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By LegalEdge News

Get Due Diligence ready for an investment round/ exit


If you’re planning an investment round/ exit, you need to be due diligence ready. Because, at the very least, it will help the deal move quickly, which can be key if your cash runway is short. However, if something comes out of the woodwork that affects value, it will be used to renegotiate the deal value down, or could even cause a buyer/ investor to withdraw. 

What is Due Diligence?

Your investors/ buyers (or rather their lawyers, accountants, tech specialists, etc.) will assess the value of your business and any potential risks and liabilities that might affect their investment/ acquisition and its value. 

What is Legal Due Diligence?

It is a comprehensive review of your company’s legal affairs, ranging from corporate governance to regulatory compliance and contractual obligations. 

How is it done?

Lawyers (often using legal tech) will go through a long list questions and documents to gain insight into your company’s operations and legal standing in each country in which you do business, including:

  1. Customer contracts: revenue (MRR/ ARR), renewal terms, IP protection, data obligations, limits on liability, enforceability, change of control issues, etc.
  2. Corporate governance: cap table, Companies House filings, shareholder agreement(s), articles of incorporation, board and shareholder resolutions, minutes, etc.
  3. Financing: loans/ debt financing, finance leases, factoring arrangements, etc. 
  4. Supplier contracts: for your tech stack, tech dev, intellectual property (IP) licences and assignments, marketing, PR, etc services, logistics, office/ property leases, and other suppliers.
  5. Asset ownership: for tech and other equipment, property, etc.
  6. People: employment and other staff contracts (freelancers, etc), policies, handbooks, incentive/ bonus/ share option schemes, etc. 
  7. Disputes: pending or threatened litigation, settlements, regulatory investigations.
  8. Regulatory filings and compliance: registrations, licenses, etc – including for data protection/ GDPR.

How do you get ready?

To ensure the due diligence process is as streamlined as possible and potential issues mitigated:

  1. Organise documentation: Put together a central repository of relevant documents/ contracts, keep it maintained in well organised folders using a sensible naming convention with an up to date index. Log who has access to what and when. This will ensure easy, well organised access and retrieval during due diligence inquiries, expedite the review process, and promote transparency. There are various tech platforms that can do this for you if needed. But a simple repository can often be housed on existing tech (Dropbox, Google Drive, Sharepoint, etc).
  1. Engage legal counsel and conduct an initial high level legal DD: Once things are organised, we will go through a typical DD questionnaire and identify any potential gaps or legal issues. We anticipate inquiries and issues, and then address any legal concerns/ complexities before they become problematic on a deal. 

Being well organised is key to building trust and credibility throughout a due diligence process. It bolsters investor/buyer confidence and demonstrates commitment to risk management and good corporate governance.

Conclusion:

Be proactive when you start thinking about your next funding round or exit. By assembling documentation, conducting internal audits, and engaging legal expertise, you can ensure you are ready and positioned well to do the deal quickly and efficiently. 

To discuss how we can support you through your next investment round or if you’re planning your exit get in touch on info@legaledge.co.uk

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