Points to consider when raising investment

Points to consider when raising investment

Terms to consider incorporating into your investment documents to help ensure you are protected after an investment is made in your business

People often ask us how they can raise investment without losing control of everything they have built. This article suggests a few terms you should consider incorporating into your investment documents to help ensure that you are protected after an investment has been made.

Term sheet

If you are raising money by bringing on an investor, you will likely be negotiating more than the amount to be invested. When an investor decides to invest in your business, they will generally provide you with a term sheet setting out the headline commercial items. Whilst this is not legally binding, it will be used to scope out the subscription agreement and provides both parties with a clear outline of the deal.

Director and board level decisions

Directors are responsible for the day to day management of the company and many decisions are made at board level. As a founder, you may already be a director of the company. However, if you are not you will want to ensure that you have the ability to be appointed as director or the option of appointing someone to represent you at board level.

If investors are making a significant investment, they may want the same visibility and say at board level. This is a case of balancing the investment against a potential loss of control of the decision-making process. You could restrict the right to appoint directors to only those shareholders holding more than a specified percentage.

Providing for an exit

You need to consider what your plan is in the long term as you do not want to be left without an exit route. If an offer is made to buy the whole company, you will want the ability to accept. ‘Drag along rights’ is a mechanism whereby if a majority shareholder or a set percentage of shareholders agree to sell their shares to a third party, you can compel any minority shareholders to also sell. Minority shareholders receive the same price per share as majority shareholders and you don’t lose out on the opportunity to sell.

If you leave, what do you receive for your shares?

If you decide to move on from your business and are required to sell your shares, leaver provisions may determine the price you receive. This amount will be tied to whether you are leaving as a “good leaver” or “bad leaver”. You will want to avoid a situation where you are a good leaver in very limited circumstances, such as death or disability, but a bad leaver for any other reason. Careful attention should be paid to these definitions as it could mean the difference between receiving market value or nominal value.

Working after you have left

Where your experience is key to the company’s success, an investor would want to make sure that you don’t leave for a competitor and take the value of the company with you.

It is usual to place restrictions on key personnel to not be involved in a competing business while working for the company, and on leaving the company, to not carry on a competing business or poach existing suppliers, customers or employees.

Before committing to any restrictive covenants, it is important to think seriously about what is realistic for you. You will want to ensure that any restriction is limited in sector, location and time. For example, a restrictive covenant at director level would be excessive if it was to apply for more than 12 months.


Each business is different and whilst not an exhaustive list of the possible ways to protect start-up founders, it gives an indication of some of the key terms to look out for when negotiating an investment.

This article is provided for general information only and is not intended to be nor should it be relied upon as legal advice in relation to any particular matter. If you would like more information on investment documents or corporate matters please contact Lydia Mills at


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