Pitching to investors is a subject that requires certain legal elements to be fulfilled first before approaching to investors. Businesses must ensure that their structure, compliance, intellectual property, and contracts are in order. The purpose of this article is to outline the essential legal elements a business should consider before walking into any investor conversation.
There are five elements to consider before approaching or pitching to investors as follows:
1. Business structure, ownership, and equity:
Know your business: A clear company structure: Make sure your business is incorporated with a proper legal form whether a limited liability company, corporation, or another form. Investors will inspect how ownership is structured, how shares are allocated, and whether there are any unresolved legal issues concerning ownership. Also a cap table clarity which is who owns what and under what conditions, if founders or early-stage employees have promised equity, ensure it is formalized.
2. Regulatory, Disclosure, and Compliance Obligations
Legal/regulatory disclosure: Before pitching know what laws apply if you’re offering equity or raising funds, and it is advisable to have a ready due diligence: Investors will conduct legal and financial due diligence, tax history, contracts, IP ownership, employment obligations, past liabilities. Also consider IP and licensing rights: If your business depends on intellectual property (software, proprietary process, trademarks), ensure your ownership, license agreements, registrations, or assignments are in order since any unclear IP rights can derail investment.
3. Contractual Safeguards and Investor Terms
Investment terms clarity: know terms of valuation, board seats, share class, voting rights, and exit rights. Sometimes founders give up too much control without understanding the implications.
Terms Sheets/Legal agreements: When an investor shows interest, the term sheet should clearly list key elements: amount invested, equity or debt, right(s) of investors, obligations of founders, any protective clauses. Having a well-drafted term sheet helps avoid future disputes.
Exit strategies and investor expectations: discuss where and how investors will realize returns, IPOs, acquisition, buy-backs, or other exit paths. Also, clarify timelines, expected growth, and risks. Investors will want to see realistic projections and scenarios.
4. Presentation, pitch content and legal disclosures in pitching materials
Accuracy and honesty: Any claims should be verified and backed up by documentation. Overstating or misrepresenting can lead to legal liability for misrepresentation.
Data Privacy and Confidentiality: If pitching involves sharing sensitive data or proprietary information, ensure you have non-disclosure agreements (NDAs) where needed. Protecting your information (and any shared by others is key).
Regulation of marketing or securities promotion laws: be mindful of laws regulating solicitation or promotion of securities or investment opportunities.
5. Planning, Risk Management & Legal Counsel
Scenario planning and risk disclosure: Investors will ask about risks, competition, regulatory risk, market changes. Being aware of them and disclosing them shows maturity and credibility.
Contracts with co-founders/employees/vendors well documented: Make sure your internal obligations (founder’s agreements, employment contracts, vendor/supplier contracts) are clear. Any unresolved internal conflicts can be exposed in due diligence.
Engage legal counsel early: Before you pitch, consult with a lawyer familiar with investment, corporate and securities law. Having your legal documents (cap table, shareholder agreement, IP assignments, terms sheets), reviewed or prepared by legal experts reduces risk of mistakes that cost time, money, or ownership later).
Securing investment is as much about legal readiness as it is about vision and numbers. By ensuring the company has a clear business structure, and ownership, accurate disclosures, carefully drafted investor terms, and risk mitigation in place, this not only improves credibility but also protects control and future growth. Founders who prepare thoroughly, legally and commercially are more likely to win investor confidence, negotiate favorable terms, and build sustainable enterprises.
Written by Roaa Abdelrahman
Source:
- 4 Things to Consider When Pitching to Investors – LegalVision
- Top 5 tips for entrepreneurs when pitching to investors – Rapid Formations
- 3 Things You Must Know Before Pitching Investors – NBC News
