Lawyers for funding round

Access to investment is one of the key factors for a company’s growth. It is a lengthy and complex process where negotiations are crucial and can determine the future of our company. Below, we will address the most relevant aspects to consider when seeking funding.

1. The investment fundraising process 

The first barrier a startup faces when conducting an investment round is attracting investors who are willing to engage in the company’s growth. Therefore, it is essential to have a solid business model, clear metrics, and a differentiated value proposition.

Once we have secured our first investors, the process to capitalize on the investment is divided into several phases:

Selection of the type of financing

There are various sources of financing, each with its own requirements and characteristics: 

1. Business Angels: high-net-worth individuals who invest in the early stages of a company. 
2. Venture Capital: investment funds that seek companies with high growth potential. 
3. Crowdfunding: platforms that allow raising funds from a large number of small-scale investors. 
4. Public Financing: government grants and subsidies designed to promote entrepreneurship, such as ENISA financing.

Negotiation

Once the financing model is defined, negotiations must take place regarding the investment terms, including the company’s valuation, the percentage of share capital to be acquired by the investor, and the rights granted to investors. The negotiation will be reflected in a letter of intent, followed by an investment agreement.

• Due Diligence: this is a process in which the investor analyzes the company’s financial, legal, and operational information to ensure the viability of the investment.
• Term Sheet: if the Due Diligence outcome is favorable to the investor, we will proceed with drafting the investment Term Sheet, a document that sets out the key terms and conditions of the agreement between the company and the investor, taking into account the terms of the Investment Agreement. This agreement is binding for the parties.
• Subscription of the investment round and capital injection: after completing the negotiation, due diligence, and signing the Investment Agreement and Term Sheet, the final investment agreement can be executed, through which the committed capital is transferred to the company, and the investor receives their corresponding equity participation. This final step requires approval by the company’s Shareholders’ Meeting and its subsequent notarization.

2. Types of Investment Rounds 

Once the fundraising process is completed, we must determine the mechanism through which the investment will be capitalized.

In this regard, there are two ways to enter a company’s share capital: through a capital increase or through the purchase of shares from existing shareholders.

Capital Increase 

A capital increase consists of issuing new shares or participations in the company, allowing investors to enter the share capital by contributing funds. This is the most common mechanism in investment rounds. Its main advantage is that the invested funds directly contribute to the company’s capital, fostering its growth.

However, it also results in the dilution of existing shareholders’ stakes and typically requires additional legal formalities, such as amendments to the company’s bylaws.

Share Purchase 

In this case, investors acquire shares from current shareholders instead of injecting new capital into the company. This mechanism, also known as a secondary transaction, allows shareholders to exit the company by transferring their holdings. However, unlike a capital increase, no new investment enters the company; instead, the capital is redistributed among the selling shareholders.

Advice on raising financing

The process of securing financing is a challenge for companies seeking to scale their business. Understanding the different financing options, properly negotiating the terms, and strategically executing investment rounds can be the key to success or failure.

For this reason, having the right legal advice and a clear strategy is essential to maximizing growth opportunities. At Letslaw, we provide specialized legal advisory services to guide companies through each stage of the financing process. Do not hesitate to contact us for more information.