Demystifying investment docs: What investors expect to see

Unless you've got a Scrooge McDuck money pit you can dive into and draw out a couple of million at will, your business will likely need to raise some capital sooner or later.

Even a bootstrapped startup usually reaches the point where additional investment comes in handy. After all, capital pays for growth, be it the development of products or more marketing activity.

But raising capital isn’t simply a case of getting interested investors on board. It’s a process that requires important legal documents to ratify investment.

Here, we detail the key docs you need before, during the process and once the cash is in the bank.

Contents

What to present to investors

• A pitch deck
• A business plan
• Cap table
• Investment proposal
• Term sheet
• Shareholders' agreement
• EIS/SEIS

Other documents you may come across

• Historical financials
• Market research
• Intellectual property (IP) portfolio
• Due diligence checklist
• Customer contracts and agreements
• Proof of regulatory compliance

Make it official

Summary

What to present to investors

1. A pitch deck

The pitch deck is an all-important presentation designed to woo potential investors. This one is a biggie and summarises key aspects, such as your business model, the team behind the venture, the market opportunity and financial projections. It's usually the first document shared between a startup and potential investors.

Why is it needed?

If you want to capture the attention of potential investors, the pitch deck is how you do it. A well-crafted pitch deck conveys the nitty-gritty of your business.

But more importantly, it tells a story, evoking interest and engagement from potential investors. While it sounds like a business plan, it's more succinct and visually engaging, designed to get investors excited about your startup.

What’s in a pitch deck?

Everybody has an opinion on this. But generally speaking, having the following slides in your pitch deck presentation will serve you well:

• The Problem: Personalise the issue, and capture investors' attention.
• The Solution: Show how you tackle the problem, not just fit in the market.
• Product & Features: Use visuals.
• Market & Competition: Get the size right, demonstrate differences and outline risks.
• Revenue & Traction: Highlight achievements and future goals.
• Projections & Team: Realistic growth plans and a solid team are essential.
• Fundraising Strategy: Demonstrate how funds will drive exponential growth.

2. Business plan

Every company needs a business plan, especially when it comes to getting investors on board. They’ll want to see what makes your startup tick, and the business plan outlines all those juicy details, from what the company does to how you plan to sell products or services.

A business plan should also include how you operate day-to-day, as well as your goals for the future. 

Why is it needed?

If the pitch deck offers a chance to be creative and think outside the box with a visual presentation, the business plan is the suit and tie formal version.

It's designed to help investors understand how well you've thought out your idea and if it has any legs. Laying out your plans on paper gives investors an overview of everything the business does.

What’s in a business plan?

• Executive summary: A snapshot of your entire business plan.
• Company description: What you do and why you do it.
• Market analysis: Can your startup thrive in the market it wants to enter?
• Management team: The who’s who of your company.
• Financial projections: How much do you expect to make, and when do you expect to make it?

3. Cap table

Otherwise known as a capitalisation table, a cap table shows who owns what at your startup. This includes everything from equity ownership to how ownership gets diluted over time as your company goes through more rounds of investment.

Every time a new investor hops on board, the ownership shares change and that needs to be reflected in the cap table, which can be a challenge.

The best way to manage your cap table is, without a doubt, digitally.

Why is it needed?

Having a cap table provides a clear picture of ownership, which is necessary for making informed decisions, like bringing in investors or issuing new shares. It's also important for investors, as they'll want to know their share of ownership and how it might change over time with further investments. 

Learn why effective cap table management really matters.

4. Investment proposal

Your business has financial needs, and they need documentation. Enter the investment proposal, which specifies:

• The amount of funding you seek
• How you plan to use the money
• The type of investment you’re open to, eg. equity or a convertible loan note.

It essentially lays out the terms under which you are willing to bring investors into your business.

Why is it needed?

An investment proposal is helpful for both entrepreneurs and investors. Here’s why:

Entrepreneurs

It articulates the financial needs and the intended use of funds, so you have a clear plan for using the investment to grow your business. 

Investors

Investors benefit from an investment proposal because it gives them a clear understanding of what the funding will achieve and the terms of the investment. As a result, they can assess the risk and potential returns.

5. Term sheet

At the end of the day, and no matter the agreement, it all comes down to the finer details. A term sheet outlines the key terms and conditions of an investment agreement and includes the valuation of the company, the amount of investment and the ownership structure post-investing. 

Why is it needed?

A good term sheet brings clarity and mutual understanding of the major terms of the investment before diving into the more time-consuming and costly legal documentation process. It helps avoid potential misunderstandings and disputes.

6. Shareholders’ agreement

A shareholders' agreement is a pact among shareholders and possibly the company, stipulating management protocols, as well as shareholders' rights and obligations. It serves as a governance handbook, addressing diverse company-related matters for a coordinated approach to decision-making and conflict resolution. 

Why is it needed?

The shareholders' agreement offers an extra layer of protection. It sets out a framework and dispute resolution, protecting both existing and new shareholders or investors. This adds a layer of professionalism and compliance that lends itself to a more stable, transparent environment. 

7. EIS and SEIS

OK, so EIS and SEIS aren’t documents...

But the aim of the game is to attract new investors, and both of these tax-savvy schemes have the potential to do just that. In the UK, the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are particularly noteworthy.

Why are they important?

These government schemes offer tax relief to individual investors who buy new shares in your company.

EIS

Let’s start with EIS, which is aimed at helping smaller companies raise finance by offering a range of tax reliefs to investors who purchase new shares. 

SEIS

On the other hand, SEIS is designed to help your company raise money when it’s starting to trade by offering tax reliefs to individual investors who buy new shares in your company.

FYI: EIS and SEIS applications are a whole lot easier if you get advance assurance before applying. Learn more about how EIS and SEIS can help your startup.

Wait, there’s more!

We’ve covered some of the major documents needed when preparing for investment, but the truth is there’s a whole heap of docs and information that may be required. It really depends on the investor and the space you're in.

Other documents you may come across

Keen to impress? Here's a quick rundown of the other documents you might want to prepare.

1. Historical financials

If applicable, provide financial statements from the past few years to show your business’s financial history. It’s good to have this information to hand early in the process.

2. Market research

This should be included in your business plan, but you may wish to go one step further and provide data and analysis on market trends, target customer demographics and competitive analysis.

3. Intellectual property (IP) portfolio

Also helpful during the initial stages of securing investment, put together a list of patents, trademarks, copyrights and other IP owned by your company.

4. Due diligence checklist

A comprehensive list of documents that will be required for due diligence is usually required towards the end of investing and includes legal, financial and operational documents.

5. Customer contracts and agreements

Copies of major contracts and agreements with customers and suppliers are often needed around the same time as due diligence.

6. Proof of regulatory compliance

Documentation proving compliance with relevant industry regulations and standards in the UK. For instance, FCA regulation is seen as a badge of honour in the finance world. If required, these docs are required in the latter stages of securing investment. 

Make it official

A definitive agreement is often the final document you need during this stage.

After going through the initial introductions, presentations, discussions and negotiations, once both parties (the startup and the investor) have agreed upon the terms of the investment, a definitive agreement is drafted and signed by both parties. 

This document is legally binding and includes all the terms, conditions and provisions of the investment. It supersedes the term sheet and officially seals the deal between the startup and the investor. Now, the investment transaction can proceed to closure.

It’s probably worth getting a lawyer to look over the terms, just to make sure that everything is as it seems!

Some definitive agreements can have a fair few strings attached and contain a few jargon terms, especially if it’s venture capitalist investing. Having a pro-look over the doc offers you additional peace of mind. 

Summary: Investment docs 101

It’s easy to get snowed under all the documents you might need when securing investment.

But they’re necessary to take your startup to the next level and secure vital investments that can help you grow further by hiring new team members, improving the product further and ultimately scaling the business for a better future. 

How Vestd can help

It's not us you need to impress, but we can help reduce some stress.

With Vestd Lite, you can take control of your cap table, keep your records up to date, prepare for SEIS/EIS investment, execute funding rounds and simplify shareholder comms.

Best of luck bagging that investment!

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