Why the exemption matters
Selling shares, membership interests, convertible notes, or SAFEs to investors is generally a securities offering, and it has to be registered or fit an exemption. Most private deals rely on federal exemptions such as Regulation D, which come with conditions about who may invest and how the offering may be marketed. A notice filing with the SEC and filings in the states where investors live, including New York, often follow. Missing a condition can give investors a right to undo their investment and can draw regulators' attention. The choice of exemption should be made before the first pitch, not after.
The paperwork on each side
Companies typically prepare a term sheet, a purchase or subscription agreement, updated governing documents, and disclosures about the business and its risks. Investors should review the cap table, prior financing documents, and any rights other investors already hold, such as liquidation preferences or anti-dilution protection. Due diligence usually covers material contracts, ownership of intellectual property, litigation, and tax matters. Side letters granting special rights to one investor need to be consistent with the main documents. Accurate disclosure protects the company, because misleading statements in a private offering can still lead to fraud claims.
Negotiating the terms that last
Valuation draws the most attention, but control terms often matter more over time: board seats, consent rights over major decisions, transfer restrictions, and what happens on a sale of the company. We work through the economics and the governance with you and look for terms likely to create conflict later. For foreign investors, or investments in sensitive industries, national security review by CFIUS may need to be considered. Tax structure, including the choice of entity and how returns will be taxed, is worth discussing early as well. A private investment transaction documented carefully at the start is easier to manage when the company grows or changes direction.
