Structuring Formal Releases For Informal Co Founder Promises During Priced Rounds
Formal releases resolve unwritten co-founder promises during priced rounds by exchanging valid consideration and IP assignments for comprehensive claims waivers.
investor diligence
Meaning
The investigation conducted before a capital commitment is made examines the financial and legal health of a company. This investor diligence verifies the claims made by the management team and identifies hidden risks. It covers items ranging from customer contracts to the validity of intellectual property filings.
Financial Verification
Audits of books and records confirm the accuracy of reported numbers. The investor diligence process involves checking bank statements and tax returns against the internal ledger. Discrepancies here can lead to a reduction in valuation or a cancellation of the deal.
The goal is to ensure that the cash position and burn rate are exactly as described.
Legal Review
Scrutiny of corporate governance documents ensures that the company is properly formed. During investor diligence, lawyers check that all shares were issued correctly and that all employees have signed invention assignment agreements. Any missing signatures or unclear ownership chains must be fixed before the money is transferred.
This protects the investor from future lawsuits over who owns the technology.
Market Analysis
Competitive positioning is evaluated to determine the long-term viability of the business model. Through investor diligence, the capital provider talks to customers and partners to gauge the reputation of the firm. They look at the size of the total addressable market and the strength of the competition.
This analysis helps the investor decide if the company can achieve the growth rates required for a venture-scale return.