The documents founders should review before investor due diligence begins.
Getting investor interest is a milestone. But once conversations turn serious, the questions change. Who owns the intellectual property? Are the founder arrangements documented properly? Does the cap table match the company's records? What rights will new investors receive? These details can slow down a funding round if they're left until the last minute. Getting your legal foundations in order early helps you identify issues before they become urgent, prepare for due diligence and approach negotiations with a clearer picture of your position.
If you're preparing to raise capital for an Australian startup, here's where to start.
1. Check your company structure and ownership records
Investors need to understand the business they're investing in, including how it's structured and who owns it.
Start by reviewing:
- Your company constitution and existing shareholder arrangements.
- Your cap table and share register.
- Records of previous share issues and transfers.
- Any existing options, SAFEs, convertible notes or other investment instruments.
- Relevant board and shareholder resolutions.
These records should tell a consistent story. If your cap table says one thing and your formal company records say another, resolve the discrepancy before it becomes a question in due diligence.
If you're still getting your foundations in place, read our guide to setting up your startup and getting the essentials right early.
2. Review your founder and shareholder agreements
When a business has more than one founder, everyone should understand how decisions are made, what happens when circumstances change and what rights each person has.
Your shareholder arrangements may need to address decision-making, share transfers, founder departures, dispute resolution and exit arrangements. The company's constitution and other agreements may also be relevant.
Review these arrangements before bringing in investors. A funding round can change ownership and control, and investors may require particular rights to be reflected in the documentation.
If key founder arrangements were agreed informally when the business started, check whether they have been properly documented.
LUNA provides legal services for startups and scaleups, including founder and shareholder agreements.
3. Make sure your company owns its intellectual property
Your product, technology, brand and other intellectual property may be central to your company's value. Investors will want confidence that the business has the rights it needs to operate and grow.
Check that:
- Relevant intellectual property has been assigned to the company where required.
- Employment and contractor agreements address ownership of work created for the business.
- Software, technology, brand assets and other IP have been reviewed.
- Third-party licences and restrictions are understood.
This is particularly important for technology businesses. If a contractor developed a core part of your product and ownership was never properly documented, it's better to identify that issue before an investor does.
4. Get your commercial contracts in order
Investors may want to review the agreements that underpin your revenue, operations and relationships with employees and suppliers.
Depending on your business, these could include:
- Major customer and supplier contracts.
- SaaS, licensing and distribution agreements.
- Employment and contractor agreements.
- Confidentiality agreements.
- Privacy documentation and relevant policies.
- Agreements containing exclusivity, change-of-control or other restrictions.
You don't necessarily need to rewrite every contract before raising. You do need to understand what you've agreed to, where the risks sit and whether any arrangements could affect the transaction.
5. Understand the documents your funding round requires
The documentation you need depends on the type of raise, the investors involved and the terms being negotiated.
For an equity round, this may include a term sheet, share subscription agreement, updated shareholders agreement and relevant corporate approvals.
For a raise using a SAFE or convertible note, the instrument needs to document how the investment works, including conversion mechanics and the relevant terms and triggers.
A term sheet can establish the commercial terms before the parties move into detailed documentation. But it isn't a substitute for the final agreements, and not every provision will necessarily be binding.
The important thing is that the documents work together. The agreed investment terms, ownership records, company constitution and shareholder arrangements should be consistent.
Australian fundraising rules also matter. The requirements depend on the offer and the circumstances, so founders should obtain advice specific to their proposed raise. ASIC provides guidance on fundraising and disclosure requirements.
6. Prepare your data room before investors ask
A data room is a central place to organise the documents investors and their advisers may request during due diligence.
Rather than waiting for requests to arrive, start gathering the relevant information early. This might include:
- Company and ownership records.
- Founder, shareholder and employee equity documentation.
- Intellectual property records.
- Material commercial contracts.
- Employment and contractor agreements.
- Existing financing documents.
- Relevant policies and compliance records.
The precise scope depends on your business and the transaction. Keep the information current, organise it clearly and make sure access is controlled appropriately.
Legal records are only part of the picture. Investors will also scrutinise your financial information, forecasts and reporting. Read our guide to preparing for financial due diligence before raising capital.
For a closer look at one often-overlooked area, see why your company register matters before a raise, ESOP update or exit.
7. Look beyond the legal documents
A funding round has implications beyond the legal work.
Your ownership structure affects dilution. Employee equity can have tax implications. Investment terms can influence governance and future fundraising. Financial information needs to align with the company's records and position.
That's why it helps to consider legal, tax and financial matters together when preparing for a raise.
LUNA brings legal, accounting, tax and finance support for startups together, with services that can be tailored to the needs of the business.
Getting ready to raise? Start before the term sheet arrives.
You don't need to wait until an investor requests due diligence to review your legal foundations.
Getting your ownership arrangements, IP, key contracts and company records in order can help you identify issues earlier and approach the process with greater clarity.
LUNA works with Australian startups, scaleups and venture capital funds on the legal decisions involved in building and funding a business.
Preparing for a raise, or already speaking with investors? Talk to LUNA's legal team about the documentation and advice your business may need.