From Investor Yes to Cash: Closing a Funding RoundNov 01, 2023
Securing funding from investors is a crucial step for startups, but the process doesn't end with a verbal agreement or a signed term sheet. It's important for startups to understand the steps that need to be taken to turn an "investor yes" into cash in hand. In this blog post, we will discuss the steps that startups should take to close a funding round and ensure that they have the resources they need to grow their business.
- Review the term sheet
The first step in closing a funding round is to review the term sheet, which is a document outlining the terms and conditions of the investment. It's important to understand the terms of the investment, such as the valuation, the equity, the milestones, and the governance. It's also important to have a good lawyer review the term sheet and ensure that it's fair and reasonable.
- Conduct due diligence
Due diligence is the process of verifying the information provided by the startup, such as the financials, the team, the market, and the technology. It's important for the startup to provide all the necessary information and to be transparent about any potential risks or challenges. Due diligence will help both the startup and the investors to understand the business more and make an informed decision.
- Prepare legal documents
Once the term sheet is agreed upon and due diligence is completed, the next step is to prepare the legal documents, such as the subscription agreement and the shareholders agreement. These documents will detail the rights and obligations of the investors and the startup. It's important to have a good lawyer review the legal documents and ensure that they are fair and reasonable.
- Close the round
The final step in closing a funding round is to close the round, which means that the investors have transferred the funds to the startup and the startup has issued the shares to the investors. This is usually done by a wire transfer or a check, and it's important for the startup to keep accurate records and to ensure that all the funds have been received.
- Keep your investors informed
Once the funding round is closed, it's important for the startup to keep its investors informed about the progress of the business. This could include sending regular updates on revenue growth, milestones, or other key metrics. Keeping investors informed shows that you value their investment and that you are committed to the success of your business.
It's also important for the startup to have a plan for using the funds, and to report back to investors on how the funds are being utilized. This not only builds trust but also keeps the investors informed and engaged in the business.
In conclusion, securing funding from investors is just the first step in the process. It's important for startups to understand the steps that need to be taken to turn an "investor yes" into cash in hand. This includes reviewing the term sheet, conducting due diligence, preparing legal documents, closing the round and keeping investors informed. By following these steps, startups can ensure that they have the resources they need to grow their business and achieve their goals.
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