Venture Capital Lawyer

Most startups and emerging companies need financing to succeed. One major change for early-stage companies, however, is that they cannot or may not want to secure funding through traditional bank loans. As a result, entrepreneurs turn to other forms of funding, including venture capital (VC).

This funding method can be complicated for business owners and is often subject to state and federal legal requirements. As such, business owners and investors should seek legal advice from experienced venture capital lawyers to understand when and how to use VC financing.

If you are starting a business, one of the critical decisions you’ll have to make is hiring a dedicated law firm with experience handling venture capital transactions. As a startup, hiring an attorney may seem unnecessary, considering you can find all documents and information online. However, a skilled venture capital lawyer can do more than just prepare VC documents for you. They can act as your long-term partner, advising you on how to avoid legal pitfalls and mitigate risks as you grow your business.

At Fridman Law Firm, our legal team will provide sound legal advice as you weigh your financing options, provide current market insights, and open doors for you to grow in the business world. With our experience in the venture capital landscape, our firm plays a crucial role in helping companies raise capital, serving various industries, including technology, e-commerce, and real estate. Our legal team also provides comprehensive counsel to VCs, private equity, and real estate funds.

What Is Venture Capital?

Venture capital is a type of private equity financing provided to businesses that need capital, with the vast majority being early-stage, emerging businesses. Such businesses mostly demonstrate high growth in terms of annual revenue. Investors may also be drawn by the uniqueness or appeal of their products or services.

Typically, venture capitalists (VCs) and venture capital firms look for long-term gains, often offering guidance to companies they invest in in addition to funding to maximize their returns. VCs invest in startups during the early stages of development, hoping to get higher returns on investment than they would from investing in established companies. They may also invest in companies when they are developing new products or services.

Companies that seek to raise venture capital do so for various reasons, including to scale their existing business operations and gain credibility.

How Does Venture Capital Funding Work?

VC funds operate similarly to private equity funds. Simply put, these funds aren’t listed on public stock markets, such as the New York Stock Exchange​​. Individual and institutional investors typically invest in private equity, allowing them to finance various VC projects while preserving the limited liability of their investments.

As with private equity funds, VC funds may invest in a portfolio of companies that fall within a particular industry. For example, a venture capital fund specializing in the tech sector may invest in ten different startups developing VR headsets or fintech products.

On the other hand, entrepreneurs need to do ample market research and prepare business proposals to improve their chances of securing maximum venture capital from potential investors. Some of the proposal basics that entrepreneurs should keep in mind include:

• Financial statements
• Marketing plans, including how to attract and retain market share
• ​​Pro-forma projections
• Business objectives
• Requested VC financing terms

Venture capital firms prepare their own term sheet that includes details such as how much they are willing to invest, board makeup, liquidation preferences, required protective covenants, financial information rights, in addition to the ownership percentage the venture capital firm seeks in return.

Financing Documents for Venture Capital Transactions

When entering into any type of contract or agreement, business owners are usually bombarded with tons of documents that they need to review. The same goes for VC funding. During the initial stages, before a founder enters into an agreement with a VC firm, they must carefully consider the structure, effect, and implications of such transactions on the company’s overall strategy and roadmap.

Proper documentation allows business owners to ensure they meet their business objectives, foster transparent relationships with VCs, and minimize risks or any other issues that may arise at later stages of the business lifecycle.

Investment contracts are complex legal instruments that may require the services of an experienced business lawyer to help you understand all the terms and conditions. You need a lawyer to review all transactional documents, including the fine print, involved in scaling up your business.

Typical financing documents for VC transactions may include:

• Term sheet. This document outlines the investment terms, including liquidation preference, financing structure, and corporate governance considerations.
• Confidentiality agreement. Sets forth how long investors and founders must keep information private.
• Investor rights agreement. Details the rights of shareholders, specifying the rights of ​​founding shareholders and minority investors. Sets out observer rights and reporting and financial disclosure requirements.
• Stock purchase agreement. This document details the terms upon which investors will purchase the shares in the financing.

Other documents involved in financing rounds include amended and restated certificates of incorporation, and securities filings with the Securities and Exchange Commission (SEC).

In financings that are not priced rounds, most companies raise capital on a Simple Agreement for Future Equity (SAFE) or a Convertible Note.

As an entrepreneur, it’s imperative that you understand the intricate details of all VC transactional documents. Fridman Law Firm’s venture capital lawyers can offer you comprehensive legal advice and assistance in correctly structuring and documenting transactions aimed at facilitating your company’s growth. Our attorneys will help you understand all the details, including legal jargon and clauses, contained in investor financing documents.

What Do Venture Lawyers Do?

Fridman Law Firm represents investors of all sizes, including medium and large-sized companies, providing practical advice and guidance on formation, investment, operational, and liquidity issues, including:

• Providing substantial knowledge in all stages and types of VC transactions
• Reviewing financing documents to ensure they align with business interests and any liquidity events
• Monitoring industry trends
• Negotiating with investors, including VC firms, to get the best available financing terms
• Preparing written business plans to present entrepreneurial ideas in an appealing way to potential investors
• Providing realistic insight into prevailing VC practices, structure, and terms
• Handling any pertinent issues that may arise after conducting due diligence, including outstanding debt instruments, licensing or patent issues, and intellectual property matters
• Representing founders and entrepreneurs in alternative dispute resolutions (ADR), including arbitration and mediation
• Implementing exit strategies
• Providing ongoing regulatory, compliance, and tax support
• Advising founders on alternative financing options
• Offering counsel on related areas, including general counsel
• Maintaining confidentiality and protecting a founder’s brand and reputation during ADR

At Fridman Law Firm, our startup and venture capital lawyers have extensive business backgrounds and experience in corporate law. We are abreast of regulatory updates, current and emerging trends, and changes in our clients’ industries. Our VC lawyers strive to provide highly effective and personalized strategies that serve our clients’ business and legal needs and help them meet their desired goals.

Get Comprehensive Legal Advice From a Venture Capital Lawyer Today

Venture capital financing is complicated. Many founders and entrepreneurs looking to raise funds from investors, including through venture capital options, face many challenges. If you are thinking about raising venture capital to start or grow a business, the full implications of a hastily negotiated stock purchase or term sheet may have unanticipated legal, business, and financial consequences in the future.

With the help of an experienced VC attorney, you can get legal advice at every stage of raising capital and issuing equity. They can also walk you through options and issues during the term sheet stage, including voting rights, dividends, redemption rights, and liquidation preferences. A skilled lawyer can also negotiate with lead VC investors, conduct due diligence, and help founders comply with federal and state securities requirements.

Fridman Law Firm is here to help you with all your venture capital matters and transactions. Our attorneys have VC experience and will ensure your deal is properly structured to suit your best interests.

If you are seeking legal guidance and representation, our venture capital lawyers can help you choose the right financing option for your business while providing exceptional, personalized legal counsel. Don’t hesitate to reach out to our legal team if you have any specific concerns or questions about VC funding.

Call us now at 212-262-9823 to schedule your initial consultation.

Frequently Asked Questions