Question: What are the legal steps for raising my first round of capital?Answer:
The legal steps for raising your first round of capital will depend on what type of investment you are seeking. Common types of investments include investments via equity, convertible note, or a SAFE. Below are steps to follow when seeking investment from those common ways.
- Draft a Term Sheet to set out proposed terms and mechanics of investment;
- Draft a Share Subscription Deed to finalise the terms and mechanics of investment in a binding (legally enforceable) agreement;
- Receive funds from investors at a set time and place as agreed in the Share Subscription Deed.
- Approve any necessary resolutions to issue shares to investors and update ASIC with the details of your company’s new share structure.
Convertible Note or SAFE
- Draft a Term Sheet to set out proposed terms and mechanics of investment.
- Draft a Convertible Note or SAFE to finalise terms and mechanics of investment in binding agreement.
- Receive funds from investor at set time and place as per Convertible Note or SAFE.
- After the capital raise, a trigger event may occur under the terms of the Convertible Note or SAFE. After a trigger event, issue shares to investors and update ASIC with the details of your company’s new share structure.
Your steps towards raising your first round of capital will also include drafting, reviewing and amending company documents. Your company documents include a Company Constitution and/or Shareholders Agreement. These are key documents that relate to the running of your company and are often the source of negotiations around rights and obligations with investors. For example, if you are receiving equity investment in exchange for preference shares, you will need to either draft or amend your Company Constitution to set out the relevant rights of particular share classes (ordinary, preference and any other classes). Preference shares may come with associated voting rights, liquidation preferences, anti-dilution rights and/or other rights negotiated between the parties.