Terms that outlast the money
Investment agreements come in several forms, including stock purchase agreements for priced rounds, convertible notes, and simple agreements for future equity, and each converts or behaves differently when the company raises again or is sold. Preferred stock often carries a liquidation preference that determines who is paid first in a sale, and anti-dilution protections that adjust the investor's position if later shares are sold at a lower price. Investors may receive board seats, information rights, and protective provisions that require their consent for major decisions. Drag-along and right of first refusal provisions affect how and when founders can sell their own shares. Because these terms interact, a small change in one can shift economics significantly in a future sale.
Preparing the company and the paperwork
Before closing, make sure the company's capitalization table is accurate, including options, warrants, and any earlier convertible instruments that will convert. Confirm that intellectual property belongs to the company and that founders and early contributors have signed assignment agreements. Gather corporate records showing that earlier issuances were properly approved. The sale of shares is itself a securities transaction, so the company should confirm which exemption it is relying on and make any required filings. Investors should do their own review of these same items rather than relying on representations alone.
Negotiation points we usually raise
For founders, we look closely at control: board composition, protective provisions, vesting on founder shares, and what happens if a founder leaves. We model how liquidation preferences and conversion terms would play out in realistic sale scenarios, since headline valuation can be misleading. For investors, we review whether the protections match the risk and whether information rights are workable. In either role, we pay attention to how this round will interact with the next one. Clear terms negotiated now are less likely to become the subject of a dispute later.
