VC Focus | How companies can successfully navigate the VC investment process
Published on 9th Jan 2023
Securing investment from VCs can be disruptive and slow – but there are things that can be done to ease the process
Most successful founders will tell you that getting venture capital (VC) to invest in your business is often the start of a long and disruptive process. Having a fundraising plan and getting your house in order helps minimise disruption to your business, avoids wasting time and makes the process as straightforward as possible.
Get yourself ready for a VC fundraising with our top 10 tips
What issues arise during the process and how do you solve them? Based on our wide ranging VC and company-side experience, we have pulled together a list of the key points to consider as you approach a VC investment. We walk you through the process and what is needed at each stage, to avoid any nasty surprises along the way.
The benefit to you? You are mentally and physically prepared for the process and your relationship with the VC is one built on solid foundations.
Read our top 10 tips in full.
Making sense of the VC term sheet
A term sheet outlines the principal terms and conditions governing a VC investment. Although they are meant to be a summary, term sheets often contain complex terminology and jargon, which means they can cause confusion for founders. Although most terms are not legally binding, once something is agreed in a term sheet it can be difficult to negotiate.
Understanding the terms and the implications is an important aspect of protecting your position through the fundraising and in the future. We have prepared explainers of the key terms that you can expect to see in a term sheet.
In the first, we look at the valuation and number of shares, as well as positive undertakings, consent matters and information rights.
In the second, we explore founder vesting, good leaver/bad leaver clauses, anti-dilution ratchets rights and “drag and tag” provisions. We also look at the legally binding provisions in a term sheet. If you are unsure what any of the terms mean, please get in touch with one of the experts listed below, so we can advise you on the implications before you sign the term sheet and help negotiate with your investors.
Understanding convertible loan notes and VC bridging rounds
Raising VC money can be challenging with many VC-backed companies only reaching sustainable profit after multiple rounds of VC funding. The VC fundraising process ranges from “seed” or “pre-series A” rounds, through to what is known as “follow the funding alphabet”, such as Series A, B, and so on.
Sometimes during this process there can be a need for additional or “bridging” debt to keep the business trading. This is frequently offered in the form of a convertible loan or through convertible loan notes in the UK. These loans are often used at the beginning but also in the later stages of a VC fundraising to keep a company trading pending a sale or IPO exit.
Read more about what the usual terms that are associated with convertible loan notes and bridging rounds are, what the advantages and disadvantages of using them are, and whether there are other options in our Insight.
Osborne Clarke has a market leading venture and growth capital practice across Europe, supporting investors across sectors including financial services, media and communications, life sciences and healthcare and real estate and infrastructure. If you have queries on any issues covered in this note please connect with one of our experts.