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Legal Basics for Startups (Part 2): Capital Raising and Investor Engagement
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Key Insights
Capital raising starts before the investor meeting. A startup seeking investment needs to be ready before serious investor discussions begin. That includes understanding the amount being raised, preparing for due diligence and considering the legal requirements that apply to the capital raising process.
The type of investor matters. The episode explains different investor categories, including sophisticated and wholesale investors. Founders and advisers should understand who they are raising from, because the investor category can affect the legal requirements, documentation and process needed to secure funding.
Due diligence can expose sensitive information. Investors will often want to understand the business before committing funds, but that process can require the startup to share confidential information. Founders should think carefully about how confidential information is protected as part of the due diligence and investment process.
Raising capital is not just about finding investors. Startups need to be prepared for the legal, commercial and due diligence process that comes with securing funding.
In Part 2 of this Explain That series on Legal Basics for Startups, Andrew Henshaw is joined by Robert Osler to discuss capital raising and investor engagement through a case study involving a technology startup seeking to raise $5 million.
Following Part 1, which introduced the legal foundations for startups, this episode focuses on what founders need to consider when preparing for investment, identifying the right investors and managing the legal requirements that apply during a capital raise.
The discussion covers:
- a case study involving a technology startup seeking to raise $5 million;
- how startups can prepare for investment;
- why identifying the right investors matters;
- legal requirements that need to be considered when securing funding;
- different investor categories, including sophisticated and wholesale investors;
- the role of term sheets in the capital raising process;
- subscription agreements and how they fit into the investment process;
- the relevance of shareholders’ agreements when new investors come in;
- protecting confidential information during due diligence; and
- typical negotiation dynamics between startups and potential investors.
A practical discussion for startup founders, business owners and advisers dealing with capital raising, investor discussions, investment documentation or due diligence.
For advice on startup capital raising, term sheets, subscription agreements, shareholders’ agreements or investor engagement, contact Velocity Legal’s Commercial team.
This podcast in no way constitutes legal advice. It is general in nature and is the opinion of the author only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this podcast.
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