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Term sheets and contract negotiations with investors: key steps to financing your start-up

11/24/2023 | By: FDS

If you are looking for investors for your start-up, the contract negotiation phase and the creation of a term sheet is a crucial step on the road to funding. In this article, we will look at the importance of term sheets and the key steps in negotiating contracts with investors.

What is a term sheet?

A term sheet is a document that sets out the key terms and conditions of the proposed investment. It is a preliminary document that provides the framework for future negotiations and the final investment agreement. A term sheet is usually not legally binding, but contains key agreements that will later be included in the final contract.

Key clauses in a term sheet:

Investment amount: The term sheet should specify the amount of the investment and the type of financing (equity, debt, convertible bonds, etc.)

Valuation: The valuation of the company before and after the investment is an important point. It determines how much of a share in your company the investors receive.

Participation rights: The term sheet can also define investors' participation rights, such as preference shares or voting rights.

Dilution protection: Investors can request protective clauses to ensure that their participation is not diluted by subsequent financing rounds or capital increases.

Exit terms: The term sheet may include exit conditions such as an exit strategy, a sale clause or an IPO clause.

Dividends: It may also specify dividend policy and payments.

Rights and obligations: The term sheet should clearly set out the rights and obligations of investors and the company, including information on governance and the role of investors in the company.

Steps in contract negotiations with investors:

Offer and counteroffer: Start the negotiations with an offer that contains the most important conditions. Expect counter-offers from the investors and be prepared to work out the terms.

Professional advice: It is advisable to consult legal and financial experts to ensure that your interests are protected and that you understand the implications of the agreements.

Due diligence: Investors will usually carry out extensive due diligence to review your business and finances. Be prepared for this process and make sure all documentation is in order.

Signing of the term sheet: Once negotiations are complete, the term sheet is signed by both parties. Note that this is not the final investment agreement.

Drafting the investment agreement: After the term sheet is signed, the lawyers on both sides work to draft the final investment agreement. This should include all the terms and conditions from the term sheet.

Closing the transaction: Once the investment agreement has been signed, the actual investment transaction takes place, where the investment sum is transferred and the agreed shares are issued.

Term sheets and contract negotiations with investors are complex processes that require careful planning, negotiation skills and professional support. It is important to carefully review the terms and ensure that they support your company's long-term goals. A successful contract negotiation can not only secure the necessary funding, but also lay the foundation for a successful partnership with your investors.

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Business valuation: How do you evaluate your own start-up for investors?

11/22/2023 | By: FDS

One of the crucial questions for entrepreneurs looking for investors is the valuation of their start-up. Getting the valuation right is crucial as it will influence how much equity you offer and how much control you have to give up. In this article, you will learn how to expertly value your start-up to convince investors.

Why is the valuation important?

The valuation of your start-up is not just a number, but a key indicator of the value investors ascribe to your company. An appropriate valuation is crucial to attract investor interest and ensure you don't give up too much equity or undervalue your company.

Methods for valuing start-ups:

Comparables approach: This method compares your startup to similar companies in the same industry that have recently received investment. The value of your company is derived from the valuations of comparable companies.

Income Approach: In this method, the value of your business is calculated based on expected future earnings or cash flows. This requires a detailed financial forecast.

Asset value method (asset approach): This determines the value of your company based on its assets and liabilities. This method is useful if your company has many physical assets.

Key factors in the valuation:

Market potential: Investors are often willing to pay a higher price for start-ups that have a large market potential. Show that your product or service is positioned in a growing market.

Revenues and profits: The financial performance of your company is a key valuation factor. Investors want to know how much revenue you are generating and whether you are profitable or will be profitable in the near future.

Competitive advantages: Unique technologies, strong brands or exclusive partnerships can increase the value of your company. Emphasise your competitive advantages.

Team and leadership: Investors see the founding team as an important factor. Show that your team has the necessary skills and experience to lead the company to success.

Negotiation and flexibility:

Remember that valuation is often subject to negotiation. Investors may use different valuation methods and assumptions to assess the value of your business. Be flexible and prepared to explain the arguments for your valuation.

When is the right time for a valuation?

Valuing your start-up is relevant at different stages, including the seed round, Series A and later funding rounds. It is important to choose the right time for a valuation, as the value of your company can vary at different stages of development.

All in all, the valuation of a start-up is a complex process that requires care and expertise. It is often advisable to seek professional advice from financial experts or business advisors. A proper valuation is crucial to gain the confidence of investors and ensure that your company is successfully funded to achieve its growth objectives.

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Unsolicited application as a freelancer by e-mail - Prohibited or permitted in Germany?

11/22/2023 | By: FDS

In Germany, the question arises as to whether it is permitted to send unsolicited applications as a freelancer by email. While freelancers offer their services independently, there are still legal and data protection-related aspects to consider. This article sheds light on the situation.

In a changing world of work, more and more people are turning to self-employment as freelancers. Acquiring work themselves is often essential, and speculative applications are a common method of reaching potential customers or clients. But what happens when these applications are sent by email?

Legal basis for unsolicited applications as a freelancer

The good news is that unsolicited applications as a freelancer by email are generally permitted in Germany. Freelancers are self-employed and are not bound by the same labour law regulations as employees. This means that they are largely free to offer their services and contact potential clients.

However, it is important to bear certain legal aspects in mind:

1. Data protection: The General Data Protection Regulation (GDPR) is also relevant for freelancers. When contacting us by email, the data protection regulations must be observed. This means that personal data (e.g. the recipient's contact details) may only be used for the stated purpose (the application) and the recipient's consent to the processing of their data may be required.

2.Opt-out and objection: Every unsolicited application by email should include an option to simply unsubscribe (opt-out). The recipient must be able to refuse to continue receiving messages. It is important to respect these wishes in order to avoid legal problems.

3. Imprint: The email should include a full legal notice that complies with legal requirements. This includes details such as the sender's name and address as well as a contact option.

Conclusion

Initiative applications as a freelancer by email are generally permitted in Germany as long as the legal provisions and data protection regulations are observed. Self-employment offers freelancers the opportunity to proactively search for new assignments and offer their services. Nevertheless, it is advisable to find out about the current laws and regulations and seek legal advice if necessary in order to minimise potential risks.

Freelancers should take care to appear serious and professional, as first impressions are often crucial. A well-thought-out unsolicited application can pave the way to new business opportunities and make self-employment a success.

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The role of the notary in setting up a company

11/22/2023 | By: FDS

Founding a company is an exciting step, but one that involves a multitude of legal requirements and formalities. One important figure who plays a crucial role in this process is the notary. In this article, we take a closer look at the role of the notary when setting up a company and why their expertise is crucial.

Notaries: Guardians of legal certainty

Notaries are qualified lawyers who are authorised to draw up and certify public deeds. Their main task is to ensure legal certainty in various transactions, including the formation of companies. Here are some of the most important tasks that notaries perform in the context of company formation:

1. Notarisation of articles of association and statutes: The notary is responsible for notarising the company's memorandum or articles of association. This means ensuring that the document complies with legal requirements and is duly signed by all parties involved.

2. Verification of the identity of the founders: Notaries verify the identity of the founders and ensure that they are authorised to establish the company. This is important to prevent fraud and identity theft.

3. Documentation and storage: After the founding documents have been notarised, notaries keep them in their safekeeping. This ensures that the documents are safe and easily accessible when they are needed.

4. Advice and legal expertise: Notaries often provide legal advice and expertise in connection with company formation. They can inform founders about what legal steps are required and how they can fulfil the legal requirements.

5. Registration in the commercial register: In many countries, notaries are authorised to register the company formation in the commercial register. This is an important step in officially registering the company and making it authorised to do business.

Why is the role of the notary important?

The role of the notary is crucial to ensure legal certainty and the integrity of the incorporation process. Through their expertise and experience, notaries help to avoid mistakes and legal problems that could later cause expensive and time-consuming legal disputes. Their notarisation and safekeeping of documents also ensure that important documentation is available and protected at all times.

Working with a qualified notary is therefore an important step when setting up a business and an investment in the legal security and success of the new company. Founders should contact a notary at an early stage to ensure that all legal requirements are met and the path to successful entrepreneurship is paved.

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What is industry knowledge?

11/21/2023 | By: FDS

Industry knowledge refers to specific knowledge about a particular sector or industry. This knowledge includes information, trends, practices and insights that are relevant to working successfully in that industry. Industry knowledge is important in a variety of professional contexts, including:

Professional specialisation: In many professions, specialisation in a particular industry is required or beneficial. This applies, for example, to lawyers who specialise in healthcare or financial advisors who focus on the technology industry.

Corporate leadership: Executives and managers in companies often need to have a deep understanding of the industry in which their company operates. This helps with strategic decisions, growth opportunities and risk management.

Marketing and sales: In marketing and sales, it is critical to understand the specific needs and expectations of customers in an industry in order to effectively market and sell products or services.

Research and development: In technology-orientated industries such as pharmaceuticals or information technology, industry knowledge is essential in order to develop innovative products and solutions.

Consultancy: Consultants, whether in management, finance or technology, need to be able to provide industry-specific advice and recommendations to their clients.

Journalism and PR: Journalists and PR professionals must have industry knowledge in order to write in-depth reports or develop strategic communication plans that are tailored to the needs and trends in a specific industry.

Industry knowledge can include aspects such as market trends, competitive landscape, legal and regulatory requirements, key players, historical developments and future prospects. Understanding these factors helps professionals make informed decisions, develop effective strategies and succeed in their respective industries. It is important to note that industry knowledge often needs to be continuously updated as markets and industries evolve over time.

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