1. What Must Be Resolved before a Venture Financing?
A missing stock approval or unsigned IP assignment can delay a financing or change its terms. Company-side representation begins by comparing what the company has promised investors with the records supporting those promises.
Reconcile Equity Records and Outstanding Safes
A cap table should match stock documents, option grants, and board approvals. A spreadsheet alone does not establish valid issuance. Attorneys reconcile these records with SAFEs, convertible notes, and side letters.
Pre-money and post-money SAFEs can allocate dilution differently. Notes may add accrued interest at conversion. Model these effects before agreeing to new ownership percentages.
Confirm IP Ownership and Contract Restrictions
Investors may require evidence that the company owns its core technology. Corporate due diligence includes reviewing founder assignments, employee agreements, and contractor deliverables. Paying a developer does not, by itself, establish ownership of every resulting right.
For covered employment relationships, Labor Code § 2870 excludes certain inventions developed entirely on an employee’s own time without employer resources. Exceptions include inventions related to the employer’s business or resulting from its work. Section 2872 requires notice of the statutory exclusion when the agreement requires invention assignment. Customer and licensing contracts may separately require consents triggered by the financing.
2. Negotiate the Economics and Control of the Round
Valuation alone does not establish a proposal’s value. Company-side attorneys assess option pools, preferred stock rights, and control provisions together, then propose revisions.
Compare Dilution and Distribution Rights
A pre-financing option pool increase can shift dilution to existing holders. Liquidation preferences affect distributions even at the same valuation. Compare new terms with rights promised to earlier investors.
The review should show how each provision affects this round and later financing.
| Term | Company-Side Review |
|---|---|
| Option pool increase | Who bears dilution and how much hiring capacity is needed |
| Liquidation preference | Priority, multiple, participation, and conversion alternatives |
| Anti-dilution adjustment | Effect of a later lower-priced issuance and applicable exclusions |
| Pro rata rights | Existing commitments and capacity for future investors |
Option pool increase
- Company-Side ReviewWho bears dilution and how much hiring capacity is needed
Liquidation preference
- Company-Side ReviewPriority, multiple, participation, and conversion alternatives
Anti-dilution adjustment
- Company-Side ReviewEffect of a later lower-priced issuance and applicable exclusions
Pro rata rights
- Company-Side ReviewExisting commitments and capacity for future investors
Define Board Rights and Investor Consent Requirements
Ownership percentages do not describe all control rights. Review board appointments and reserved matters alongside shareholder agreements. Consent requirements may affect later fundraising, borrowing, or a company sale.
Attorneys reconcile existing obligations, negotiate consent thresholds, and specify when investor rights terminate.
3. Coordinate Corporate Approvals and Securities Filings
Corporate authorization does not establish a securities exemption, and filing a notice does not authorize share issuance. A venture capital attorney in California coordinates company approvals, federal securities compliance, and applicable state notices.
Confirm the Governing Corporate Law and Approvals
Start with the jurisdiction of incorporation, charter, bylaws, and existing agreements. For a Delaware corporation, review the applicable incorporation-law requirements separately from requirements tied to operations or securities sales elsewhere. Business location alone does not settle the analysis.
Identify board, stockholder, and contractual consents. Check authorized shares and any charter amendments required before issuance. A signed term sheet does not substitute for corporate authorization
Separate Federal Exemptions from State Notices
Rule 506(b) generally prohibits general solicitation. Rule 506(c) permits it when all purchasers are accredited investors, the issuer reasonably verifies that status, and the offering satisfies the remaining requirements. Fundraising communications therefore need review before public promotion begins.
For a Regulation D offering, Form D is due within 15 calendar days after the first sale, subject to the weekend and holiday rule. The first sale occurs when an investor becomes irrevocably contractually committed, which may precede funding. For Rule 506 sales in California, assess the separate DFPI notice deadline measured from the first sale in that jurisdiction. Federal preemption of state registration does not eliminate state notice requirements or antifraud obligations.
4. Avoid Financing Pitfalls through Closing
Agreed commercial terms do not resolve every closing requirement. Attorneys track binding preliminary obligations, outstanding disclosures, and conditions that must be satisfied before issuance.
Review Binding Term Sheet Provisions before Signing
A largely nonbinding term sheet may impose enforceable confidentiality, exclusivity, or expense obligations, depending on its language and governing law. Review no-shop periods, termination rights, and expense reimbursement, including obligations surviving a failed financing.
Match Disclosures and Closing Conditions to the Records
Disclosure schedules should accurately qualify company representations. Missing IP assignments or disputed equity promises may require corrective documents, negotiated exceptions, or additional closing conditions.
Reconcile signed agreements, approvals, funding, and the final cap table. Assign post-closing filings and retain documents supporting each issuance.
5. Frequently Asked Questions
Representation and closing arrangements should be clear before the company commits to the transaction.
Preparing documents for the investor does not make its attorney the company’s attorney. Company representation also does not automatically cover founders personally. Individual vesting or secondary sales may require separate advice.
The documents may permit later closings, subject to time limits, financing caps, and admission conditions. Later investors must sign the required agreements. A final closing does not restart a filing deadline already triggered by an earlier sale.
6. Discuss the Next Financing Round
For a California-based company’s next round, provide the proposed term sheet, current cap table, outstanding SAFEs or notes, and organizational documents. Include the expected closing date and unresolved investor requests. Discuss the company-side scope within the broader venture capital practice, including document corrections, negotiation priorities, required approvals, and filing responsibilities.
04 Nov, 2026
