What’s the interest of fund raising?
Fundraising is a process whereby a company increases its capital by receiving financial contributions from investors. In return, these investors receive shares of the company, depending on the type of company involved. The main aim of this operation is to get new money for the structure and acquire new capital partners to stimulate the company’s growth.
What types of company can benefit from a fund raising?
For a start-up, the main challenge is to define its needs precisely and align them with its growth potential. It is crucial to raise sufficient funds to enable rapid expansion, while ensuring that the amount requested is kept to a minimum so that the founders retain control of the structure. A precise calculation is therefore essential to find this balance.
A solid network is generally needed to attract and convince investors.
Raising funds is a time-consuming process that can distract attention from the actual development of the business. That’s why it’s important to have sound advice at every stage.
The 10 stages of fundraising
1- Ensure the soundness and credibility of the business plan
You need to show that your project and your team are solid and promise strong development potential, which only requires financial support to be realised. It is essential to have a perfect command of your sales pitch and the presentation of your executive summary.
2- Finding investors or funds
An investor can add value in two ways:
– either by providing capital (such as investment funds or major business angels),
– or by offering a network, know-how and expertise in your field.
The investor you are looking for should meet both these criteria.
3- Carry out due diligence
It is at this stage that potential investors carefully examine your file, based on a number of criteria: market potential, time needed to reach the market, credibility of financial forecasts, technical feasibility, team cohesion, etc. You need to be very responsive when asked for additional information, and don’t hesitate to follow up, especially to share good news (new customers, recent growth figures, etc.).
4- Sign non-disclosure agreements
The aim is to ensure the confidentiality of ongoing negotiations. This is the official start of negotiations on the amount of funds to be raised, the shares to be given in exchange and the value of these shares. It is sort of “negociation framework agreement”, ruling the general questions between parties.
5- Agree on the Letter Of Intent (LOI)
This sets out in detail the financial conditions (such as the pre-money valuation) and the legal conditions (changes to the articles of association, creation of shares, dilution of capital).
6- Negotiating and drafting a new shareholders’ agreement
Shareholders’ agreement is an essential stone ruling the obligations between shareholders, founders and investors.
7- Call an Extraordinary General Meeting (EGM) to ratify the capital increase
You need to prepare the director’s report, the resolutions, the proposed amendments, etc.
8- Issue share subscription forms for investors
This must be done at the same time as signing the shareholders’ agreement.
9- Obtain the bank’s custodian certificate
Once the transfers have been made, the bank will issue a certificate from the custodian attesting to the completion of the subscriptions.
10- Register the amendment with the Registrar of the Commercial Court
The final administrative procedures need to be completed: registration of the articles of association, compulsory publication in a legal paper, and registration with trade and company register.
Raising funds can radically transform an entrepreneurial project, therefore it’s important to be well advised at every stage. This will also help to minimise the legal risks associated with bringing new investors into the business.
If you are about to set up your own business, don’t forget to check out the various grants and subsidies available to entrepreneurs such as state subsidies.
Finally, in the event of a fund-raising operation, it is more than advised ot be assited by a corporate and tax lawyer at every step to secure your interests. AGN AVOCATS remains at your entire disposal and will provide you with its best lawyer to handle your fund-raising project.
MFL lawyers remain at your entire disposal to answer your queries regarding your fund-raising project. MFL will provide you with the best lawyers to handle your project and provide you with accurate advices.