At several points in your business cycle, you are likely to seek out investors to help fund your growth and future innovations. How you approach your investor agreements, from the first round of financing to the last, can have a huge impact on your business.
It pays to think strategically when dealing with any investor agreement. Below are some tips to keep in mind for crafting strategic investor agreements:
Promising too much. Especially during your first cycle of negotiating with investors, it can be all too easy to give up too much, too soon. If you give too much to early investors, you risk turning off future investors because the early investors have too much control.
Giving away too much control. Some investors will want to have a say in how you run your business. After all, their money and potential profit is at stake. Your investor agreement should balance the investor’s interest with your need to operate efficiently and without too many restrictions to hinder your forward progress.
Agreeing to standard terms. Venture capital groups and angel investor groups often use a standard agreement with each start-up they fund, but those terms might not make sense for you. Always have your business attorney review any standard agreement before you sign to ensure that the terms are fair and favorable.
When you are trying to raise money for your business, it is tempting to agree to terms too quickly in order to secure investors. While your investors need to see value and revenue potential in their agreement with you, you also need to protect your own interests along the way. The advice of a skilled business attorney can go a long way as you negotiate contracts and agreements with investors and shareholders, and it pays to seek that advice sooner than later.
To learn more about crafting strategic business agreements, including investor and shareholder agreements, contact EmergeCounsel today.