Looking to raise capital? Martin Kelleher of Mason Hayes & Curran advises on the pre-funding corporate housekeeping
As the world economy improves, companies are again focusing on how to grow their business. A key challenge to achieving this growth is having access to sufficient capital to fund the necessary expansion. One of the main sources of funding for high growth companies is an equity investment.
This investment can come from Enterprise Ireland, business angels, venture capital funds, development capital funds, or, as is often the case, a combination of these investors.
Mason Hayes & Curran is very experienced in assisting companies to secure external equity investment. Prior to engaging with investors, we would recommend that a company perform diligence on itself so as to pre-empt and remedy, as much as possible, any concerns which may be raised by investors.
The key areas to focus on are as follows.
Statutory Books
Investors will want to perform diligence on the statutory books and records in order to identify the shareholders in the company, what number/class of shares are held by each shareholder etc. You should ensure that your statutory books and filings in the Companies Registration Office are up to date and accurate.
In Association with
Accounting Records
Any investor in your company will want to review your audited financial statements and management accounts to get an overview of the financial performance of the business. You should ensure that these accounting records are up to date and follow a standard accounting format and normal accounting principles.
Be prepared to explain upfront any declines in revenue or increases in expenditure that may be inconsistent with your future business plans.
Intellectual Property (IP)
You should ensure that there is a clear chain of title for all of the IP that is owned by the company. Employees should have signed contracts of employment that include customary IP provisions.
If any contractors or consultants have assisted in the development of IP, there should be a written agreement transferring this IP to the company. Check that, where relevant to the future success of the business, you have filed for patent or trademark protection for the company’s IP. Ensure that any disclosure of the company’s IP is under a signed confidentiality agreement.
Revenue Drivers
You should review your contractual relationships (oral or written) with all of your key business partners.Where possible, you should have written agreements in place that provide clarity on the key commercial terms of these relationships. Some of these relationships may be in their infancy, such as a feasibility trial. This is to be expected in high-growth companies that are building relationships with multinationals.
However, these early relationships should be properly documented so that an investor can see, for example, who owns any IP arising from the collaboration and who is free to exploit such IP outside of the relationship.
Existing Shareholders
As any investment will involve legal protection for the investor (subscription & shareholders’ agreement, new constitution etc.), it is important to consider the existing shareholders in the company, as well as understand which shareholders will be providing warranties and other protections to the investor.
Any shareholder discontent can delay an investment or raise concerns for an investor. It is preferable that there be active management of the existing shareholders in the company so as to ensure the smooth completion of the investment.
Advisors
Raising equity finance can involve complex negotiations and it can be time-consuming. It is important to retain experienced advisors who can assist in ensuring that the fundraising adequately protects the interests of all parties and is completed in the most efficient manner.
Martin Kelleher (pictured) is a corporate partner with Mason Hayes & Curran and focuses on M&A and fundraisings. He has assisted many well-known companies, such as Storyful, IdentiGEN, Genable, and Cylon Controls in raising equity finance
