The Importance of having well organized documents and properly prepared financial statements in advance of seeking capital

Whenever a company seeks capital and a firm offers a term sheet, it will undergo a process of due diligence which comprises of two major parts: the legal/operational documents and the accounting books. I have observed that the process is identical — whether the company is a startup or is preparing itself for an IPO. Of course, the older the company, the more documentation will be delivered to the legal and accounting firms. But it behooves any company to make sure that it has every document ready for inspection. The better organized company gets its financing faster than those who run a sloppy operation.

What sort of documents are normally requested? The company will need to produce corporate books, leases, contracts, Public Relations announcements, advertising, and any other sort of relevant paperwork which reveal the true existence and management of the company. From the accounting side, the company should deliver audited statements as close to the date of the request and going back several years.

Why is the systematic delivery of the documents so important? If, for example, a company has an office, it should have a lease. The lease would then have the principal terms and conditions which reveal the yearly costs. The lease is compared to the accounting entries in the balance sheet. If they conform, then this company is performing well and handling its costs in a perfunctory manner.

Not having a lease raises a red flag. The landlord might be able to evict that tenant, which has no legal recourse on paper. Or, if the lease is lost, the failure to produce the lease might suggest that the company cannot manage and organize important paperwork.
One private equity manager stated that the investment process would occur much faster if the company prepared its files well in advance for delivery during the due diligence process. Since any delay might add an additional wrinkle to the final closing, a company should focus on organizing its important corporate files from the singular perspective of the potential investor.

Recently, I encountered a CEO who indicated that he wanted to raise capital. He had no lease, no local incorporated documents. He was definitely not ready for prime time and approach an investor. So I always recommend that companies seeking capital at whatever stage make sure that the paperwork is organized and ready, and that its accounting be up to date. The due diligence will go much faster and the investors will be able to write that check sooner.


About Juan Ramón Zarco, SVVGP 胡安•雷蒙•扎尔科

Juan Ramon Zarco, 胡安•雷蒙•扎尔科, Silicon Valley Ventures Growth Partners llp, Hygieia Healthcare Technologies Company, AllRest Technologies LLC, Crimson Growth Partners LLP,, is an experienced as CxO, General Counsel and Secretary to public and private companies with global operations. Established track record of producing practical, revenue-focused solutions. As Counselor and Secretary, demonstrating vision, integrity, and sound business judgment, to CxOs. Managed complex, strategic transactions, M&A, contracts support, PE Financing, IPO, SEC compliance, Corporate/HR governance, IP licensing, Budgeting, Staff, outside counsel management, International market access strategies, Domestic & foreign government relations and advocacy. Creative in designing and implementing market access strategies. Practices law beyond conventional model with low-overhead and project-based fees. Effective at managing departments, formulating marketing strategies, balancing budgets, and implementing cost-saving measures. Extensive in-house and private practice experience, advising clients on commercial, corporate, international business, and technology law and policy.; For Sprint, he managed iDen international development in Southeast Asia, Middle East, and Africa, and contractual issues with Verizon. In Private Equity, he worked with Pegasus in vetting international investment deals and interim President for portfolio companies, such as Data Foundation, a data storage company, handling marketing, strategy, fund raising, and accounting. Before Pegasus, Mr. Zarco, as CLO and V.P. of Corporate Development, played a principal role in the structuring, international expansions for 2 telecom companies, U.S. Cable Group and Viatel, Inc. in financing and M&A deals exceeding $200 million. Mr. Zarco earned a J.D. from NYU Law School, M.B.A. from Cornell, and B.A. from Williams College; is fluent in Spanish, Portuguese, French, and German, with working knowledge of Russian, Arabic and Japanese.
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