For Investment Month here at TechSPARK, Nina Searle, Partner at TLT LLP, our Investment Activator Programme partners, is sharing her wisdom on what legal considerations to make before raising investment. If you’re a founder of an early-stage startup and are about to begin the investment journey, have a read.
Looking for your first round of investment will mean opening your business up to new parties and sharing information and ideas which, to that point, have probably only been known by a small group of people. This can be a daunting experience but there are few key things that you can do to ensure your business is ready to take that next step.
Spring Clean
Potential new investors are going to have a number of questions so having the answers and key documentation to hand will demonstrate a well run and organised business. There may be work that can be done prior to engaging with potential investors to deal with potential issues. Key to any new investor will be:
What is the business? Do you have a clear and focussed business plan and a strategy to take the business forward? The business plan is likely to be a document that the investors expect you to warrant as part of the investment process, so you need to confident that it is accurate and not misleading.
How does the business work? Do you have the contractual arrangements necessary for running the business from suppliers or customers? Have you protected intellectual property, which is key for the business? Do you have effective and current data protection processes and policies?
Who are the individuals who are key / essential to the business? Have these individuals been tied into the business using effective contractual arrangements? How are key individuals incentivised to continue performing for the business?
This is a good time to undertake a spring clean and to get your “house in order”. Ensure everything is up to date, documented and working to support your growth objectives.
Agreeing Deal terms
It is important that prior to taking on investment, the existing structure of the business works for you but that it is also attractive to potential investors. Be up front about any commitments which have been made, such as options, as investors will need to factor these into their plans.
The deal terms that you agree to in a first round of investment may well be used as a basis for future funding rounds, so it is important that you understand what they mean and are comfortable that they work for you and your business.
You should, where possible, seek support from advisors who are experienced at working on these transactions. They will be able to guide you through the process, explaining the potential impact of any proposed terms. The may also be able to suggest solutions to any issues which are raised.
Existing Stakeholders
In order for the investment to go ahead you may need consent from existing stakeholders. In particular, you may already have a small group of shareholders such as friends and family and / or existing or previous employees.
You will need to take time to talk them through the process to ensure that everyone is ready to sign up to the arrangements. It can be as simple as knowing when people are on holiday or unavailable to sign Having everyone aware of what the transaction will mean for them and being aware of the timetable will avoid unnecessary delays at the end of the process.
Our corporate team regularly advises growing companies looking for their first investment. Please get in touch if you would like to talk about how to approach this next phase of your business growth.
Author:
Nina Searle, Partner at TLT LLP
Nina leads TLT’s national Fast Growth team, acting for fast growing businesses and their investors on everything from founder agreements and friends and family investments through institutional fundraises and value enhancing acquisitions to exit.
Her clients include entrepreneurs and scaling businesses, S/EIS and VCT Funds and global corporates. Nina led on Amdaris’ £6m investment from BGF and Open Bionics’ Series A round, as well as Maven Capital Partners investment in Hublsoft Ltd and BHL’s various insure tech investments.
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