Final steps in investment rounds for startups

Final steps in investment rounds for startups

This article on the final steps in investment rounds for startups brings to an end a challenging year for startup investment. The past year, 2023, has been a year in which the average ticket size may have decreased, but projects with more potential have, in most cases, secured funding to continue developing their ventures.

In these final steps, which we will try to explain in a concise manner, it should be noted that each investment round has its own peculiarities. In this case, the procedure for its closure, following the example of the previous episodes, that is, an investment round through convertible notes.

Final steps in investment rounds for startups: investors become partners

First of all, it is useful to clarify the previous steps, divided into articles in this blog, in order to have a more general and clear view of the procedure:

1. Guide on investment rounds for a startup: with the previous considerations to be taken into account in this type of procedure.
2. Investment rounds, an extended guide for entrepreneurs: steps to follow in the beginning of the investment rounds.
3. Next steps in the guide on investment rounds for startups: continuation of the previous steps, focusing on the case of a convertible note investment round.
4. Final steps in investment rounds for startups: (this article) where investors become partners.

Within this last part with the final steps of the procedure, imagine that the founding team has already managed to sign all convertible notes with investors, contributions have been made, and it’s time to capitalize on the contributions, turning investors into shareholders of the company.

Simplifying the process (always check with the company’s articles of association and shareholders’ agreement), the final steps in investment rounds for startups would be as follows:

Issue a directors’ report on the capitalisation

Issuance by the board of directors of a report on the intended capitalization, where, among other things, it will be stated that the investors’ debts are liquid, due, and enforceable.

In other words, contributions made through the convertible note can be capitalized. This report should indicate the amount, pre-money valuation of the company, conversion value (premium and nominal), the number of shares allocated, and specific numbering.

Call a shareholders’ meeting

Call a shareholders’ meeting within the stipulated period to approve the mentioned report, the capital increase, and the consequent modification of the share capital, which, we should recall, will always be an amendment to the company’s bylaws.

Draft an official record with the decisions made

Draft an official record by the secretary of the shareholders’ meeting, with the approval of its president, documenting the decisions made in the meeting.

Issue the corresponding certification by the secretary of the board of directors (if the governing body is a board of directors), with the president’s approval, summarizing the agreements made in the shareholders’ meeting, especially those that need to be made public.

Make the capital increase public

Schedule an appointment with a notary to make the capital increase public, along with the consequent modification of the share capital and the relevant article in the bylaws. Once made public before a notary, request its registration in the corresponding commercial registry. Finally, monitor the process until it is registered.

This description is likely to be found on the internet, but there are additional steps often overlooked that should be considered:

• First, new shareholders must sign the shareholders’ agreement at the time of loan capitalization.
• Second, the increase involves filing model 600, and in the case of foreign investment, form D-1A.
• Finally, the partners registry book must be updated, and this modification should be notified to the commercial registry.

With the above, we would have completed the process for a successful expansion. Investment rounds are complex and crucial processes, so founders and/or administrators should invest time in planning, finding suitable partners (remember, it’s easy to add a shareholder, but very difficult to remove one), and negotiating conditions that make all parties comfortable, allowing the company to reach the next stage in its growth.

If you require more information or expert guidance, please do not hesitate to contact our team of commercial lawyers at Letslaw.