"Investment process is like a marriage. From getting to know somebody, defining terms sheet until closing - signing contract - and then post closing. And terms sheet is the most important step in this process, because here you design how your partnership with investor will look like. How the terms sheet will look like, this is like how the rest of the process is going to look like. Therefore, involve a good lawyer in this process as soon as possible,"
adviced Ambrož Arko from the law firm Novak Law
on the workshop to 10 selected Seed-Stage startups from Start:up Alpe-Adria acceleration program.
Further, Ambrož Arko adviced startups about how to setup rules when stepping in relationship with investors.
Do your homework
Do research about investor at the beginning of investment process. What you will get from it? Is it only money or some strategic help or opening to new markets?
Understand terms sheet
It is crucial for you to fully understand every provision in terms sheet. Especially the consequences. Terms sheet follow structure and define economic and managerial terms startups and it requires a lot of negotiations. Everything can be negotiatable.
Among all terms Ambrož emphasized especially:
- Define very well how the money will be distributed when exit comes. Do the calculation, good and bad scenario and see what is good for you.
- Define well voting rights which defines how your relationship as shareholders of a company is going to be. Very often investor want to have a vital right on the changes. This means when you want to change something, you will need to get green light from the investors (e.g. if you want to pay out some dividends). Even if you have the majority of the shares you cannot change the articles of the association without investors green light.
So, even if this process might seem easy at the first glance, find a good lawyer
to make your "marriage" under the best conditions for your startup.