In October 2009, a Finnish software engineer and one of Bitcoin’s earliest developers sold 5,050 of bitcoin to New Liberty Standard for just $5. Ten years later those same bitcoins are worth over €46million.
That is a nice return in ten years!
While everyday investors are unlikely to be able to replicate the above scenario, it is nonetheless important to be aware of what steps they can take to identify a good investment. Private limited companies looking for investors during early seed and growth phase, also need to be mindful of how they can facilitate investments.
What investors need to consider:
- Carry out financial and legal due diligence;
- Have an investment and shareholders agreement to regulate their relationship with other investors and existing shareholders;
- Identify key assets, whether this is real property, intellectual property rights or other, and ensure these assets are held by the company;
- Ensure investments funds are used in accordance with a business plan, reviewed by investors in advance.
What companies need to consider:
- Set up a data room containing key corporate information, contracts and financials. This will allow a streamlined approach to due diligence with access limited to specified potential investors and their advisors;
- Prepare a term sheet that clearly sets out the terms of the investment;
- Prepare an investment and shareholders agreement to deal with completion of the investment and ongoing matters between the investors, the company and existing shareholders;
- Ensure filings are up to date in the Companies Registration Office and that the company’s statutory register is ready for new investor details to be registered;
- Review contracts and be aware that investors will want all key assets held in the company and employment contracts and consultancy agreements in place for key team members.
While out of the ordinary cases like the bitcoin example may garner the headlines, for the rest of us the formula for successful investment is simple: knowledge is key and documentation protecting your investment into the future will secure both the investor and the company.
About the author, Gríana O’Kelly, Partner, Corporate and Commercial Team