Allens Accelerate releases due diligence checklist to help startups through the capital raise process
Though Shark Tank may give viewers the impression that all it takes to snag investment is a couple of minutes for a convincing pitch and a few questions, the magic of television of course cuts out the endless preparation, hours of grilling by the sharks, and lengthy due diligence process the investors and businesses must go through once the cameras stop rolling, a process the average startup knows all too well.
However Allens Accelerate, the startup-focused arm of global law firm Allens, believes that startups could be better prepared for the process, and has released a due diligence checklist to help them through, covering everything from corporate registration and financing documentation to intellectual property.
Valeska Bloch, cofounder of Allens Accelerate, said the team has put the checklist together after a year of work with both larger businesses acquiring startups and startups either starting to look to attract investment or going through the process of capital raising, and noticing common issues.
“There were some key areas which we’ve found can be challenging on both sides, and really tracking back there are some basic things that startups can do very early on, even before they’re looking to raise, which can make that fundraising process occur much more smoothly when it does happen,” she said.
With the capital raise process all about making your startup look attractive to investors, Bloch said it is crucial for startups to minimise the risks associated with their business.
“The feedback we were getting from investors is that when startups came to them in circumstances where the business hadn’t been set up correctly or hadn’t been set up clearly, they either needed to spend some of the money that they were going to invest on trying to iron things out, or alternatively it just scared them away from investing altogether,” she said.
This also goes for validating claims startups make in their pitches about the value that sits within the business.
“What startups should really be doing is thinking about their startup as a data room containing evidence of the potential value of their business…if an investor gets interested enough they’re going to want to validate those claims, so it’s crucial to make sure that they’ve documented all of the necessary arrangements, starting from who owns what in the company, who controls what, where the IP sits, and demonstrating the stickiness of any customer base by showing the actual agreements you have with the customers and the terms of those,” Bloch explained.
“Those are the key setup things to get right really early on because it gives transparency into the startup and shows that things have been run clearly and professionally.”
The checklist comes a year after Allens Accelerate released a suite of open source legal documents to help startups set up, with Bloch saying the firm has seen around 2,000 downloads of the documents and more than 30 startups come on as clients. The firm is also a foundation partner of Sydney fintech hub Stone & Chalk.
Allens Accelerate is just one of several law firms targeting the startup space. Legal startup LawPath, which also gives customers access to hundreds of standardised legal documents and free legal quotes, earlier this year partnered with global law firm Norton Rose Partners to offer startups and small businesses fixed-price packages through its online platform, while competitor LegalVision is also focused on the space.
You can find the due diligence checklist here.
Image: Allens’ Valeska Bloch and Elyse Adams. Source: Twitter.