Raising venture capital is an exciting milestone for any startup, but it's also a complex legal process that requires careful planning and strategic decision-making. For New York-based founders, understanding the legal landscape surrounding VC deals can mean the difference between a healthy growth trajectory and long-term complications.

Below are the key legal considerations every founder should keep in mind before, during, and after a venture capital raise.

1. Understanding the Term Sheet

The term sheet is a non-binding document that outlines the key terms of the investment. While it's often viewed as preliminary, its terms typically guide the final agreements. Founders should pay close attention to:

●      Valuation and Dilution: Know your pre-money and post-money valuation, and how much ownership you're giving up.

●      Liquidation Preferences: These dictate who gets paid first if the company is sold or liquidated.

●      Anti-dilution Provisions: These protect investors from value erosion in future down rounds, sometimes at the founder's expense.

2. Founder Control and Governance Rights

Investors usually negotiate for some level of control, such as board seats or veto rights on major business decisions. Be mindful of:

●      Board Composition: How many seats go to founders vs. investors?

●      Protective Provisions: Do investors need to approve certain decisions?

●      Voting Rights: Preferred shares often come with enhanced voting power.

Maintaining your ability to lead your company is essential—choose investors whose vision aligns with yours.

3. Due Diligence and Company Cleanup

Before closing a VC deal, investors will conduct legal and financial due diligence. Be prepared to provide:

●      Corporate formation documents

●      Cap table and equity agreements

●      Intellectual property assignments

●      Employment and contractor agreements

4. Securities Law Compliance

Venture capital transactions are subject to federal and state securities laws. Failure to comply can result in legal liability and fines. Your legal team should ensure that:

●      The offering qualifies for an exemption from SEC registration

●      Appropriate filings are made

●      State-level requirements are met

5. Planning for the Future

A solid legal foundation today sets the stage for growth tomorrow. Think ahead about:

●      Future Rounds: Will this round's terms hinder or help your ability to raise again?

●      Exit Strategies: Are there drag-along rights, redemption provisions, or other clauses that affect a future sale or IPO?

●      Employee Equity: Do you have an option pool that balances retention with investor expectations?

Partnering with the Right Legal Team

A good venture capital lawyer does more than paper the deal, they help founders think strategically, negotiate with confidence, and avoid costly missteps. At Ingram Law Firm, we help New York startups secure funding while protecting their long-term interests.

If you're preparing for a fundraising round, we're here to guide you every step of the way.

Contact us today to schedule a consultation.

This information is not meant to provide legal advice nor does it form an attorney client relationship. If you would like more information, please schedule a discovery call with a member of our team who is standing by to help take this exciting first step.