ForewordThe whole process of equity financing is basically divided into three stages: financing preparation and initial contact with investors, preliminary due diligence and signing of investment letter of intent, detailed due diligence and signing of formal agreement. At different stages, professional lawyers will provide guidance and legal assistance according to the specific situation.
1. Financing preparation and initial contact with investors
In the first stage, professional lawyers mainly assist enterprises in preparing for financing and contacting investment institutions in their professional fields. The preparation for financing includes the following three points:(1) Professional lawyers assist in the internal self-examination of the enterprise, screen the possible problems of the enterprise in business, finance and law in advance, and sort out the business model of the enterprise in the process, understand the strategic objectives, market positioning, marketing model, product and technical advantages of the enterprise, financial status, team advantages, etc., comprehensively and objectively analyze and display the overall situation and growth potential of the enterprise, and use it as the optimized content of the business plan of the enterprise; (2) Professional lawyers help enterprises improve or adjust their business models, make the company's business models more operable and value-realizable, and investigate and understand the investment preferences of investment institutions in the benchmarking field of the enterprise, describe the operability and value realization space of the company's business model, and conform to the investment preferences of the investment institutions in the benchmarking field of the enterprise as much as possible; (3) Professional lawyers assist enterprises in exploring the value space of the founding team and the business prospects of the enterprise, verify the rationality of the valuation with theoretical and hypothetical data, and put forward the company's profitability, capital demand and use plan based on the data of the future operation plan, as well as the proportion of equity diluted by the financing amount, and make suggestions on the transaction structure of the enterprise including pre-investment valuation, financing amount, equity structure and other elements. After the completion of the financing preparations, contact the investment institutions, and the professional lawyers contact the investment institutions in the field of enterprise benchmarking, including the following four points:(1) A specific contact person in the field of the target to be sought, who is an insider, has rich resources of investment institutions in the field of benchmarking, and can recommend the business plan of the project to each investment institution through the endorsement of its trust. (2) Understand the feedback and questions raised by the investment institution on the business plan through insiders, and communicate with the founding team of the enterprise on how to solve the feedback. (3) After the emergence of an interested investment institution, a professional lawyer may advise the enterprise to choose an investment institution that has obvious complementary advantages to the enterprise based on the needs of the enterprise and the background and advantages of different investment institutions. (4) Conduct a survey of the basic information and investment strength of the selected intended investment institutions to judge the financial strength and financing purpose of the other party, and finally determine the more suitable intended investment institutions. 2. Preliminary due diligence and signing of the letter of intent for investment
In the second stage, professional lawyers mainly assist enterprises to cooperate with the preliminary due diligence of the intended investment institution and sign the letter of intent. Assisting enterprises to cooperate with the initial due diligence of prospective investment institutions includes the following three points:(1) Help enterprises correctly understand the content of the due diligence list, prepare corresponding materials according to the contents of the list, and require the prospective investment institution to sign a confidentiality agreement for due diligence for the protection of the enterprise's trade secrets. (2) Assist enterprises to cooperate with the on-site verification work of the intended investment institutions. After receiving the due diligence materials of the enterprise, the prospective investment institution will arrange for a lawyer to conduct a comprehensive verification of the materials and information on the spot, and the professional lawyer, as a professional, will better understand the intention of the other party to verify it, so as to better cooperate with the other party's work and improve the efficiency of the verification. (3) Prompt transaction obstacles and propose solutions. After the initial due diligence is completed, the prospective investor may conclude that the enterprise has certain transaction risks, and the professional lawyer needs to remind the enterprise of its current problems, propose corresponding solutions, and promise to the prospective investors that they will make corresponding improvements to the solution, so as to alleviate the other party's concerns about the investment expectations and gain the trust of the other party. According to the results of the verification and the feedback of the enterprise, the satisfactory investment institution will send a letter of intent to the enterprise, which means that the financing is likely to be successful, and the professional lawyer assists the enterprise to sign the letter of intent including the following three points:(1) Help enterprises correctly understand the letter of intent for investment. Although the letter of intent is not a formal transaction agreement, the basic principles and core terms of the subsequent formal transaction agreement are almost always based on the content of the letter of intent. Therefore. A professional lawyer will explain the letter of intent to the enterprise and explain the impact of the professional clauses on the company's own rights and obligations. (2) Remind enterprises to attach importance to guarantees and commitments. The intending investment institution will require the enterprise to make a guarantee or commitment in the letter of intent, the main content of which is to ensure the authenticity of the current situation of the enterprise, such as equity structure, license qualifications, major creditor's rights and debts, labor and employment, litigation arbitration and punishment, etc., and pay special attention to the deadline of the guarantee, which may become the basis for the prospective investor to pursue the enterprise's breach of contract in the future formal agreement. (3) Assist enterprises in negotiating and negotiating with prospective investment institutions on the letter of intent, and revise the content of the letter of intent. After the professional lawyer has explained the above important terms to the enterprise, the enterprise may propose a modification request according to its own needs, at which time the professional lawyer will record the enterprise's requirements and negotiate with the intending investment institution on the requirements. If the prospective investment institution agrees to the company's request, the professional lawyer will turn the company's request into a clearly defined legal clause and reflect it in the letter of intent. 3. Detailed due diligence and signing of formal transaction documents
In the third stage, professional lawyers mainly assist enterprises to cooperate with the detailed due diligence of the intended investment institutions and sign formal equity financing and supporting agreements. After signing the Letter of Intent, the prospective investment institution will conduct a comprehensive and detailed investigation of the enterprise from three aspects: business, legal affairs and finance. After the detailed due diligence is completed, the satisfied prospective investment institution will want to sign a formal equity financing and supporting agreement with the enterprise to become a formal investment institution. Professional lawyers assist enterprises to sign formal transaction documents, including the following:(1) Assist enterprises in signing formal equity financing and supporting agreements, since the process of signing formal agreements is similar to signing investment letters of intent, please refer to "II. Assisting enterprises in signing investment letters of intent at the stage of preliminary due diligence and signing of investment letters of intent". (2) Assist enterprises to complete internal approvals. Formal equity financing and supporting agreements involving the material rights and interests of the enterprise need to be approved by the shareholders' meeting, the board of directors and other internal institutions of the enterprise. Professional lawyers will communicate with shareholders, directors and other important personnel of the enterprise to assist them in completing the relevant processes in accordance with laws and regulations to ensure the legitimacy of the transaction. (3) Drafting delivery documents and assisting in delivery procedures. Closing means that the handover related to the transaction is completed, and in equity financing, it means that the investment institution becomes a shareholder of the enterprise after remitting the investment funds, and the enterprise handles the industrial and commercial change registration for it. A professional lawyer will draft a document or clause for the closing process, specifying the deadline for closing, the conditions precedent for closing, etc. In the specific closing process, professional lawyers will urge the investment institution to pay the investment money in accordance with the agreement, assist the enterprise in handling the industrial and commercial change registration after the investment institution remits the remittance, and guide the enterprise to fulfill the ancillary obligations after the closing. ConclusionIn summary, professional lawyers play an important role in the three stages of equity financing, helping enterprises to unleash their business potential in the first stage, connecting them with suitable investment institutions, and playing a matchmaking role; In the second stage, we help the enterprise to accept the initial due diligence of the investment institution, prompt the enterprise to sign a confidentiality agreement with the investment institution on the due diligence to protect the trade secrets of the enterprise, and help the enterprise review the investment letter of intent of the investment institution and negotiate with the investment institution after the initial due diligence to protect the rights and interests of the enterprise; In the third stage, we help enterprises to undergo detailed due diligence and assist enterprises to sign formal transaction documents and complete closing procedures. Therefore, hiring a professional lawyer is a wise choice for enterprises, which can not only reduce the burden of their own work, but also avoid risks to the greatest extent.