Once you have negotiated a fair and reasonable set of terms, you are in the home stretch of completing your early-stage financing.

On the way to the finish line your final hurdle is to get the transaction closed. Likely, it has been an unexpectedly long haul to line up investors, negotiate terms, work through deal documents and disclosure schedules, and track down capitalization history details. Everyone is exhausted and the company needs the money urgently to make long-postponed investments in growth.

At this point it is tempting to rush through the closing details to move things forward as fast as possible. This would be a mistake--an all too common one. Despite all the work that goes into a deal, the closing is routinely blown by deal leads and counsel. How? By sending the closing package from hell--the biggest unforced error in all early stage fund-raising.

Every investor has experienced it. A giant mess of documents arrives via email late on a Friday night from some unfamiliar legal person. Some documents are PDF, some Excel, others MS Word and each is inscrutably named, with long strings of digits from internal file system numbers. They are dumped into the bottom of a long, unclear email demanding immediate attention and response.

When investors start to wade in, it is unclear what documents they are supposed to sign and which are for information and filing only. Nowhere does it indicate where in the document they are supposed to sign or whether they need to be signed in one, two places or three places. And of course it isn't clear which documents are only for existing investors and which need to be signed by everyone.

The predictable result of this mess? Confused, frustrated and annoyed investors. More importantly, necessary signatures are not returned in time for the closing. This delays the closing, and wastes extra time and money chasing all the missing paperwork. All due to a rookie mistake that is incredibly easy to avoid.

Here's how you keep this from happening to you.

If you are a CEO, coordinate with your investor deal lead to make absolutely sure the lawyers in charge of the closing send each investor a closing email containing the following four essential elements:

(1) A Simple Prominent Instruction Sheet
This one-page instruction sheet should feature an obvious file name like "INSTRUCTIONS", and contain:

  • instructions for returning documents
  • deadlines for documents and payment
  • physical mailing address for checks
  • wire transfer instructions
  • telephone and email address investors can contact with questions

(2) One Separate Omnibus Signature Page Document
This single omnibus signature page document should be a separate document which contains all the required signature pages from all the other documents, and nothing else. Critically, this omnibus signature page must feature a very simple, obvious, and suggestive file name like "REQUIRED SIGNATURES DOCUMENT" or "SIGN HERE."

(3) Full set of Deal Documents
These are for investor's records. The best and easiest way to do it is to assemble them all into one PDF "binder" with a table of contents (most PDF editors make this assembly fairly easy) and just email it to investors. An email with a bundle of individual documents is an acceptable second choice but, please at least have the decency to use short descriptive file names. Nothing says "I don't care" quite like a voting agreement named "NewCo SrsA-1_v5_209424587--009-8229847259-2376523".

If you feel you must send the documents by physical mail, please send an inexpensive USB memory stick instead of a CD--nobody outside of law firms uses CD drives any more. And of course, the worst possible choice is to mail physical hardcopies--crazy as that sounds, it is just more work for everyone since most investors will have to scan and upload them to their computer, cloud store or portfolio management account.

(4) Next Steps Memo
The final essential item is a short clear memo or sketch of what to expect in terms of next steps. This memo can be in the body of the transmittal email rather than in the instruction sheet, but it needs to include clear, explicit statements about what will happen next:

  • when you expect the round to close
  • how you will announce the closing to investors
  • when investors will receive their counter-signed deal documents
  • when investors should expect to get their stock certificates
  • any additional, pertinent near-term details

This is all common sense advice. Nothing in this list is difficult. It is all obviously desirable, yet omitted or forgotten with remarkable frequency. Likely this is attributable as much to inexperience and/or the rush to get over the already-delayed finish line, than to any real intent.

Cleaning up your closing transmittal game will not only save a ton of aggravation for your investors, it will allow you to actually close on time. Plus, as a bonus for you, consider that the more questions you anticipate and answer at this stage, the fewer questions you will get in the immediate aftermath when you'd prefer to be toasting or putting that money to work growing your company.

Stay tuned to this series for upcoming installments.

Published on: Mar 3, 2016