If you decide that equity funding is the right option for your company. You will need to invest in a range of legal investor documents. This is essential and provides transparency and protects both the company and the investor.
Depending on the type of investor, VC, Angel or family and friends. Each funding opportunity will be unique.
However, the main investor documents include:
- Term sheet
- Shareholders agreement
- Articles of association
- Subscription and shareholders agreement
The term sheet is a document the Investor will give the business before they start the due diligence process.
It will show what the investor thinks your business is worth. Also show how much they are willing to invest in your business.
It also includes their exit of liquidity preference. Remember the term sheet is not a contract. However, it does form the basis for the contract between you and the investor.
Shareholders agreement– is between a company and an investor. The agreement specifies the number of shares sold and at what price.
Typically, this agreement should be used once a company and investor have fully agreed upon financing terms. It protects both parties by establishing important terms and minimising last-minute misunderstandings.
Articles of association – sets out which decisions the directors can make, also which are reserved for shareholders.
Subscription and shareholders agreement – a fully considered and well drafted shareholders’ agreement can act as a safeguard. Also it gives you and your fellow shareholders more protection.
The British private equity & venture capital association is the industry body and public policy advocate for private equity and venture capital industry in the UK.
Consequently, on their website you will find free templates of these investor documents which have been drafted on a series A funding round.
With that in mind, please note the disclaimer below. While Wendy Kipling is happy to promote this website and investor documents for educational purposes. The documents are yours to use at your own risk.
Also, as part of the due diligence process the investor will want to see all internal contracts which can include employees, consultants, trade suppliers and any others third parties which you currently work with.
Furthermore, if you are in the UK or the US you can check out sites like Law-depot who offer a easy to print and download documents service for free.
You will find contracts relating to:
- Service Agreements
- Business Contracts
I understand this is not the fun side BUT a necessity if you want to grow a successful business through equity investment.
- Gordon Bing – Due Diligence Techniques and Analysis: Critical Questions for Business Decisions
For anyone involved in any phase of the due diligence process, Gordon Bing provides a unique, comprehensive, one-volume source of information and guidance. His book will help investors research, evaluate, and understand an existing or proposed business not only from a financial standpoint, but also from equally important nonfinancial standpoints. It provides a full explanation of the due diligence process, including systematic methods to determine the information you need, why you need it, and how to get it.
- Peter Howson – Checklists for Due Diligence Designed to help you make your due diligence process as smooth and effective as possible, this collection of checklists by acknowledged expert, Peter Howson, will ensure you manage the risk aspects.
- Wendy Kipling – How to Write a Business Plan that Gets Results When it comes to business planning, still lots of business owners do not have one. In other words, they do not have a system to follow. Writing a business plan isn’t just a good idea. It’s a necessity. They aren’t just ‘one-time’ tasks. Business plans detail the income activities contributing to business success. In this step by step guide I will show you how to write a winning business plan.