Capital raise from a legal standpoint
In this video guide, Octopus Ventures Legal Counsel, Mary Sullivan and Andy Fahrenheim, break down the process of negotiating and executing a capital raise from a legal perspective, and offer some guidance on the things to bear in mind.
Tips for the legal side of a capital raise:
- Preparation is key. Timelines can be quick, and you can do a lot in advance to streamline the process. This could mean getting documents in order, getting a legal team signed up and online, or getting shareholders aligned.
- Make sure you have all the commercial points agreed upfront. Where possible, it’s best to avoid lawyers bouncing commercial points back and forth, which can slow things down and increase costs.
- When thinking about integrating existing shareholders into the fundraise process, remember you’ll need to get a large chunk of them on board with the idea of a fundraise. Keep them updated on big decisions, and at the end of the process give them a few days to go through the longform document you’ve drafted.
- Diligence is a bit like kicking the tyres on the company. It comes in many forms and can take up to 10 weeks. Initial diligence questions are wide ranging. Investors are looking for anything and everything, but they aren’t expecting a company to have crossed every t and dotted every i.
- Post-completion obligations refer back to terms of final longform documents. The investor will have identified key areas where a company needs to take a certain action. As a founder, you’ll need to keep a record of these so you don’t miss any deadlines.
- There will often be reporting obligations – define what these will be and ask the investor how they would like to receive reports.
- Ask questions, and ask them widely. Lawyers, the investment team and other founders are all useful sources of information.
- When you close the raise, be proud of what you have achieved. The process takes time and hard work, so there’s good reason to celebrate when the money hits the account.