Legal Framework

The legal framework acts like a force of confidence. Without the trust in the foundational pillars of law, we quickly find ourselves on shaky ground. 

 

Introduction

When investing, particularly in earlier stage or unlisted companies, it is important to consider some key legal aspects of the transaction.

Below, we cover certain key legal topics in relation to fundraising, including Due Diligence, governance, investment fit, as well as some high-level guidance around shareholder and investment agreements. While we hope this guidance is helpful, it is difficult to cover all aspects an investor or company must take into account during a fundraising transaction, so we welcome further questions and are happy to assist where we can to foster growth in this exciting sector.

 

Initial advice


  • Do carry out a mutual Due Diligence/familiarization process with potential investors

    Is the investor a right fit for your company? What would be their positive and potentially negative contribution?

    Be ready for Due Diligence

    Ensure good corporate housekeeping from the "get-go" by making sure that all agreements, minutes, etc. are in writing and kept in a good document filing system.

    Make sure that investment terms, governance rights, etc. are well documented

    In particular, make sure that options or other financial instruments giving rights to shares are well documented.

    Be sure that you fully understand the value implication of preference shares etc.

    Do the math for all scenarios (both positive and negative).

    Keep it simple and seek financial assistance upfront when needed

    It is less time consuming and cheaper to get advice upfront rather than getting back on track later on.


  • Targeted Due Diligence

    Form a clear view on which topics are important for you and what you are seeking to verify through the exercise to not waste time and money. Corporate matters, founders/employment matters, and IPR are key topics.

    Who will be your co-investors going forward?

    Do not only review the company that you are considering investing in – who are the current shareholders and/or potential co-investors? Are you compatible?

    What are your requirements with respect to governance and other terms for shareholders' agreements?

    If you are able to negotiate a shareholders' agreement – have a clear view on what is important to you in order to invest. What is negotiable and what is a deal-breaker?

    Be sure that you fully understand the value implication of preference shares etc.

    Do the math for all scenarios (both positive and negative)

    Keep it simple and seek financial assistance upfront when needed.

    It is less time consuming and cheaper to get advice upfront rather than getting back on track later on.

Shareholder agreements vs. investment agreements

There are two main agreements to prepare and assess when entering into a new venture investment. These are the investment agreement and the shareholder’s agreement. We highlight the main considerations of these agreements below, but in short, the investment agreement covers the terms of the actual investment, and is often referred to as a terms sheet. Whereas the ‘shareholder’s agreement’ focuses on regulating the relationship between the investors and the company on an ongoing (longer-term) basis. 


  • Regulates the terms of the specific investment. The main purpose of the agreement is to document the terms of the investment and related rights and obligations.

    Key features in an Investment agreement:

    1. The investment
      The amounts invested and number of shares issued.

    2. The "cap table" following the investment
      List of securities, rights to securities etc.

    3. Representations and warranties
      Corporate matters, financial statements, assets, IPR etc.

    4. Conditions for the completion of the investment
      Conduct of business between signing and closing


  • Regulates "life after the investment" between the shareholders (and the company). The agreement governs the rights and responsibilities of the shareholders.

    Key features in a Shareholder’s agreement:

    1. Governance matters
      Board composition, board work, reserved matters etc.

    2. Rights upon issuance of new shares
      Pre-emptive rights to participate, anti-dilution mechanisms.

    3. Transfer of shares
      Lock-up periods, right of first refusal, approvals, drag-along and tag-along rights.

    4. Exit
      Sale of the company or a listing.

About Advokatfirmaet Thommessen AS

The law firm has experience in advising venture capital firms, growth equity investors, seed funds, incubators and accelerators, founders, entrepreneurs, angel investors, family offices, and other early and growth stage investors. This also include their start-ups and portfolio companies, in establishing, investing in and developing growth companies, raising capital, making investments and divesting them. With their leading full-service offering, they provide high-end advice on all aspects of essence over the lifecycle of a successful early-stage company, from initial capitalization to series A-, B- and C-financing, add-on acquisitions and mergers through exit, including structuring of management incentive programs (MIPs), employment matters, regulatory matters, protection of IPR, negotiations of business agreements and tax.

Contribution by
Ylva B. Gjesdahl Petersen, Advokatfirmaet Thommessen AS

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