Series A funding is a critical stage of financing for your startups or early-stage companies, where you seek investment from venture capitalists and institutional investors to accelerate growth and scale your business. Investors at this stage are looking for several key factors before committing their capital.
Given our years of experience of conducting due diligence for Investors, PE and VC alike, we appreciate their concerns with investee companies and have created the list below to show you what some investor expectations are, which include:
- Clean and Organised Legal Structure: Investors want to see a well-organised legal structure for your company, including the appropriate type of entity (usually a corporation or limited liability company), clear ownership, and comprehensive documentation, such as articles of incorporation/organisation, bylaws/operating agreement, and shareholder/member agreements to show that your company is legally sound.
- Due Due Diligence Readiness: A well-prepared data room with essential legal documents and information readily available streamlines the due diligence process for the investor, reflecting positively on your company’s organisational capabilities. Having your legal team conduct a due diligence audit on your company ahead of the investor is crucial to getting you prepared for a Series A funding.
- Strong Intellectual Property Protection: Investors are keen to ensure that your company has protected its intellectual property (IP) assets, such as patents, trademarks, and copyrights. Proper IP registrations and assignments are essential to demonstrate your company’s commitment to safeguarding its innovations. Demonstrating a clear IP strategy and any pending or granted IP rights can instill confidence in investors.
- Transparent Cap Table: A clean and transparent capitalization table (cap table) is crucial. The cap table should accurately detail the ownership and equity distribution among founders, employees, and prior investors. Investors will review this to understand your company’s existing ownership structure.
- Compliance with Laws and Regulations: Investors expect your company to comply with all applicable laws and regulations. Your company should demonstrate compliance with all relevant laws and regulations, including corporate governance, employment laws, industry-specific regulations, and data privacy regulations, among others.
- Strong Contracts and Agreements: Investors will scrutinize your company’s contracts and agreements, such as customer contracts, vendor agreements, and key partnership agreements, to ensure they are well-drafted, enforceable, and do not pose significant legal risks.
- Regulatory Licenses: If your company operates in a regulated industry (e.g., finance, healthcare, or biotech), investors considering Series A funding for companies will want to verify that your company has obtained the necessary licenses and approvals.
- Exit Strategy: Having a clear exit strategy, such as acquisition or IPO plans, demonstrates your company’s long-term vision and commitment to maximizing returns for investors.
- Employment and Equity Incentive Plans: Investors will want to ensure that your company has attractive and well-structured employment agreements and equity incentive plans to attract and retain key talent.
- Litigation and Dispute History: Any ongoing or past legal disputes can raise concerns for investors. You should be transparent about any litigation history and how you plan to address legal challenges.
- Protection of Trade Secrets: You should have strong measures in place to protect trade secrets and confidential information, including the use of non-disclosure agreements (NDAs) with employees and third parties.
- Future Legal Risks and Mitigation Strategies: Investors will inquire about potential legal risks that you may face in the future. It’s crucial for you to be aware of these risks and have clear strategies for mitigating them.
Seeking Series A funding can be a complex and demanding process. As a founder seeking this, you should work closely with experienced legal counsel to ensure you meet the legal requirements and address any potential concerns of investors, maximising your chances of securing funding and setting the foundation for long-term growth and success.
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