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Structuring The Private Placement Or Venture Investment- Pre-Deal Considerations

I recently blogged about how to determine valuation in a start-up or development stage entity for purposes of structuring a prepackaged private placement, or for negotiating the venture capital transaction. I followed that blog with one explaining the various types of financial instruments that can be used for an investment.

Before a company can package a private placement offering or effectively negotiate with a venture or angel investor, it has to have its proverbial house in order. This blog circles back to the beginning discussing pre-deal considerations.


In order to successfully attract quality investors, a company must have its financial and legal house in order. I always advise my clients to act as if they are public, even if they never intend to go public. What is meant by that is to maintain proper corporate books and records. Draft and sign minutes of meetings of the board of directors, officers or committees. Keep systems in place to make sure that upper management is informed of events affecting their jurisdiction. Keep proper financial records utilizing a timely system such as QuickBooks. Maintain a corporate structure such that each person knows his or her area of control and on the other side, nothing material is falling through the cracks.  All of this takes extra effort, but at the end of the day the business will be more efficient and problems will identify themselves before they are too costly or disastrous.  Moreover, maintaining a proper house will convey itself when dealing with investors.

Importantly, the Company should have a professional, complete business plan and separately a much shorter executive summary.  This business plan and executive summary will be the “first impression” of the investor and will often provide the basis for their belief in management and desire to entertain the idea of an investment going forward.

In the case of a packaged private offering, the attorney will rely heavily on the business plan for portions of the private placement memorandum.  In the case of a venture capital or angel investor, the business plan may be the only full disclosure document reviewed.

Besides the business plan and executive summary, most sophisticated investors like to see a PowerPoint presentation.

In addition, the Company executives should have an oral presentation prepared and practiced.  This oral presentation is sometimes referred to as an elevator pitch.  Venture capital and angel investors will often start with the elevator pitch and PowerPoint presentation before deciding whether they are sufficiently interested to review the executive summary and/or full business plan.

Financial Matters

Prior to speaking with investors, a company should ensure that their financial records are up to date, including ensuring that all tax returns have been filed.  In addition, the company should have a clear understanding of the amount of funds it needs from investors and the intended use of proceeds.  An internal analysis should be completed for extraneous expenses and out-of-date financial reporting systems.  If the company has not done so, financial projections should be prepared illustrating key milestones and clearly stating underlying assumptions.

Legal Matters

A Company must make sure that its corporate books and records are up to date and properly maintained, which includes, as mentioned above, keeping proper board and minutes meetings.  The state of incorporation should be checked to make sure that the corporation is in good standing and that all publicly available information is accurate and up to date.  Handshake and verbal contracts or amendments should be memorialized in writing.

Likewise, the stock issuance and registrar of the company should be complete and up-to-date accounting for any options, warrants, or other convertible securities.  Antiquated options and warrants should be canceled.  Pre-emptive and other extraordinary shareholder rights should be examined for necessity; if they are not necessary, get rid of them.

Every prior security issuance should be examined for compliance with state and federal securities laws, and where there is a noncompliance corrective measure should be taken—including, where necessary, a rescission offering.

Intellectual property rights, if any, should be carefully reviewed and protections put in place.  Patents and trademarks can greatly enhance the value of an entity.  Where applicable, it should be certain that employees and independent contractors have executed nondisclosure agreements, work-for-hire, and intellectual property assignment agreements in favor of the company.  In addition to analyzing existing protections and patentable rights, an analysis should be completed to ensure that a company is not violating the intellectual property rights of a third party.  An intellectual property analysis is similar to a chain of title search.  All potential claims by or against the company should be reviewed and addressed.

Litigation or matters that could result in litigation should be reviewed and analyzed for potential material adverse effects on the company.

All general regulatory matters should be reviewed—Is the company properly licensed to conduct its business in each jurisdiction that it conducts business? Is the company abiding by all foreign laws and regulations and cross-border laws and regulations, including treaties?

The Author

Laura Anthony, Esq.
Founding Partner
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys

Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; Regulation A/A+ offerings; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers, ; applications to and compliance with the corporate governance requirements of securities exchanges including NASDAQ and NYSE MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the OTC Market’s top source for industry news, and the producer and host of LawCast.com, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.

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Legal & Compliance, LLC makes this general information available for educational purposes only. The information is general in nature and does not constitute legal advice. Furthermore, the use of this information, and the sending or receipt of this information, does not create or constitute an attorney-client relationship between us. Therefore, your communication with us via this information in any form will not be considered as privileged or confidential.

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