On July 8, 2014
You have been looking for investment into your emerging company and suddenly you have an investor who is willing to invest a substantial amount of money to seed your venture. Now what should you do?
Many of our clients often spend months or even years pursuing investors and negotiating the terms of a potential investment. When a term sheet is finally inked, the parties assume that the transaction can be documented in a couple of days. Most of our emerging companies are therefore surprised when they see the volume of documents generated by the investor’s counsel, and realize for the first time that negotiating the term sheet was just the first step among many to close on a funding.
We regularly guide startups through friends and family fundraising, seed rounds, angel investment and funding by venture capital firms. We have also represented seed funders and angels in their investments in a wide variety of companies. We thrive on the excitement that comes from the emerging companies that we have counseled as they receive their funding, and look forward to helping them execute on the business plan now that the funds are available to go forward.
There is nothing simple about taking a five or six page term sheet and turning it into 80 to 100 pages of documents, coupled with detailed representations and warranties and numerous rounds of diligence requests. We’ve seen deals fall through when the parties were not well represented, when the opposing counsel treated a $3 million investment as though it were a $30 million investment, or when the parties had unrealistic expectations about how a transaction actually progressed toward the close.
Our goal is the same as with many of our other practice areas: focus on what the client wants to get done within the level of risk they are willing to tolerate, and never let the deal slow down or break down simply because the lawyers are acting like lawyers. We want the relationship between investor and company founders to remain as positive as it was when they signed off on the term sheet, and not to devolve into a bitter fight that leaves both parties wondering if they made the right decision.