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What legal steps are required to set up a VC?

What legal steps are required to set up a VC? by @R44D

Answer by Raad Ahmed:

You are correct in pointing out that legal steps must be taken to set up a VC investment. By the way, I am assuming that you are a startup seeking VC funds rather than a VC seeking investments. The very first step would be to speak with an attorney — it is important that you do this at the outset to develop a strategy going forward.

After that there are a number of things that need to happen, I’ll try to outline the process briefly.

Incorporation — Investors typically prefer to invest in businesses that are formed as a corporation rather than a partnership. The structure of a corporation makes it much easier to sell equity to an investor and that will give them a stake in the corporation. The legal process of incorporation will involve filing paperwork and paying any filing fees in your chosen state of incorporation. States have varying requirements here so you will just need to make sure that you comply with your chosen state’s requirements.

Structuring — As I mentioned, the corporate form is the preferred form. But there is some legal work that needs to be done to ensure that the structure is ready to take on investment. When receiving an investment you are also giving up equity in your company so you will want to make sure that the founder’s equity is protected from dilution that could come with the investment.

The deal — There will obviously be a lot of legal work to be done once the deal is in place. But there will also be legal work that needs to be done before you are ready to even begin negotiation. Basically you will want to have the framework for an acceptable deal in place meaning you will need to go over legal strategies and consequences of any actions.

I hope this helps but it was only a brief rundown and there are also many things that need to happen in between those three steps. If you have more questions, or if you are looking for an attorney to help you through the VC process, I invite you to visit LawTrades for a free consultation. The attorneys on our site have experience setting up funds and can help lead you in the right path.

What legal steps are required to set up a VC?

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