Fundraising: five documents to get right before closing
By Founding Partner5 min read
A funding round is negotiated in a few weeks and lived with for years. Most of what will matter later is settled in five documents, often signed in a hurry once the investor has said yes.
Founders rarely lose a round on the headline terms. They lose time, and sometimes leverage, on the details: a clause read too late, a past share transfer nobody can find, a closing checklist that grows in the final week.
This guide takes the five documents in the order you will meet them: what each one settles, and the questions to ask before you sign.
Start with your own review
Your investor’s counsel will read your company’s file closely: articles of association, earlier rounds, the share register, key contracts, employment contracts and IP assignments. Doing the same review first gives you a list of fixes while there is still time to make them.
Good to know. Diligence often turns up small gaps from earlier years, such as an unsigned share transfer or a missing board decision. Most are simple to fix, as long as you find them before the investor does.
The five documents
01The term sheet
The term sheet records the main commercial terms: valuation, amount, investor rights and the conditions to closing. Apart from a few clauses, usually confidentiality and exclusivity, it is generally not binding. In practice, few of its terms move afterwards, so this is where to spend your negotiating capital.
02The investment agreement
Also called the subscription agreement, it turns the term sheet into commitments: who subscribes, for how many shares, at what price and on which conditions. It also holds the representations and warranties you give about the company, and what happens if one proves inaccurate. Read the limits on that liability closely: caps, thresholds and time limits.
03The shareholders’ agreement
This is the document you will live with. It sets the composition of the board, the decisions that need investor consent, the restrictions on transferring shares, and exit mechanisms such as drag-along and tag-along. Leaver clauses, which decide what happens to a founder’s shares on departure, deserve a careful read.
04Convertible instruments
Many early rounds start with an instrument that converts into shares later. In France, the BSA AIR is widely used; in Belgium, the convertible loan is more common. The discount, the valuation cap and the conversion triggers decide how much of the company the investor ends up holding, so model them before you sign.
05The closing documents
Closing is when the funds arrive and the new shares are issued. It takes a set of corporate decisions, updated articles of association and an updated share register. In Belgium, a capital increase generally requires a notarial deed, so book the notary early.
A seed round, week by week
From the first term sheet to closing, in weeks
- Term sheet
- Your leverage is highest here
- Due diligence
- Investment documents
- Closing
Questions to ask before you sign
- 01Which terms of the term sheet are binding, and how long does exclusivity run?
- 02What guarantees do the founders give, and what is the maximum exposure?
- 03Which decisions will need investor consent after the round?
- 04What happens to my shares if I leave the company?
- 05Which documents and signatures does closing require, and who prepares them?
Founding Partner