The information contained in this article is for information purposes only and is not intended to constitute legal advice. If you require further information our property team would be more than happy to assist you. Please contact us at [email protected] or call us on 029 2009 5500 to speak to one of our team.
Whether you are seeking an investment for a start- up, expansion, or to re-finance, once the gruelling stage of actually seeking that investment is done, many might want to relax.
However, understanding the detail of your investment and planning for your business post-investment, is as important as the deal itself.
Greenaway Scott assists daily in both debt and equity investment rounds, and sees both the mistakes that can be made and the successes.
Here they provide an insight into what your business can expect on your journey to finding an investor.
Step 1: Getting your house in order
An investor is going to want to see a detailed explanation about your business and its successes before wanting to invest.
In order to show off your company, you should create a business plan to show an investor that the opportunity to invest is not one to miss out on. You should also ensure that your company has the correct legal structure for the type of investment you are seeking. And also check that your company is performing as efficiently as possible, to ensure all operations are running smoothly.
You will then be able to show the investors this efficiency through the business plan, or even the pitch to investors. At this stage be honest about your business as this will avoid any hiccups later down the line.
Step 2: Due Diligence
This is the investigatory work done around a transaction where the investor will carry out a detailed review into the financial, corporate, and contractual status of your company in which it is investing. It’s at this point that the investor will want bundles of information to be supplied so that it can make an informed decision, on not just whether to invest, but how much. It’s therefore crucial that you get these documents ready and easily readable so that deciding to invest is an easy decision for any investor.
Step 2: Head of Terms
The heads of terms are the bare bones of the deal, they set out whether an investor will be giving funding by taking equity in the company, or by giving a loan note. They will also set out the requirements on which the investor will invest, and any specific requirements they might have. Where an investor is taking equity in the company, they might want to have an input towards decisions about further investment or general decisions surrounding the company.
Although the heads of terms aren’t necessarily a legally binding document and the terms may be further negotiated along the line, it is important to speak to a solicitor to ensure that you understand the term sheet and are happy with all of the terms.
Step 3: The legal documents
Once the heads of terms have been agreed, a solicitor will usually get involved and will begin to prepare and negotiate the legal documents involved in the investment.
The legal documents will usually include an investment agreement, which will document and flesh out those terms agreed in the heads of terms, a subscription agreement in which the company will agree to sell the shares to the investor at a certain price, and possibly new articles of association for the company. The articles of association, which govern the control of the company, might need to be amended once the investor is on board, depending on their requirements around control.
Step 4: Closing the deal and post-investment
Once all legal documents have been agreed, and the deal has come to a close, then it’s time to celebrate as the round has been successfully completed! It’s important to remember what you’ve signed up to. You must ensure that as your business moves forward you are complying with the investment documents, and reporting to the investors as, and when, required to relay the hopefully financial successes of the company!