Investor, Financing & Venture Capital Issues

Investor Financing/Venture Capital

Let’s say you and your partner have come up with the next big thing.  You have developed a new product, created a novel business plan, or have a fresh business idea.  But you lack money.  The expense of launching a new business from the beginning phases can be substantial.  And even if you are certain that the ultimate payoff will be large, it can be impossible to take the next step without investors.

The Virginia investor financing and venture capital attorneys at MartinWren, P.C. can help.  As experienced business law attorneys, we can position your company in the best way to appeal to individual investors, financially powerful angel investors, or venture capitalists.

The potential relationship between your company and its investors will be detailed in a venture capital term sheet.  This document is not a legal promise to invest but simply a confidential proposal that sets out the broad parameters of the investment.  It will fix a method for calculating your economics – the current value of the company, the company’s value after capital investment, and the value of shares and dividends among others.

It is hard to predict what terms will actually come into play.  Because these unknowns can be tedious to negotiate, it is helpful to have an experienced venture capital attorney who can ensure the terms which are set are reasonable and fair.

Another major decision is whether a venture capital investment will take the form of equity or debt.  If the venture capitalists simply loan the company money, the investment will be a debt.  However, the most common form of venture capital involvement is an equity investment which is paying for ownership of a part of your company.

The form of investment will affect many different aspects of the relationship between the company and the venture capitalist.  For example, an investor who holds equity has different rights to the company’s money than one who simply holds a debt.  When the company has sufficient money, debt holders have the right to get paid out first and then equity holders get what remains.  Most notably, debt holders do not stand to benefit from success of the company other than the original amount (plus interest, of course) of the loan.  Equity holders, however, are entitled to theoretically unlimited upside as the company grows and their equity percentage increases in value.

Another important aspect of a company’s relationship with its investor is the stock structure.  An experienced venture capital attorney can outline an appropriate stock structure that addresses the type of stock to be issued, the timing of the funding, voting rights, and make provisions for potential public offerings or liquidity events.

A company can greatly benefit from investor financing or a venture capital investment.  The above mentioned considerations are just a few of the issues that must be examined before finalizing an investment relationship.  The Virginia venture capital attorneys at MartinWren, P.C. are skilled in all aspects of fund procurement and fund formation and can guide your company through all phases of the investment cycle.  Drawing on our broad base of expertise, MartinWren, P.C. can provide the many services necessary to structure your investment relationship including negotiation and documentation of the securities to be issued, voting agreements, stockholder agreements, employment and non-competition agreements, intellectual property issues, and matters concerning employment arrangements.

The investor financing attorneys at MartinWren, P.C. can ensure that the relationship’s terms are appropriate to promote the company’s plans for its future and are crafted in consideration of applicable laws and regulations.  Contact the Virginia venture capital attorneys at MartinWren, P.C. by calling (434)817-3100, and we can help your business take the next step toward great success.

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