What stages will you encounter in the investment round?
Each investment round suits a certain stage of the company's development. A typical development for companies that become successful within a relatively short period of time is that, as a start-up company, they attract financing from people in the immediate vicinity, then conclude a financing round with the first professional investors (often: angel investors), then a round with large-scale, strategic investors or investment funds and finally one or two more financing rounds before the company has reached the stage where it can exist from its own generated profits.
Financing round: terms and conditions of existing investors
At each financing round, the investment conditions must be discussed with both new and old investors. Virtually all shareholder agreements provide that the existing investors may take part in the decision on a new financing round.
Financing round: risk of dilution
In a financing round, it regularly happens that the existing shareholders reinvest in the company in order to prevent their interest from being diluted. In the case of venture capital financing, special clauses for this purpose are included in the participation agreement (anti-dilution provisions).
Financing round: for each stage of development
An advantage of organising different financing rounds is that each round brings a new type of investor on board. Each type of investor brings new added value. In the first stage, this often involves acquaintances of the founders, whose only contribution often consists of money. The investors who join the next round often bring entrepreneurial qualities with them. In the next financing round, it is often the turn of investors who focus on financial ratios.
Need help with an investment round?
At Legal Q, we work differently than traditional lawyers. We advise you with practical solutions and understand commercial relationships. Would you like support in attracting an investment? Our lawyers will be happy to assist you. Please feel free to contact us for more information.