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Now I want to talk about the legal ramifications of fundraising this time of the year. (Yippee!!) This is something NOBODY talks about but will affect all entrepreneurs who are raising now.
This is a follow up to my thread: https://twitter.com/dunkhippo33/status/1323734041128886272?s=20
This is a follow up to my thread: https://twitter.com/dunkhippo33/status/1323734041128886272?s=20
1) In addition to this being a bad time of year to fundraise, you also have to think about all the parties who are involved in fundraises.
No one ever thinks about the lawyers. Your lawyer, your investors' lawyers, etc.
No one ever thinks about the lawyers. Your lawyer, your investors' lawyers, etc.
2) Let's say you slog through everything and get to a handshake with an investor. You still have to go through all the legal bits.
The term sheet & signing, etc. That takes time too.
The term sheet & signing, etc. That takes time too.
3) Under normal circumstances, this might take a couple or a few weeks. No big deal. If you use a SAFE or a note, even faster - easier yet.
4) But most investors and startups don't have their own lawyer on payroll. Most work w a 3rd party lawyer.
Our amazing lawyer Aravinda Seshadri
( http://venturouscounsel.com ) works w lots of startups & funds. And so do the lawyers or many of our peer investors and portfolio cos.
Our amazing lawyer Aravinda Seshadri
( http://venturouscounsel.com ) works w lots of startups & funds. And so do the lawyers or many of our peer investors and portfolio cos.
5) This means that these lawyers are not available at everyone's beck and call. They have to prioritize their clients. And if everyone's doing deals crammed in before the end of the year, guess what happens?
6) There are delays. There are delays on deal review for a startup's lawyer. Or for a fund's lawyer. A fund will not sign off on docs - even for their own portfolio co raising the next round - until its lawyer signs off.
7) A big mistake founders make w/ re: to this is asking existing investors to sign docs within 24 hours.
Honestly, this doesn't work. No one wants to hold up a round. But VCs have a fiduciary duty to their investors, so they are not going to sign w/ out their lawyer's approval.
Honestly, this doesn't work. No one wants to hold up a round. But VCs have a fiduciary duty to their investors, so they are not going to sign w/ out their lawyer's approval.
8) So even if you come to a handshake agreement, the deal is not done until it's done. Especially at this time of the year. Make sure you push your deal over the finish line completely. Not just in verbal agreement or email agreement.
9) So let's say you get to a handshake agreement, you need to move QUICKLY to get everything signed. Best practices:
1) Be aggressive but polite with the investors who are investing to get a term sheet and draft docs. Even if they are very much in draft mode, that's ok.
1) Be aggressive but polite with the investors who are investing to get a term sheet and draft docs. Even if they are very much in draft mode, that's ok.
10) 2) Follow up frequently. Time is not on your side, so you really need this train to run on time or as on time as possible.
3) Let your existing investors know you have a new round coming and to standby. Tell them time is of the essence and to be ready for a quick turnaround
3) Let your existing investors know you have a new round coming and to standby. Tell them time is of the essence and to be ready for a quick turnaround
11) 4) In the rare occasion a founder has given me that heads up, I've then contacted our lawyer to give them a heads up so they can prioritize us and block time accordingly.
