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.
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.
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.