Capital Raising 101: Through a Legal Lens

Most founders focus on the pitch, the valuation and finding investors. Legal issues often get left until a term sheet turns up, which is usually when problems start to appear.

But legal advice matters at every stage of a capital raise: before it starts, while it runs and after it closes. A lawyer won't raise the money for you, but we can help you avoid the terms and mistakes that cost far more to fix later, whether that's at your next round or on exit.

What to sort out before a capital raising

Get the company in order

A lawyer can review your cap table, constitution, shareholder documents and IP ownership, then fix any issues before an investor finds them.

The offer rules for raising capital in Australia

In Australia, offering securities generally requires a disclosure document unless an exemption applies, such as the 20 investors and $2 million in 12 months rule or the sophisticated investor exemption. These rules can apply to SAFEs and notes as well, and they affect how you promote a raise.

SAFE, convertible note or priced round

A SAFE, convertible note and priced round each have different legal and commercial consequences.

During the raise

Negotiate the term sheet

The term sheet is where many key terms get set, including board seats, veto rights, liquidation preferences and anti-dilution. We go through the clauses worth arguing about in our guide to capital raising term sheets.

Manage due diligence

A lawyer can help you prepare for investor questions and keep the process moving.

Get the documents right

Your subscription and shareholders agreements set the rules going forward, and the warranties you give can create real liability.

What needs to happen after the raise closes?

Approvals, existing shareholder rights, share issues, registers and ASIC lodgements all need to be dealt with. If they're missed, they tend to resurface in your next round.

Common questions

What legal work should a startup do before raising capital?

Start with the company itself. Have the cap table, constitution, shareholder documents and IP ownership reviewed, and fix what turns up before an investor's due diligence does. Then confirm how you can lawfully make the offer, and which structure suits the round.

Do you need a disclosure document to raise capital in Australia?

Generally yes, unless an exemption applies. Two examples are the small scale offering rule (20 investors and $2 million in 12 months) and the sophisticated investor exemption. The rules also affect how you can promote the raise.

Do the fundraising rules apply to SAFE notes and convertible notes?

They can. The disclosure rules and their exemptions can apply to SAFEs and convertible notes as well as to shares, so check how you can make the offer before you put one in front of an investor.

What has to be done after a capital raise closes?

The approvals, existing shareholders' rights, the share issue itself, the company registers and the ASIC lodgements all need to be dealt with. Anything missed tends to resurface at your next round.

Before the term sheet arrives

If a raise is on the cards, book a thirty minute call with us before a term sheet turns up. We'll tell you what to fix first and whether you need us for the rest.

This post is general information only and isn't legal advice.