In the first episode “Step by Step”, the two experts guide you through the process of a financing round from a legal perspective and provide a concise overview of the most important steps from pre-termsheet discussions to entry in the commercial register.
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1. Pre term sheet discussion
A financing round is essentially nothing more than a company sale or similar transaction and begins - well before the contract is signed - with so-called pre-term sheet discussions between the founders and potential investors. The subject of this phase is typically
- Presentation of the business model by the founders to potential investors
- Examination of the market potential (high-level due diligence)
- If necessary, conclusion of a non-disclosure agreement (NDA)
2. Term Sheet
If the investor has a keen interest in investing in the company, the main and fundamental terms of the investment are set out in a term sheet. The term sheet does not legally bind the parties, but forms the basis for investment agreements or shareholders' agreements to be concluded later.
Institutional investors or venture capitalists (VCs) usually bring their own term sheet to the negotiating table. If the investors are business angels, the founders usually have to submit a term sheet.
The main contents of a term sheet can be
- Investment amount and company valuation
- Regulations on vesting
- Definition of “good leavers” and “bad leavers”
The concepts of vesting and good/bad leavers will be discussed in more detail in a subsequent webinar.
3. Legal Due Diligence
The purpose of due diligence is to give the investor an idea of whether the company has conducted and documented its business correctly and in accordance with the law. The founders usually have to provide a considerable amount of documents for this purpose. It should be noted at this point that it is worthwhile for founders to document their transactions properly from the outset and to retain this documentation.
Usually, the following documents are checked as part of legal due diligence:
- Incorporation documents
- Contracts with suppliers, customers, partners and employees
- Proof of intellectual property rights (trademarks, patents, etc.)
- Official authorizations
Due diligence is often very time-consuming. It is therefore advisable to keep sufficient capacity free for it.
4. Investment Agreement and Shareholders’ Agreement
The negotiations of the investment agreement and the shareholders' agreement usually run parallel to the due diligence.
The investment agreement is a central contract in a financing round. It sets out the conditions, assurances and warranties - e.g. for circumstances that have come to light as a result of the due diligence.
The shareholders' agreement regulates the relationship between the shareholders - i.e. the founders and investors. The conditions for participation in the company are agreed.
The contracts are concluded in the course of the signing.
5. Execution
Finally, the financing is usually completed by means of a capital increase. Various documents must be prepared for this, which must ultimately be submitted to the commercial register office.
By law, a capital increase in a public limited company must be approved by the Annual General Meeting (AGM) and carried out by the Board of Directors (BoD). These AGM and BoD resolutions must be publicly notarized.
Once all documents have been submitted to the Commercial Register Office, it checks the capital increase for compliance with the law and enters the capital increase in the Commercial Register, provided everything has been done correctly.
Interested? Then …
… watch the video!
Want a simpler explanation of how a financing round works?
Then click your way into our YouTube webinar: Part 1 - Step by step - SeedFast webinar financing round
… read the next blog post!
Now that you know the key steps of a financing round, it's time to go deeper.
In our next blog, we will cover the different types of capital increases – and when to use which.
Read more: Part 2 - What forms of capital increase are there? - SeedFast webinar financing round
… plan your financing round with us!
Thinking about raising capital?
We support you in making your round smooth, investor-ready and compliant – without the legal headaches.
Start your inquiry at www.seedfast.ch.
… and if you have questions: reach out to us!
This format is brought to you by:
- Konsento – the platform for legally secure company documents
www.konsento.ch - Lex Futura – the law firm for innovative legal support for startups
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