Financing & Securities Lawyers & Attorneys - Priori

Financing & Securities Lawyers & Attorneys

How to finance your business is a question that looms large for many entrepreneurs. There are many routes to take, each of which has possible risks and rewards.

Whether you are just starting your business, deep in the process of developing a new product, pivoting to pursue a new idea or considering an exit, you should carefully consider your business’s financing needs. While there are many different ways to raise money for your business, seeking the wrong type of funds or the wrong source of funds may not only cost you time and money but also hinder your ability to run your business.

The majority of funding options fall into two categories: equity financing and debt financing. Priori’s curated legal marketplace is the perfect way to find the right lawyer for your unique business and ensure your financing is successful.

Equity Financing

Equity financing enables you to raise funds by selling an ownership stake in your company. Equity financing also allows you to raise funds without the obligation or risk of owing money down the road. On the other hand, you must give up an ownership stake and a share of future profits. The ownership stake in a corporation is referred to as stock.

Debt Financing

With debt financing, you retain all control and entitlement to the profits of your business. However, you must repay the loan at a set installment plan and a specified interest rate, regardless of the business’s success or failure. Common forms of debt financing are loans and convertible notes. You can seek a loan from a bank or privately from individuals and entities. Unlike a loan, a convertible note is not an installment plan with a specified interest rate, but rather a short-term debt that can convert into equity (stock shares) at the election of the holder at a defined point in the future.

 

A lawyer can advise you on the proper financing strategy, negotiate and structure the necessary agreements and help you navigate the various financing stages.

Early Stage Financing

When you are just getting your business off the ground, you may seek to raise capital from friends and family, through crowdfunding or with angel investors. Your friends and family will likely provide invaluable support in your company’s early life, but take care to memorialize all agreements in writing. Crowdfunding can similarly be a useful resource, enabling you to reach thousands of potential investors, although for relatively small individual amounts. Finally, angel investors often may provide larger investments in your company in exchange for equity or convertible notes. While angel or “seed” rounds are often characterized as “early stage financing,” companies may elect to raise exclusively from private investors even as they are more mature, though these rounds do tend to be smaller than venture rounds.

Venture Round

More advanced fundraising is broken into multiple series. Series A is the first significant round of venture capital investment and typically presents the greatest risk to potential investors. Series B is the second round of funding through which successful companies aim to continue to grow and scale. Finally, Series C funding is pursued to support a more mature company.

Finally, a fully matured company may conduct an Initial Public Offering (IPO) and sell its stock to the public.

Term Sheets

For each investment in your company, you will want to work with an attorney to draft a term sheet outlining the general terms of a deal between your company and investors. A term sheet furthermore provides the foundation for the final agreement between parties and future formal investment documents. They typically establish financial details such as the amount of the anticipated investment, provisions for the grant of equity, estimates of the value of the company before and after valuation rounds,  and anti-dilution provisions. They also include corporate governance provisions and special protections for certain corporate decisions. Finally, rules governing rights, how they may be sold, and what information investors may have access to are also detailed in a term sheet. These documents can be extremely complicated, and it is always best work with a lawyer to ensure your company and investments are protected.

For additional information about how to interpret a term sheet, click here.

 

If you are considering a financing (or purchasing equity in another company), you will likely need a securities lawyer to advise you on private and public securities regulations. Governed primarily by the Securities Act of 1933 and the Exchange Act of 1934, securities law compliance is critical for your business -- but difficult to achieve without the assistance of an experienced securities lawyer. A Priori attorney can help you comply with state and federal securities regulations and ensure that you complete all necessary filings and documentation.

Changes to Securities Regulations

The passing of the Jumpstart Our Business Startups (“JOBS”) Act of 2012 made many new opportunities for entrepreneurs to raise capital available. These options include:

Title II Investing: With the new regulations, Issuers may now advertise their offerings if they verify that investors are accredited.

Title III Crowd Investing: Crowd investing is now exempt from complicated SEC registration requirements, and companies may raise up to $1 million within a 12 month period with this type of fundraising from unaccredited investors.

Title IV Regulation A+ Investing: While a “mini” SEC registration is still a requirement for this type of fundraising, you may now raise up to $50 million in a 12-month period under Regulation A+.

For additional information about securities law, or how to take advantage of the new regulations, click here.

 

Your financing decisions not only impact your immediate ability to get up and running, but also your ability to scale and grow as you begin to experience success. An experienced lawyer will not only be able to prepare the legal documents necessary for financing your business, but also identify appropriate financing sources, assist with introductions to those financing sources and advise you through the process to avoid common pitfalls.

Get started by telling us a little bit about your legal needs and a member of our team will begin working on your matchmaking process.