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What legal services do entrepreneurs need most?
So you’re an up-and-coming entrepreneur, you have ideas flowing out of your brain that are ready to burst into action. But where do you get started? You recognize that there are legal and financial requirements needed to get your ideas out of your head and into the world. That said, you’re an entrepreneur, not an attorney. Nobody expects you to be a legal expert, but you will need one on your side to get yourself started.
FAQs
Open allDo all investors get rights under the IRA?
Not usually. Most rights are limited to “major investors” who meet certain thresholds, preventing administrative complexity from smaller shareholders.
Can the SPA include multiple closings?
Yes. Some SPAs allow staged investments or additional closings if investors commit to fund in tranches.
What happens if reps and warranties in the SPA are inaccurate?
If misstatements are discovered, investors may have indemnification claims, meaning the company (or founders in some cases) could be liable.
Do all investors sign the SPA?
Yes, all participating investors sign the SPA, along with the company. It governs the purchase of shares in that financing round.
How is an SPA different from a term sheet?
The term sheet is a non-binding summary of key deal points. The SPA is the binding agreement that formalizes the transaction and contains detailed legal terms.
What is a typical range for valuation caps?
Seed-stage caps often fall between $3M and $10M, but terms vary widely depending on market conditions, industry, and company traction.
How do valuation caps affect dilution?
Low caps can create significant dilution when notes or SAFEs convert, especially if the company grows rapidly before a priced round.
Are valuation caps always included in SAFEs and notes?
Not always, but they are common. Some early-stage investors accept uncapped SAFEs if they have strong conviction in the company.
What is the difference between a valuation cap and a discount?
A cap sets the maximum valuation for conversion, while a discount lowers the share price relative to the next round’s investors. Many instruments include both, and investors convert using whichever is more favorable.
How long do companies or investors have to exercise a ROFR?
Typically 30–60 days, though shorter timelines may be negotiated to avoid deal delays.
What is the difference between ROFR and ROFO?
A ROFR (Right of First Refusal) allows the company or investors to match a third-party offer. A ROFO (Right of First Offer) requires the shareholder to offer their shares internally before seeking outside buyers.
Can drag-along rights be negotiated?
Yes. Founders often negotiate for higher approval thresholds, equal treatment provisions, and liability caps to ensure fairness.
What is a typical threshold to trigger drag-along rights?
Most agreements require majority or supermajority consent (often 60 - 70%) from preferred shareholders, though this can vary by deal.