3.Giving Away Too Much Ownership Too Early
Ownership is your most valuable asset as a founder, and once distributed, you can’t get it back.
The Option Pool Trap: Investors often push you to create a large employee option pool before investing. This sounds reasonable but dilutes only you and early founders, not the incoming investors.
An example: if you own 10,000 shares and agree to a 1,500-share option pool, your ownership immediately drops from 100 percent to 87 percent, before hiring anyone.
Right-Size Your Pool: Build a detailed hiring plan for the next 12-18 months. Pre-Series A companies should reserve about 10 percent of fully diluted shares for options; post-Series A should scale towards 20 percent.
Under Indian tax law (Section 17(2AA) of Income Tax Act), ensure your ESOP pricing complies with FMV (Fair Market Value) regulations to avoid employee taxation issues.
Advisory Equity Mistakes: Many Indian founders give away huge equity chunks to advisors who barely contribute. Light advisory roles deserve around 0.25 percent; heavy strategic advisors deserve about 1 percent, vesting over two years. Anything above 1 percent mortgages your future for vague promises. Document all advisory roles formally. Informal arrangements create legal ambiguity.
Keep Clean Records: Use cap table management software like EquityList or Qapita. Every share grant, option vesting schedule, and investor ownership must be documented. Under Indian law, your cap table is a critical legal document during acquisition due diligence and GST/income tax audits. Messy cap tables can kill deals.
Equity and Tax Compliance: Ensure all equity grants comply with Indian employment law and tax regulations. Section 2(43) of Income Tax Act defines perquisites—incorrect ESOP pricing can trigger unexpected tax bills for employees and legal issues for your company.
The Dilution : Aim for not more than 15-20 percent dilution per round. After a Series D, the average founding team owns just 9.5 percent of their own company. Be intentional about protecting your stake.
4.Raising Money Without a Clear Plan
Too many Indian founders approach fundraising without knowing what they actually need. They ask for vague amounts, take random meetings, and can’t answer basic investor questions. This scares investors away or leads to poor terms.
Create a Clear Funding Plan: Every rupee you raise should link directly to a specific goal.
Say: “I’m raising ₹3 crore, ₹1.2 crore for customer acquisition, ₹90 lakh for product development, ₹60 lakh for hiring a VP of Sales, ₹30 lakh for contingency.”
Map out your funding roadmap before approaching investors. What milestones must you hit? Revenue targets? User goals? Regulatory approvals? Geographic expansion? How much capital does each milestone require? Indian investors increasingly expect founders to clearly articulate their go-to-market strategy and path to profitability.
Build Your Investor Pipeline Strategically: Define your ideal investor profile for your stage, industry, and geography. Don’t pitch Delhi-based seed investors when you’re a Series A company. Target Indian venture funds with thesis alignment to your sector (fintech, SaaS, D2C, DeepTech, etc.). Expect that of 50 investors you reach out to, 25 respond, 12 take calls, and 1-2 give term sheets. Successful founders typically have a list of 80-120 potential investors before starting.
Indian Investor context: Focus on angels (NASSCOM members, IIT/IIM alumni networks), early-stage funds (Y Combinator India, Anthill Ventures, Sequoia Scout), and tier-1 VCs (Sequoia, Accel, Tiger Global, Peak XV). Each has different expectations around profitability, unit economics, and path to IPO or acquisition.
5.Skipping Due Diligence and Legal Preparation
Investors and acquirers dig deep into your corporate records, intellectual property, cap table, tax filings, regulatory compliance, and contracts. Missing documentation or messy paperwork kills deals and your valuation.
Critical Legal Requirements for Indian Startups:
- ROC Compliance: Ensure your company is registered with the Registrar of Companies (ROC). File annual returns on time. Missing statutory filings can trigger penalties and disqualify you from raising institutional capital.
- Income tax filings are filed accurately and on time
- Legal Documentation: Ensure water tight agreements with Founders, Employees, Vendors, Customers are in place
- Intellectual Property Protection: File trademark applications, copyright registrations, and design patents with IP India. Ensure all code, designs, and technology are assigned to the company via employment agreements complying with Indian law.
- GST Registration and Compliance: If revenue is over ₹40 lakh (for services) or ₹20 lakh (for goods), GST registration is mandatory. Maintain clean GST filing history. Investors scrutinize this heavily.
- Employee Compliance: Ensure ESI, EPF, and income tax deductions are filed correctly. Misclassified employees as contractors is a major red flag for investors.
- Foreign Investment Documentation: If raising from foreign investors, ensure FEMA compliance is complied with. Maintain documentation of all foreign remittances.
Common Deal-Breakers:
- Incomplete corporate records with missing board resolutions or shareholder agreements
- Unprotected intellectual property where employees or contractors could claim ownership
- Mixed personal and business finances (many Indian founders use personal accounts)
- Unfiled or delayed GST, income tax, or ROC filings
- Missing employment agreements or incorrectly classified contractors
- Messy cap tables with unclear ownership or missing ESOP documentation
Legal Advisory for Fundraisers
Before approaching investors, complete a “legal health check”:
- Confirm company incorporation and registered office validity
- Verify all founders’ identity and director status
- Audit all IP ownership (file ownership deeds for all code, designs, trademarks)
- Review all employee and contractor agreements
- Ensure cap table matches ROC records
- Confirm no undisclosed litigation or regulatory issues
- Verify no conflicting agreements or non-competes
This process typically takes 4-6 weeks and costs ₹1-3 lakhs but prevents deal delays.
