You have the business idea and you’ve set up your business structure. What’s next?
One thing you’ll want to consider is what kind of shares you want to issue and how the ownership of your company will work.
Shares can be split into 2 categories:
- Common Shares: These are usually issued to founders in the form of founder stock in exchange for sweat equity ie. your effort in building the business. Common shares would also be issued to family and friends for example if they believe in you and your venture and want to support it.
- Preferred Shares: These differ from common shares in that they are often non voting. They have priority attached to them when it comes to paying out dividends or payout on any kind of liquidation. Usually, people interested in preferred shares are looking to make a large profit on your business idea.
Investment: Get Investor Ready, what are the best investment options for your company?
Get Investor Ready!
You’ve set up your company structure, your team is ready, you may now want to start looking for investment.
Before you look for investors, you need to ensure you have the following:
- Corporate Structure ie. Incorporated (see 1))
- Founder agreements in place and share distribution
- Contracts in place for anyone you want to work with from employees to advisors and consultants
- Product/Services contracts and sales/SAS agreements
- Protection for your intellectual property. Whether this is just your name, your branding or software code, this is important and must be documented. Investors will want to know that when they invest in you, they are also investing in your intellectual property.
- Cap table. A snapshot of who owns what within the company. This is the document you will use to manage the ownership of your company. Investors are interested to know who else is involved whether it be your friends or family, employees or other investors.
- Term sheet. Once you have completed all these requirements, you can produce a term sheet. This will set out the basic terms of the investment and will be the first point of negotiation with potential investors.