Hosted by Ken Honeyman, The Capital MatchPoint, www.capitalmatchpoint.com, 770.433.8250…So, you found an investor. Let’s talk about actually structuring and negotiating the deal. The fun really is just starting. Now comes the negotiating and the harrowing process of really doing the deal and making everyone happy. The need to strike a balance between investment and investment acceptance is critical. Keep a few things in mind as we go down this path. There’s the company’s concerns and the investor’s concerns that really need to be pointed out here.
As far as the company is concerned there’s going to be loss of management control, dilution of personal stock, repurchase of personal stock in the event of employment termination. How about adequate financing? Security interests being taken, key assets of the company. Future capital requirements and dilution of the founder’s ownership. Intangible and tangible indirect benefits of our investor’s participation, such as access to key industry contacts and future rounds of capital.
Our investors’ main concerns. Let’s talk about some of theirs. Well, the company’s current and projected evaluation is a concern of theirs. Their level of risk. Projected levels on return of investment. Liquidity. Protection of the firm’s ability to participate in future rounds of funding. Influence and control over management strategy and decision making. Registration rights in the event of a public offering and rights to first refusal to provide future financing.
And for both parties, how about retention of key members of the management team. A resolution of conflicts, financial strength of the company post investment, and certainly tax ramifications of the proposed investment.
Negotiations have to have ample time to be studied. Legal advice is first and foremost, and I beg you to get great quality securities attorney’s working for you. Don’t be foolish and try to negotiate this alone. Legal fees are meant to be spent here where it counts for the future of the company.
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