What a startup should know before its first funding round
Before you sit down with an investor, get your corporate structure, cap table and intellectual property in order. Here is what to watch for.
A first funding round is a milestone for any startup, and also a test of legal maturity. A serious investor looks not only at the product and the team, but also at how the company is structured. A tidy house builds confidence and shortens negotiations; a messy one raises questions and can lower the valuation.
1. Legal form and shareholding structure
The first thing an investor checks is who actually owns the company. The cap table must be clear, documented and up to date: who the shareholders are, what percentage each holds, and how contributions were made. Handshake understandings between co-founders are a frequent source of conflict. A shareholders’ agreement governing key decisions, share transfers and exit scenarios prevents many later disputes.
2. Intellectual property
In a startup, the value often lies in the code, the brand and the know-how. It is essential that the intellectual property rights belong to the company, not, personally, to the founders or collaborators. Check that assignment clauses are in place in contracts with developers, freelancers and employees, and that the trademark is protected. An investor will want certainty that it is funding a company that genuinely owns what it builds.
3. Contracts and third-party relationships
Key contracts, with customers, suppliers, partners, should be written, signed and consistent. Watch out for exclusivity clauses, change-of-control provisions, and obligations that could limit your freedom to raise capital. An early legal review avoids surprises during due diligence.
4. Due diligence: be ready
Before investing, a fund or business angel will run legal, tax and financial due diligence. Prepare a data room in advance, with the corporate documents, key contracts, the intellectual property position, any litigation, and the tax situation. The tidier the documentation, the faster and more favourable the process.
5. The term sheet: read beyond the valuation
Many founders focus solely on the valuation, but the term sheet contains clauses that matter just as much: voting rights, liquidation preferences, anti-dilution provisions, investor veto rights, and founder vesting. These provisions shape control and the real payout in a future sale. This is where a lawyer’s advice makes the difference.
Conclusion
A well-prepared funding round not only improves the odds of raising capital, it protects founders over the long term. A clean structure, clarity over intellectual property, and a real understanding of the term sheet are investments that pay for themselves.
This article is for general information only and does not constitute legal advice. For your specific situation, we recommend consulting a lawyer.