In the first part of this guide on investment rounds in startups we focus on the generalities of the process, on the basic questions that participants should reflect on when they consider intervening in a procedure like this.
From now on, in thi
Phases in investment rounds in startups
For greater convenience we will separate the process into three large blocks:
- The preparatory phase of the investment round, which encompasses all those activities aimed at seeking financing, where the investor must define, among other things: capital he wants to raise based on his needs, what type of partner he ideally wants as a travel companion, What type of financing do you need trademark registration agency… process that will culminate with the preparation of the deck and the briefing for investors.
- Execution phase of the investment round, where potential investments will be contacted, meetings will be held where the investor’s pitch will be a fundamental element to demonstrate the company’s projection, its solid foundations, the quality of its team…So that, with With a little luck, a positive response is received from potential investors, perhaps through a Letter of Intent (LOI), a Term sheet, where the essential aspects of the investment will be regulated, or perhaps a convertible note, which must be negotiated together with the content of the partners’ agreement to reach a final agreement.
- Phase of carrying out post-closing activities , all those activities aimed at completing the necessary procedures to comply with legal and tax obligations, such as the registration of the expansion in the corresponding commercial registry or the modification of the membership book.
Categories in an investment round
But before delving into these phases and simplifying, we will establish that currently there are two main categories when we talk about financing rounds, those carried out through:
An investment round through convertible notes is a recommended route for companies that require short-term financing, either due to treasury tensions or due to the need for the project itself. Through this means, what the investor subscribes to with the company is a convertible loan that can be participatory. As it is a loan, the company receives the financing directly and does not have to wait for the round to be executed in order to obtain the necessary liquidity for its day-to-day operations.
A temporary period is usually agreed upon with the investor in which the company can at its will convert the principal of the loan into the company’s share capital at a specific valuation or with a cap and/or a floor (that is, with a minimum or maximum value conversion) or, return the loan with the agreed interest.
It should be noted that for initial investors a discount may be offered on the pre-money value of the round, which is the value given to the company before receiving the investment. If we divide this value by the number of existing shares, it will give us the price per share. That is, the value at which each partner will capitalize their loan.
On many occasions, as the investor has made the contribution in advance, even months before the capital increase for compensation of credits is raised to the public, the investor is offered a discount on the pre-money valuation to reward the trust placed. in the project.
Faced with this expansion, there is direct entry into equity . that is, in the share capital of the company, directly and taking into account the pre-money valuation, and therefore they will become partners of the company for all purposes.
If you need more information or expert advice, do not hesitate to consult our team of \
