There comes a time in the life of a business where external funding becomes necessary to either keep the business afloat or maximize its full potential through expansion. Whichever it is, an influx of capital is needed. This capital can be obtained by either Equity or Debt. In this article, we will be talking about Equity Funding. Equity funding will essentially change the ownership structure of your company as new shareholders will be introduced. Some notable companies that have gone through this process include Paystack, Diamond Bank, Jobberman, Zinternet, Vanso, Easyappetite, Instagram, 21st Century Fox, Marvel, Pfizer and many others.
Asides from the hours of negotiations that go into a successful equity fundraising, find as follows a list of documents and information required before getting to the aspect of negotiations:
Corporate Documentation: Before a business is worth anything to an investor, proper registration must have been done with the government. In Nigeria, the Corporate Affairs Commission (CAC) is saddled with the legal responsibility to register all forms of businesses. All company registration documents should be intact and available. These will include Certificate of Incorporation, Memorandum and Article of Association, CAC Form 7 and CAC Form 2.
Audited Financial Statements: The audited financial statement is a document certified by a qualified third-party accounting professional depicting the true and fair view of a company making it a priority document to prospective investors. The audited financials show the overall financial health and value of a company or business in some sense.
Asset Documentation and Valuation: A list of all fixed assets fully owned by the company with proper documentation regarding proof of ownership. It is advisable to engage a valuation expert to accurately capture the fair value of your company’s assets. It is especially necessary when there has been a significant change in inflation rates, technology, or trend.
Intellectual Property (IP): All intangible assets owned by your business contribute to the value of your company. A schedule of these assets should be prepared to comprise the renewal status, cost of renewal and date of renewal.
Regulatory Permits: An investor would need to ascertain that your company is and has been operating within the confines of the law. All licenses and permits needed to carry on the business must be disclosed and presented. In cases of licensing renewals, details of this should be disclosed and evidence of previous renewals made available.
Material Agreements: All agreements entered into by your company such as supplier agreements, customer agreements, tenancy agreements, lease agreements, joint venture agreements, memorandum of understandings, guarantee of indemnity agreements, technical/ management/ consultancy agreements entered into by the company and any other material agreement your company is involved in.
Financing Documents: All documents about any credit agreement, guarantee, financing or security agreement or instruments that reflect the indebtedness of a company.
Other Legal and Labour Matters: Documents such as employee contracts, proof of employee taxes and pension remittances, details of communications with the labour union (where applicable).
Litigation: As it is important to present all facts about your company or business to prospective investors, all existing and/or pending litigation(s) in which the company is involved must be disclosed.
When this checklist is completed, your company is ready for investors to easily assess. Ultimately, the choice on investing lies with the prospective investors, which will most likely stem from how marketable your company is.
Tip: A financial forecast will come in very handy.
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Akinosun, G. (2017, March 14). 9 Nigerian Internet Startups That Have Been Acquired By Local And International Firms •. Techpoint Africa. https://techpoint.africa/2017/03/14/9-nigerian-internet-startups-acquired/
Financing Document Definition: 182 Samples. (n.d.). Law Insider. Retrieved September 26, 2021, from https://www.lawinsider.com/dictionary/financing-document#:%7E:text=Financing%20Document%20means%20any%20credit,any%20of%20the%20Company%20Subsidiaries.