How to Drive a Startup Financing Closing Process
Katie Mulligan
Director of Platform at Pillar VC
Congratulations on signing your term sheet. As CEO, your next step is to take the lead in driving the closing process.
A typical closing process takes 4-8 weeks. You’ll want to move as quickly as possible – it is in your best interest to get the money in the bank, so you can get back to building. In shifting market conditions, you also want to prevent any last-minute term sheet pulls.
Follow the below checklist to ensure you’re on the right track:
- Set a target closing date. Float your target date to your lawyer (company counsel).
- Find time with your Lead investor to a) suggest the timeline, and b) figure out which communication channels will be most effective in this process. For example, it might be better to text vs. email depending on where your investor is most responsive.
- Introduce company counsel and Lead investor counsel and align on the date.
- If there are multiple investors participating, ask them to agree on a single investor counsel to represent all of them. If they cannot agree, ask each investor who will represent them, and whether they plan to comment on the documents, or simply follow the Lead investor.
- Ask Company counsel to publish a closing schedule.
- The lead investor's counsel will likely want to conduct legal due diligence. To support that, create a data room. The data room should contain:
- Legal formation documents, prior financing document, founder agreements, your standard employment and contractor agreements (and any non-standard), vendor contracts, your lease (if any), all of your customer agreements, any distribution agreements, and all of your NDA, IP licenses, or other IP documents (however you typically only list the names or a general description of your pending patent applications, do NOT enclose any proprietary technology information).
- Company counsel or Lead investor counsel will draft the closing documents.
- Investor counsel will review all data room material and if they see anything that looks unusual or problematic they will raise the concern for the investors to review.
- Counterparties will review and create a list of open issues. Your counsel should create a list of:
- Legal Issues: consider any deviations from the signed term sheet.
- Key Business Issues: make sure your lawyers walk you through any implications.
- VCs often delegate contracts to their lawyers. If lead investor counsel is being aggressive on a particular term, do not assume your VC is even aware of that! Make sure you circle up with the VC directly. You may discover a greater willingness to compromise.
- If possible, arrange a conference call to review ALL of the Key Business Issues with the decision makers at the VC firm.
- Note: Recognize that the actual decision makers may not be your point of contact at the firm. For example, a senior partner may have to agree on something non-standard. Schedule a follow-up to hear their response to your feedback and try to work toward a close.
- Work and communicate DAILY with company counsel and lead investor’s counsel to ensure things are on track. Continue to drive toward your target closing date, checking in and adjusting as needed.
- Email every non-lead investor every 4-5 DAYS with an update to keep them up to speed.
- When documents are final, circulate to your Board and all investors, noting that everything is agreed between company and Lead, and ask for any last comments within the next few days.
- Ask each investor to give you their signature blocks and exact entity names and investment splits well ahead of the closing (this is very important for funds investing through multiple entities).
- On closing day, "chase signatures". Do NOT assume people will actually sign, or actually wire. You have to call them, tell them "please sign today", "please wire right now". Help them get over the line.
- Always use DocuSign to request signatures. This is a time-saver for your investors, and makes it easier for everyone.
- And the fun part… keep an eye on your bank account and watch the money come in! Congratulations on closing your round.
