How to prepare your start-up for investor entry

The entry of an investor into a start-up is often a key moment that brings significant opportunities for the start-up to develop successfully. Investor interest in a start-up can come at almost any stage of its life. One of the first steps taken by an investor in the process of negotiating an investment is the legal due diligence of the start-up. For this purpose, the investor usually requests a number of documents and information from the start-up. It is in the best interest of the start-up to be well prepared for this challenge, so that the profitable opportunity does not fail due to administrative problems. If the start-up has the documentation reasonably complete, it will be able to respond to the investor's questions and requirements in a relatively short timeframe.  

In practice, it is possible to map a number of documents and information that an investor cannot go without. Below are some of these documents, the gradual completion of which can only be recommended, as timely preparation for the investor's entry will save the start-up time and money. Of course, this list of documents that an investor may require from a start-up is not exhaustive. The investor's requirements will be influenced by other factors, in particular the subject matter of the start-up, the stage of development in which the start-up is, etc.

Corporate documents

Basic corporate documents, such as a current extract from the commercial register and a memorandum or articles of association in their current form, will not usually be a problem. However, an investor may also require minutes of general meetings or meetings of other corporate bodies, especially if the start-up has been operating for some time.

Property

Typically, an investor will wish to verify whether the start-up has title to assets that are significant to its operations. Given that start-ups will often not own more valuable assets, this may seem redundant. However, the investor will certainly also want to see rental and leasing agreements or, for example, licensing agreements relating to intellectual and industrial property. Having the right intellectual property arrangements is one of the most important points for start-ups and should be given due consideration from the very beginning of operations.

Financial relations

In the context of financial obligations, the investor will certainly be interested in the key loan agreements, but also in other agreements under which the start-up obtains funds to finance its activities. If there is already an investor in the start-up, the new investor will also check the relationship between these investors and the start-up.   

Public law area

Another documentation that should be systematically kept are trade and other public law authorisations for the start-up's activities, including permits, registrations, consents and licences that are legally necessary for the start-up's activities. Special attention should also be paid to documentation relating to public support (subsidies, grants, etc.).

Employment documentation

The legal relationship of the start-up with key employees or collaborating persons will also be of interest to the investor. If you have a so-called ESOP program embedded in your incentive program, it is advisable to have sufficient documentation for this as well.

Commitment area

Investors are typically interested in the business relationships with a company's key partners to assess the merits of investing in a start-up. In particular, the model contracts used by the start-up in carrying out its activities are required.

Litigation

The area of litigation and administrative proceedings in which a start-up is involved can be a risk factor for an investor when making an investment decision. In these matters, it is important to be transparent with the investor, as only on the basis of complete documentation can the investor assess the risks arising from these proceedings.

Digi Lab project

Arrows' team of legal and tax specialists focuses on the issue of start-ups in all its stages within the Digi Lab project. The Digi Lab provides comprehensive advisory to start-ups from the business plan through the establishment, development and possible entry of other investors, including the complete exit of the founders from the company.

If you are thinking of bringing your business plan to the market or you want to take your start-up to the next level, for example by getting a new investor, do not hesitate to visit the website www.arws-digilab.cz or contact the Digi Lab team via email: digilab@arws.cz.

DigiLab specialists will be happy to provide you with more information about the project, consult with you about your options and, if necessary, help you effectively solve the problems you are facing in building a successful start-up.