock verification report ◆ Check valuation (FIFO, weighted average) ◆ Identify: ❗ Slow-moving, non-moving, obsolete stock ⸻ 1️⃣0️⃣ Loans & Advances Audit ◆ Verify loan agreements ◆ Confirm balances with lenders ◆ Check: ❗ Interest rates, repayment schedule ❗ Security / collateral ⸻ 1️⃣1️⃣ Internal Controls Review ◆ Review approval processes ◆ Check segregation of duties ◆ Evaluate fraud prevention controls

When selecting board members, it is essential to look beyond mere titles and reputations. Instead, focus on individuals who deeply understand your industry and have a passion for your mission. Their ability to ask challenging questions, offer constructive criticism, and provide strategic advice can be invaluable. Remember, a board is not a static entity. As your business evolves, so too should your board. Please regularly assess the skills and experience of your board members to make sure they align with your long-term goals. Don’t hesitate to make changes if necessary, whether it’s adding new members or bidding farewell to those who no longer contribute meaningfully. Do you find this insightful?

How do you know you chose the right board member for your startup? When forming a new startup, your board comes into play when you take on external investments. Nowadays, corporate governance is a word you might be hearing more frequently in your discussions for the wrong reasons. ;) Let's dig into what it exactly means. The board is the governing body responsible for a company's key strategic decisions. These board members meet regularly to assess the company's performance and decide on the next steps, AKA board meetings. It is a formal setup in which members vote on the proposals to approve, which the management team (CXOs) executes afterward. Initially, the board consists of founders only, making decisions as shareholders. However, when you raise outside funds and have multiple shareholders, they decide on a board responsible for key decisions. ▶️Classification of Board Decisions → Day-to-day operational decisions: made by the management team (CEO, CFO, etc.) → Strategic decisions: including the appointment of CXOs, approved by the board →Shareholder decisions: made during general meetings (This includes electing the board members). ▶️So, what's the ideal Board Composition? Depends on the startup stage: → Early stage (formative years): focus on creativity, flexibility, and market understanding →Growth stage: focus on scaling, industry contacts, and investor connections. → Established company: focus on transparency, corporate governance, and independent directors ▶️What are the roles within the board? → Board members have voting power and make decisions. → Board observers attend meetings to receive information but don't have voting power ▶️Points to keep in mind while selecting: ✓Ensure alignment with your vision and values. ✓Choose members who can add value, not just govern. ✓ Consider founders, shareholders, investors, and independent directors. ▶️Board members typically have one vote each, regardless of shareholding For example, if a person with a 10% share in the startup is elected to the board, which consists of four members, they would have 25% of the decision-making power. This means that shareholders elect board members, but board votes are not representative of shareholding. ▶️Points on Selecting Board Observers: ✓ Though they appear to be harmless, still be selective. Observers can influence decisions without voting power by biasing voting members. 🔴 ✓ Ensure they have the right mindset and can add value. ✅ To ensure an effective board, align board members towards a common vision, enable founders, and focus on adding value, not just governance. Governance is essential to building the right culture in the long run, but we should also be sensitive to the company's stage. Asking for a five-year business plan from a startup is an irrelevant distraction (sorry, corporate bros 😂 ). Remember, your board should empower you, not block you! I hope this was helpful. :)

The Importance of a Cofounder Agreement When my friend and I started our first venture in April 2017, we were fresh out of college, full of energy, and excited to build something impactful. Like many first-time founders, we assumed our friendship and mutual trust would be enough to sail through challenges.  We incorporated the company with a 50/50 stake and soon got incubated at SINE, IIT Bombay's startup incubator, in June 2017. As part of the incubation process, SINE asked us to sign a "Cofounder Agreement". At that time, we didn’t realize its importance, but it turned out to be one of the smartest decisions I ever made - although unintentionally.  How the Cofounder Agreement Saved the Company The agreement required us to include a "lock-in clause" for the founders’ equity. This clause stated:  "The Founders hereby agree that the shares held by them in the Company shall be locked in for a period of [*] years (“Lock-in Period”) from the Execution Date." Naively, we agreed on a "2-year lock-in period" and signed the agreement on 29th of July, 2017. Little did I know this clause would become a game-changer.  On the 6th of August, 2018, slightly more than a year after signing the agreement, my cofounder decided to quit. At that point, he still owned ~50% of the company’s shares. Without the lock-in clause, I would have lost half of the company to someone no longer contributing to its success.  Because of the agreement, I was able to legally get back those shares, which allowed me to continue running the business without unnecessary hurdles.  This experience taught me three critical things:  1️⃣ "Legal agreements are your safety net": You don’t realize their value until things go wrong. A well-drafted agreement can save you from losing your company - or worse. 2️⃣ "Not everyone thinks long-term": People’s commitment levels can change. It’s important to safeguard your startup against abrupt exits.  3️⃣ "People can leave unexpectedly": Life happens, and people quit for all kinds of reasons. A cofounder agreement ensures their departure doesn’t jeopardize the company.  Why Every Startup Needs a Cofounder Agreement? If you’re running a startup and don’t have a Cofounder Agreement yet, do it today. It’s not just about protecting yourself - it’s about safeguarding your customers, team members, and investors. At the time, we were lucky to have SINE mandate the agreement. If it weren’t for that lock-in clause, the journey would have been far more challenging. Today, I’m extremely particular about legal agreements, especially clauses that address "termination, equity lock-ins, and founder roles". Protect your business. Protect your vision. Having a cofounder agreement might not seem urgent in the early days, but it’s one of the best ways to ensure you can navigate unforeseen challenges.  #Startups #Entrepreneurship #Business