Steps to Growth Capital Fast Track

Closing and Due Diligence

Assess the Deal

Take a good look at the deal from these standpoints:

• Your company's future — Is this the best thing for you and the company, now and in the future?
  
• Financial needs and goals — A good deal will be good for the financial health of the company, and it won't limit your ability to raise capital in the future or to embark on other ventures.
  
• Trust and chemistry — This is going to be a long term relationship, so be sure you feel you can build a profitable and constructive partnership that will stay strong, even if the business hits a rough patch.

"This stage can be very taxing, especially the first round of financing, because everything has to be negotiated. Moving from the two-page summary term sheet to the nitty-gritty details of the 100-page shareholders agreement can be tedious and difficult."

Scrutinize Legal and Other Obligations

Be sure to consider:

• Legal issues — Be sure you understand the legal implications of the agreement, such as what representations and warranties the company is prepared to give, the composition of the board of directors, the dividend policy, compensation arrangements, etc.
  
• Government regulations — Have your lawyer check that all applicable regulations, restrictions and registration requirements are considered.
  
• Existing contracts — See what effect the deal will have on existing contracts, such as licences, employment contracts, supplier contracts or bank loans.

"Sometimes there's a gap between what you agreed to on the term sheet and the detailed terms. That needs to be hashed out, and you've got to be rational and patient."

Due Diligence

Before closing the deal, the investor will conduct a due diligence review to verify your information and to obtain more data, if necessary. Every investor will perform the due diligence review differently. Some will have advisors (usually from large accounting firms) to perform the task, whereas others, often angels, will handle it themselves.

A due diligence review will usually include a detailed look at these main elements of your business:

• Financial Review — your company's financial status;
  
• Management Review — your management team's capabilities;
  
• Market Review — your marketing plan and activities; and
  
• Operations and Technical Review — your equipment, plant and processes.

"It takes a long time to build the shareholders agreement. But then one day you sign a few pieces of paper and a cheque arrives."

Build and Maintain Good Relations With Investors

It's important to remember that the closing of a deal is the beginning of a relationship. For that relationship to flourish, you need good communication and trust.

You should aim for a higher level of communication with your investor than what is required by your agreement. Make sure the investor gets all relevant information in a timely manner and is included in decision making.

Use our Closing and Due Diligence Checklist to help you think ahead to the closing of your deal.

* All quotations used with permission of Chris Griffiths, Griffiths Guitars International, St. John's, Newfoundland, Canada.

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