A founder came to me after his Series A fell through. Revenue 3.2 Cr ARR. Growing 60% YoY. Team of 14. Good product. Investor team spent 4 days on diligence. Found this. Cap table had 3 versions and none matched RoC records. ESOP grants to 6 employees with zero board resolutions. Seed round from 2022 and PAS-3 never filed. Lead investor walked. Round collapsed. The product was not the problem.
Mistake 01 - Multiple versions exist. Lawyer has one. CFO has another. Founder remembers something different. Investor finds all three.
Mistake 02 - Option grants with no board resolution. ESOPs were given. Nothing was documented. Now it is a legal liability sitting on your cap table.
Mistake 03 - Old rounds never properly closed. Money came in. Shares were never formally allotted. No PAS-3 filed. RoC records do not match reality.
One source of truth. Single document updated after every grant every round every transfer. No exceptions. Every ESOP has a board resolution. Date number of options strike price vesting schedule. All on paper before the grant is communicated. RoC records match reality. PAS-3 filed within 15 days or 30 days of allotment. SH-7 filed if authorised capital was increased. No gaps. All rounds formally closed. Share certificates issued. Shareholders agreement executed. Stamp duty paid.
Clean the cap table first. Not during diligence. Before you send the first deck. Investors do not kill deals. Dirty cap tables do. Send me a direct message for a cap table audit before your next raise.
Mayank Jain | Chartered Accountant | Mayank Om Jain and Associates