You may wonder if you need a lawyer to raise money from investors. The answer is that it depends on several factors, including the amount of money you want to raise and the type of investors you seek.
The money you want to raise could depend on whether you are willing to sell off an ownership stake in your business. When using a lawyer to raise money from investors, they may draft an equity purchase agreement allowing you to offer shares of the business to investors in the form of equity funding.
Private organizations commonly use equity funding as their source to raise capital. They accomplish this by offering shares of the company for sale to the public through an initial public offering or IPO, making those who buy stockholders of the company.
But for a small business, hiring a lawyer that raises money from investors may include a recommendation to first seek financial support a little closer to home, like funding from family or friends.
What Kind of Lawyer Do I Need to Raise Money from Investors?
A lawyer experienced in securities law is the best lawyer to raise money from investors.
Securities law is the body of law that governs the offer and sale of securities, such as stocks, bonds, and other investments. A lawyer experienced in securities law will be able to draft an investment management agreement or an investor rights agreement, which is important to have in place when investing.
Equity funding, or raising capital via convertible notes, could require drafting an equity agreement, an equity commitment letter, and an equity purchase agreement. These can be complicated documents that require the support of a lawyer to raise money from investors.
When you're a small business owner, it can be not easy to navigate the legalities of raising money from investors. Therefore hiring a lawyer to raise money from investors is a favorable option. You must ensure your company stays compliant with local regulations and industry standards.
It's not easy navigating all of this on your own — which is why many small business owners turn to lawyers to raise money from investors.
Here is an article about using a lawyer to raise money from investors.
What are the Benefits of Working with a Lawyer to Raise Money from Investors?
Working with a lawyer to raise money from investors can provide several benefits, including:
- Ensuring compliance with the law. A lawyer who is experienced in securities law will be able to advise you on the legal requirements for raising money from investors and help you ensure that you comply with the law.
- Avoiding potential problems. Using a lawyer to raise money from investors can help you stay ahead of issues that may arise when raising capital and help you avoid them. In addition, they will review your funding materials and give you the peace of mind of knowing your documents have been reviewed for compliance with securities laws.
- Negotiating better terms. Leaning on a lawyer's expertise to raise money from investors can help you negotiate better terms. They will ensure you keep the equity you should for investments. If a deal is going south, having a lawyer to help raise money for you can save the deal or get better terms.
- Protection in the event of a problem. If a problem arises when raising capital, hiring a lawyer to raise money from investors can protect your interests. A lawyer can help you protect your interests in a variety of ways. In business, there's nothing more important than trust. Lawyers advise their clients on the law and how to comply with regulations. If you are considering raising money from investors, you should speak with a lawyer to find out if it is the right option.
Here is an article for small businesses regarding raising capital with a lawyer.
How Do You Raise Money from Investors?
If you decide to raise money from investors, there are a few things you will need to do:
- Create a Business Plan. A useful tool is a business plan, essentially an investor's roadmap to your success. If you're serious about finding investors, you should spend some time putting together a well-written business plan that outlines your business's components. Investors will expect this plan from anyone who wants them to invest in their company.
- Find Investors. It would help if you found investors interested in your business. This can be done through networking, online research, and investment databases. When pitching your business idea, you need to describe the opportunity for return on investment (ROI) for the investor.
- Pitch Your Business. Once you have found potential investors, you must pitch your business to them. This is usually done through a formal presentation, such as a business plan or pitch deck. A pitch deck is a presentation that you make to potential investors. The goal of the pitch deck is to convince them to fund your company.
- Negotiate Terms. If an investor is interested in investing in your business, you will need to negotiate the terms of the investment. This includes the amount of money being invested, the ownership stakes the investor will receive, and the rights and obligations of both parties.
- Putting Together the Paperwork. Before you can finalize investments, you will need to work closely with a lawyer to ensure that the proper paperwork is ready. If the source of funding consists of venture capitalists or angels providing early-stage equity investing, your lawyers may prepare a stock purchase agreement or convertible note purchase agreement.
If you are considering raising money through investments, you should contact a lawyer to help raise money from investors.
Here is an article outlining strategies businesses can use to raise capital.
How Can a Lawyer Help Raise Money from Investors?
A lawyer can help you raise money from investors in a number of ways, including:
- Advising on legal requirements.
- Ensuring compliance with the law.
- Identifying potential problems from investors.
- Negotiating better terms with investors on your behalf.
- Resolving problems if they do arise.
- Protecting your interests.
Suppose you are considering investors to help your raise capital. In that case, you should speak with a lawyer to raise money from investors.
Here is an article with seven tips for raising investor funding from entrepreneurs who did it.
How Much Does it Cost to Hire a Lawyer to Raise Money from Investors?
When using a lawyer to raise money from investors, you will typically pay a fee for a percentage of the money raised from investors. Still, it is important to speak with the lawyer to estimate the total cost before hiring them.
If you create an investment advisory contract, there will be an investment contract cost for the time associated with making it. Similarly, with convertible notes or other equity funding, a convertible note cost will be related to drafting the agreement.
Here is an article about how to get the best value from hiring a lawyer to raise money from investors.
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