Steps to Prepare for an Outside Financing Deal

Whether you are launching a startup or expanding an established business, the need for outside financing often arises at critical moments. You may be seeking capital to bridge a temporary slowdown, fund growth initiatives, or pursue new market opportunities. Regardless of the reason, securing outside investment requires careful preparation and a strategic approach.

Investors expect companies to be organized, transparent, and legally prepared. Taking the proper steps in advance can significantly improve your chances of a successful financing transaction.

Building the Right Advisory Team

Outside professionals play an essential role in preparing a company for financing. Accountants, market analysts, and business planners each bring valuable expertise, but the most critical advisor throughout the financing process is an experienced business law attorney.

Your attorney will not only draft and negotiate key transaction documents, but will also identify the information and records required for investor due diligence. Proper legal guidance helps ensure that your materials are complete, accurate, and presented in a way that supports negotiations for fair and balanced investment terms.

Understanding and Negotiating the Term Sheet

One of the first and most important documents in an outside financing transaction is the term sheet. The term sheet outlines the basic economic and control terms of the proposed investment and serves as the framework for the final financing documents.

Key provisions commonly addressed in a term sheet include:

• Company valuation;
• Ownership dilution;
• Liquidation preferences;
• Voting rights and board representation.

Although often described as “non-binding,” many term sheet provisions have lasting consequences once accepted. A clear understanding of industry norms and the legal implications of these terms is essential. Your attorney can help you evaluate these provisions and prepare the definitive agreements that follow the term sheet.

Preparing a Clear Capitalization Table

A capitalization table provides a comprehensive snapshot of the company’s ownership structure. It identifies all issued and outstanding equity interests and the rights associated with each class or instrument.

A well-prepared capitalization table typically includes:

• Common and preferred stock;
• Stock options and option plans;
• Convertible notes and other convertible securities;
• Warrants and rights to purchase equity;
• Ownership or control interests in other business entities.

Pro forma capitalization tables are particularly valuable, as they model various financing scenarios and illustrate the dilutive impact of proposed deal terms. Investors rely on this information to understand their prospective ownership position and economic return.

Organizing Corporate and Legal Records

Investors will conduct thorough legal due diligence before committing capital. As part of this process, they will expect access to well-organized corporate records and documentation, including:

• Formation documents, articles of incorporation, and bylaws;
• Equity issuance records and shareholder agreements;
• Material contracts, leases, notes, and loan agreements;
• Employment, consulting, and confidentiality agreements;
• Board and shareholder meeting minutes and resolutions;
• Judgments, liens, mortgages, and regulatory filings.

Investors will also evaluate whether their investment could trigger conflicts with existing agreements or create liens on company assets. Clear documentation demonstrates good corporate governance, compliance, and operational reliability.

Why Legal Preparation Matters

Proper preparation for outside financing reduces risk, strengthens negotiating leverage, and builds investor confidence. Companies that fail to address legal and structural issues early often face delays, reduced valuations, or unfavorable deal terms.

The business lawyers at Corporate Securities Legal LLP have extensive experience guiding clients through the preparation and execution of outside financing transactions. Their strategic approach helps companies present themselves professionally, protect their interests, and move efficiently toward closing.

Contact Corporate Securities Legal LLP to schedule a consultation and begin preparing your business for successful outside financing.