For many founders, attracting investor interest feels like the hard part. But as many fast-growing businesses often discover, the real challenge often begins once a deal is on the table.
Giving someone every reason to buy into your vision means knowing your business – and its flaws – inside and out. Simon Hore, Partner in Thrings’ Corporate team, takes a look at a hypothetical example where hidden issues could derail a vital funding round.
A business on the rise
Green Data Readers Ltd* (GDR), a rapidly scaling sustainability data platform, had built strong momentum. With a growing client base across the UK and Europe and increasing demand for ESG reporting tools, the company was well positioned for expansion.
After months of informal discussions, a venture capital firm issued a term sheet to support a significant growth investment. For the founders, Gavin and Trisha, it felt like validation of years of hard work – and a clear path to the next stage of growth.
Confident in their progress and performance, they moved quickly into the due diligence phase.
The due diligence reality
As is often the case, the investor’s legal and commercial due diligence went far beyond financial performance – and what initially appeared to be a routine process quickly became more complex.
A number of issues emerged; the company’s share structure had evolved over time, and the board had failed to keep up to date the statutory registers; key commercial contracts were either unsigned, not up to date, and intellectual property, developed by external contractors, had not been formally assigned to the company.
Individually, these issues were not uncommon. Collectively, however, they raised concerns.
The investor didn’t walk away – but their position changed – and the deal began to slow from its initial quick pace as additional queries were raised, further documentation was requested and more detailed protections were proposed.
For the founders, this created uncertainty. The timeline stretched, costs increased and attention was pulled away from running the business.
What had felt like a near-certain deal was now at risk of being renegotiated – or even falling through.
Give your investors confidence
Thrings’ Business Investment-Ready Check is designed to help you streamline the investment process by identifying issues early and providing pragmatic solutions.
Had Gavin and Trisha taken out the check in the fictional case study above prior to seeking investment, it would have identified these issues and offered straightforward advice on how to remedy the problems, making them a much stronger opportunity for interested parties.
Thrings’ Business Investment-Ready Check would have provided a clear framework for action, with a focused review unearthing the areas most likely to impact investment. This included recommending:
- a full review and regularisation of the company’s share structure and statutory registers
- the updating and formalising key commercial contracts
- a review of the company’s intellectual property rights and rectification action in the form of confirmation intellectual property assignments.
With this knowledge up front, the investment into GDR would avoid unwanted delay, allowing the deal to proceed, providing the cash injection it needs to grow with the due diligence exercise giving investors no cause for concern.
Thrings’ Corporate lawyers are experienced in advising business owners and leadership teams, from start-ups to multinational firms, on all stages of the business life cycle. We aim to understand your business and its objectives, challenges and unique needs, to advise you in a way that helps you reach your commercial aims.
To find out more about Thrings’ Business Investment-Ready Check and how it can help your organisation achieve its goals, get in touch today.
* A hypothetical company for the purpose of the case study.
