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Common Venture Capital Equity Financing Documents
Businesses seeking to grow or startups getting off the ground can seek financing from venture capital sources. Venture capital investors usually provide financial resources as well as technical support. In return, the venture capital investor receives an often significant share of the company and the right to weigh in on its direction.
Venture capital or equity financing can be a great source of financing that can lead to rapid growth and also open doors for a new business. There are a number of common deal documents which are standard to most venture capital deals. An experienced Oakland Park, FL business financing attorney can represent your business as it seeks to obtain equity financing.
Term Sheet
The term sheet is often the starting point in a venture capital financing transaction. In this non-binding document, the business and investor outline the specifics of the deal, including the investment amount, the company’s valuation, the type of stock class that the investor will receive, and any special rights or preferences. This document will be used to guide the negotiation forward.
Stock Purchase Agreement (SPA)
The stock purchase agreement formalizes the terms of the deal set out in the term sheet, including the:
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Purchase price
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Amount and classes of stock being sold
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Representations and warranties
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Conditions for closing
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Post-closing obligations
The SPA is the primary document that governs each party's rights and responsibilities. SPAs range from standard to highly customized and offer the parties much room for negotiation to structure the deal.
Company’s Disclosures for SPA
The company’s disclosures, attached as an exhibit or attachment to the SPA, provide detailed information about a company’s operations, finances, pending legal issues, customers, supplies, intellectual property, litigation, and other disputes. The disclosures modify the representations and warranties made in the SPA and are also crucial to the due diligence process in which the company provides investors with information about the company that could be material to the investor’s decision to invest.
Voting Agreement
The voting agreement outlines how shareholders with a certain number of shares may vote. With this document, the investor ensures that they have a voice in key decisions affecting the company’s future.
Right of First Refusal (ROFR)
The ROFR gives existing shareholders and investors the "right" or opportunity to purchase any shares in the company before they are offered to other parties, particularly future additional investors.
Contact an Oakland Park, FL Business Law Attorney
Businesses need capital to grow, and the experienced Fort Lauderdale, FL business law attorney at The Elliot Legal Group, P.A. can help guide your business if it is seeking to obtain equity financing from venture capital investors. Attorney Gavin Elliot understands the laws surrounding capitalization and can review and advise on financing documents. Call the law firm at 754-332-2101 for a consultation.
